Do we really need exchanges?

Suppose the exchanges of one or more states fail to thrive, as I think is possible, if not likely.* What alternatives might we consider? James Capretta has offered one, the aspects of which I will consider in this post and at least one other.**

First, you should know that, though I’ll be focusing on the exchange-alternative provisions, Capretta has a full ACA replacement plan, about which you can read in more detail here, here, and here. I’ve already touched on some of its elements in a prior post. Second, though Capretta’s ideas may represent the latest in right-of-center health policy reform — to my eye they appear identical to those suggested by Ramesh Ponnuru and Yuval Levin in the Wall Street Journal — I do not yet believe that Republicans are, in general, anti-exchange. (See also Adrianna’s reaction to the Ponnuru/Levin column.)

With respect to exchanges, Capretta’s concern is that they require and invite too much government intervention in the market. He worries that the government will, in time, impose price-distorting, Medicare-like payment regulations in the name of cost control. There’s a lot one could debate on this point alone, but, for the purpose of this post, I will accept his premise that this is both likely and undesirable. What’s Capretta’s alternative?

It has several, interlocking components. First, instead of the ACA’s competitive bidding market design, in which subsidies are tied to the premium of the second lowest plan of some actuarial value (70% or “silver” for the ACA), Capretta advocates a flat tax credit for individual-market and small-group participants. To the extent one wants to get away from exchanges, the virtue here is that there is no bidding and subsidy determination to manage. There is no need to asses which plans qualify as “silver,” and so forth. I see some offsetting limitations, but I’ll defer those to another post.

Next, there are still some things states would or could do under Capretta’s plan. They would have to manage high-risk pools, to which insurers could refer consumers in order to protect other, less sick consumers from the high cost of covering them in the community-rated design he imagines.

States would then need to work with insurers to establish a system to identify the truly high-risk cases among the state’s insured population. To prevent abuse, states would need to create disincentives for excessive referrals for high-risk funding, perhaps by penalizing insurers for seeking subsidization for people who are found unqualified.

States also could (or should? or must?) help their residents manage receipt of the tax credit for which they may qualify.

The second important role for the states would be reducing the burden that citizens eligible for the tax credit will face when they want to find and sign up for coverage. Specifically, states would need to establish a process by which individuals could make their selection of health insurance, and the state would forward those selections to the federal government so that the credits could be paid directly to the insurance plans chosen.

Under Obamacare, this process is assigned to a bureaucracy—the state exchanges. But there is no reason a state could not handle this process without ever building a new bureaucracy. For instance, private vendors already facilitate the choice of health insurance in the private market. States could leverage that capacity to build platforms tailored to tax-credit individuals.

Is this a distinction with or without a big difference? I can’t tell. It’s not clear to me if states would be obligated to facilitate this process in some way or if Capretta is merely suggesting that they might do so. What is clear is that he advocates more flexibility in how they do so than perhaps the ACA currently allows. But this is beginning to sound like tweaks to the current exchange regulations than wholesale replacement of them. One could reasonably debate this point.

There’s more:

[S]tates could approach the task of aiding consumer choice by focusing strictly on the transparency and accessibility of the information available to consumers. The states could work with all licensed insurers and brokers to require the standardization of comparison information and then require insurers as well as employers not offering insurance to participate in the broad distribution of that information to the tax-credit-eligible public.

This really sounds very exchange-like (“transparancy,” “accessibility,” “standardization of comparison information”), though still different from the ACA’s. Moreover, Capretta is clear here that states “could” but not “should” or “must” play this role. Fair enough.

All in all, this is a different direction than the ACA in terms of states’ roles in managing the insurance market. Is it one that would be an improvement over conditions that might exist in a few (or many?) states in a few years? That, of course, is unclear. As I said, I will return to this subject.

* I mostly mean too few insurers participate long-term and/or premiums rise rapidly over time. The fact that the federal government is running many state exchanges is not relevant here.

** Not sure when, but likely soonish. I’m still gathering information.


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