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Insurance exchanges are not a new concept. Under President Bill Clinton's ill-fated health-care plan, they were called "alliances"; in a current alternative bipartisan reform bill offered by Senators Ron Wyden and Bob Bennett, exchanges are called "health help agencies." And when members of Congress talk about offering Americans health insurance that is as good as what they themselves have, they are referring to the largest exchange in operation, the Federal Employee Health Benefits Program (FEHBP). On the program's website, federal workers can enter in their location and see what private insurance plans are available and how much they would have to pay out of pocket. (See for yourself here.) In a complex private insurance system with varying co-pays, co-insurance, deductibles, annual out-of-pocket expenses and volumes of small print, this is no small feat. The FEHBP covers some 8 million federal workers; other small exchanges exist in some states for public workers, and there is one for all of Massachusetts, where the marketplace is called the Connector.
Perhaps the most misunderstood aspect of the exchange proposals is the "essential health benefit package." Health-reform critics have been using this legislative provision to scare people into thinking that the government will decide what services are covered under private insurance. But what the government would actually be doing is setting a standard for a minimum benefit package that all health-insurance plans would have to meet. The purpose of this is not to ration health care but rather to ensure that Americans don't buy plans with hidden loopholes and gaps. The House plan says this minimum benefit must cover at least 70% of the cost of hospitalization, doctor's visits, prescription drugs, maternity care and prevention, among other services. The House plan also limits annual enrollee cost-sharing to $5,000 for individuals and $10,000 for families. A Senate plan says minimum benefit coverage must include similar basic services and sets affordability at no more than 12.5% of annual income.
The minimum benefit package, in addition to setting standards for coverage, is also intended to bend that all-important curve of overall health-care costs. Federal subsidies given to individuals to buy insurance, which could be applied to plans only if they are purchased in the exchange, would not equal more than the cost of a minimum benefit package. If individuals want to purchase plans that are more expensive, they would be free to do so but would have to pay more out of pocket. Employers whose workers buy coverage through the exchange, under the House plan, would contribute at least 72.5% of the cost of an individual minimum benefit package premium and 65% for a family plan. Under this scenario, employees would have the freedom to choose their own plan, as opposed to being herded into a group plan selected by their employer. All of this is to encourage the purchase of fairly austere health insurance, which experts predict will help slow the increase in overall health-care spending.
"If you want something that costs more, you pay the difference and you have some skin in the game," says Enthoven. In Massachusetts, which passed universal-health-insurance provisions in 2006, some 40% of residents who purchased policies through the state's exchange opted for the cheapest plans, called bronze policies, according to Trudy Lieberman, a health-policy journalist who recently reviewed that state's experience for Columbia Journalism Review.
The clearest improvement that insurance exchanges would offer is choice. Made up of potentially millions of enrollees, exchanges would be too large for insurers to ignore; in that case they would have to start doing something that's fairly unnatural for them in the current system compete against one another in a transparent way that consumers could understand.