Posted by: Jeff | November 24, 2009

Power to the Exchanges (And Thus to the People)

One aspect of health care reform that hasn’t been talked about all the much is the creation of the health insurance exchanges. That’s largely because they’ve been overshadowed by the brouhaha over the public option.

Here’s a good summation of how the exchanges would work from Jonathan Cohn at The New Republic.

These exchanges would be government-run marketplaces through which individuals and businesses could purchase regulated insurance: Coverage would have to meet minimum benefit standards, and be available to all people at the same price regardless of medical condition. (The offerings could include a public insurance option–that is, an insurance plan, like Medicare, run directly by the government–although that part remains very controversial.)

Several commentators, including Ezra Klein, have argued that the fate of the exchanges is actually more important than the fate of the public option, and I’m inclined to agree. The exchanges have the potential to create far more extensive competition (and thus control costs) than the public option necessarily does. And, more practically, the exchanges are more important because the public option will only be available through the exchanges.

Which brings us to the big question. How many Americans will have access to the exchanges? As Cohn points out, the answer right now is: Not very many. To be more specific, only Americans without coverage through an employer, as well as some small business, can access the exchanges under the current legislation. (At least at the beginning.) If you’re an individual with a benefits plan from your job, you can’t shop on the exchanges for yourself, and if you’re an employer with a company of modest-to-large size, you can’t shop on the exchanges for plans for your employees. The unfortunate upshot of all this is that a large majority of Americans will not be able to access the exchanges.

Senator Ron Wyden, Democrat of Oregon, has been fighting a lonely battle to change that.

Wyden is one of the two authors of the Healthy Americans Act, which Joe and I discussed in a previous podcast. The HAA is an alternative health care reform bill which would provide universal coverage by ending employer-based health coverage, turning the country into a serious of individual markets, and providing a lot of the same regulations and subsidies as the current reform bills. The thing is that a lot of forces and interests and groups of voters really don’t want employer-based health coverage to end, even though the employer-based system is arguably the source of most of our problems. The cruel paradox of health care reform is that, while everyone recognizes the status quo is untenable, everyone is also terrified of altering the status quo. Hence Obama’s famous promise that if you like the insurance you have now, you can keep it. Adhering to that promise basically means preserving the employer-based system, and not doing anything to significantly destabilize it. So Wyden’s HAA was dead on arrival.

Instead, Wyden has been trying to work a hybrid version of his reform effort into the current health care bill in the Senate. He’s called it the Free Choice Act, and what it would do is, rather than limiting the health insurance exchanges to a small number of Americans in particular circumstances, it would open them up to anyone and everyone.

The problem here is that people are not stupid. Not lobbyists, activists, interests groups, or politicians for that matter. They know a Trojan horse when they see one. Reform’s opponents were not fooled when single-payer advocates switched to a public option who’s structural dynamics supporters hoped might one day lead to single-payer. Similarly, no one who wants to preserve the employer-based health insurance system was fooled when advocates of dismantling that system switched from supporting the HAA to supporting exchanges that might one day expand sufficiently to unravel the employer-based system.

Which brings us up to the present, and what small victories Wyden has been reduced to etching out.

Under the Senate legislation as it is currently written, Americans with employer-provided coverage, whose income is below 400 percent of the federal poverty level and whose premiums are between 8 and 9.8 percent of their total income will be exempt from having to purchase health coverage but will not be able to access the exchange to qualify for government assistance to purchase insurance.  The agreed to amendment will make it possible for these individuals to convert their tax-free employer health subsidies into vouchers that they can use to choose a health insurance plan in the new health insurance exchanges.  The Congressional Budget Office estimates a previous version of this provision will expand coverage to more than a million Americans.

It’s not what Wyden originally envisioned. But it’s not nothing, either. What we’re trying to do right now with health insurance reform is not throw everything including the kitchen sink at the problem, but gain the beachheads and the footholds necessary to eventually throw everything including the kitchen sink at the problem.

What matters right now is getting the structures in place which will make further reform possible. Just get a public option passed, even if it’s an opt-out version that can’t make use of Medicare rates. And just get the exchanges passed, even if they’re only initially available to individuals shopping on the market and to some small businesses.

Because these structures and institutions can be altered and reformed over time. I’m persuaded that the controversy over the public option is essentially a stalking horse for abstract anxieties about the size and role of government. In two or three years, after health care reform has been passed and the fight over it is a comfortable memory, no one will care about the public option. That’s when the opt-out feature can be removed, and the public option granted the ability to negotiate with Medicare’s rates. And that’s when the exchanges can be expanded to cover all Americans. (Indeed, last I checked, the Senate bill already includes features which would, over a number of years, open up the exchanges to ever larger businesses until they’re open to all employers.)

As the wise man said, let’s keep stumbling in the right direction.


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