Private Exchanges, ACA and PCA

Sarah Kliff had an interesting post Monday looking at the potential impact of private health insurance exchanges on the implementation of the Affordable Care Act (ACA).

But, for the sake of argument, imagine that the private exchanges do take off. Employers, perhaps, are nervous that the public exchanges will have all kind of kinks when they launch; they’ll be too overwhelming for their employees. So they give their employees a comparable amount of money to spend on a private exchange. That both relieves the employer of the costs associated with running a health plan but doesn’t leave the employee high and dry.

If that scenario plays out, it could actually be a good thing for the cost of health reform. One big concern for as the Affordable Care Act moves forward “employer dumping:” large companies shifting their employees into the health exchanges, paying a $2,000 fine rather than much more on a health insurance policy. AT&T raised alarm bells on this last year, when its executives mentioned the possibility of doing this.

If these private exchanges take off, you’d theoretically see a lot less of that: It would get the government off the hook for paying a good number of the health reform.

This points out a big difference between the ACA and the Patients’ Choice Act (PCA) championed by Rep. Paul Ryan. In the PCA, tax credits to defray the cost of purchasing insurance could be spent inside of state-based exchanges to be set up, or outside, leading to worries about adverse selection and death spiral in the PCA exchanges if only bad risks bought coverage in the exchanges, while healthy persons sought care outside [see sec 25E (f)(1) and (2) p. 33 and sec 7527A (a) and (b) p. 39 of PCA*].

In the ACA, subsidies can only be spent inside exchanges, meaning coverage should be cheaper to consumers leading them to purchase exchange-sold policies. However, Kliff is surmising that some employers may opt to provide an alternative route to insurance coverage for their employees (private exchanges). In doing so, employers would not dump coverage and shift consumers to ACA exchanges, but would shift responsibility to employees purchasing coverage via private exchanges in a way that would not undermine the ACA exchanges, or increase the cost of the ACA.

In the PCA, the fact that the subsidies (tax credits) can be spent inside or outside of exchanges would seem to undermine the viability of exchanges right off the bat, while the scenario that Kliff paints has the ACA exchanges acting as catalysts for the broader insurance market in a positive manner.

This is obviously speculation on her part, but this type of thinking is useful in comparing the ACA with the PCA. That tax credits in the PCA can be spent inside or outside exchanges is a key difference between the plans that I think is a worrying aspect of the Patients’ Choice Act.

*I believe these sections of title III of the PCA are the specific provisions that allow tax credits to be spent inside exchanges or outside, though the language is very technical. If you have info/insight to add, let me know.

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