A central component of the Affordable Care Act is the establishment of state-based health insurance exchanges. Now under development in many states, the exchanges are scheduled to be operational by January 1, 2014, and will be available to individuals and small businesses. The exchanges will act as regulated marketplaces, in which consumers can search for and compare standardized health plans. Individuals with incomes below certain thresholds will be eligible for tax credits to subsidize purchasing insurance through the exchanges. It is hoped that the exchanges—in combination with other market reforms, such as prohibiting exclusion from plans based on preexisting conditions (known as guaranteed issue) and a ban on the practice of charging higher premiums based on age, gender, health status, and other characteristics (known as community rating)—will help correct current issues plaguing individual and small business insurance markets, such as the difficulty of attracting both healthy and unhealthy participants.
Insurance exchanges are not new. In the U.S., Massachusetts and Utah each operate an exchange, as does the Federal Employees Health Benefits Program. Internationally, the Netherlands and Switzerland achieve near-universal coverage for their populations through insurance exchanges. Their systems share a number of elements with the Affordable Care Act, such as an individual mandate, national standards for basic coverage, and guaranteed issue and community rating.
As the U.S. exchanges are established and begin operation, the experiences of the Netherlands and Switzerland could offer lessons on how best to use exchanges to improve insurance markets and health system performance.
Further Reading
- T. S. Jost, Employers and the Exchanges Under the Small Business Health Options Program: Examining the Potential and the Pitfalls, Health Affairs, Feb. 2012 31(2):267–74.
- T. S. Jost, Health Insurance Exchanges and the Affordable Care Act: Eight Difficult Issues, The Commonwealth Fund, September 2010.
- R. E. Leu, F. F. H. Rutten, W. Brouwer et al., The Swiss and Dutch Health Insurance Systems: Universal Coverage and Regulated Competitive Insurance Markets, The Commonwealth Fund, January 2009.
- C. Schoen, D. Helms, and A. Folsom, Harnessing Health Care Markets for the Public Interest: Insights for U.S. Health Reform from the German and Dutch Multipayer Systems, The Commonwealth Fund and AcademyHealth, December 2009.
A National Insurance Exchange in the Netherlands
In 2006, the Netherlands implemented a series of reforms designed to introduce competition, transparency, and consumer choice into its health care system. Central to these reforms was the transition to a system in which all individuals were required to buy a standard insurance package from private non-profit or for-profit insurers through a national insurance exchange. The system is primarily financed through income-based employer contributions—which are centrally collected and distributed to insurers through a sophisticated risk-adjustment formula—and individual premiums paid directly to the insurer, which are community-rated but can vary according to the chosen size of the deductible. Roughly 40 percent of low- and middle-income households receive a premium subsidy to ensure affordability. The standard insurance package is comprehensive though almost all residents buy supplemental insurance for additional services, such as dental care for those 18 years and older.
The reforms have led to some positive developments. Greater competition, combined with risk adjustment, have reduced premium differentials among insurers, as well as their operating costs. In addition, quality measurement and reporting now play an increasing role in contracts between insurers and providers, particularly hospitals. However, the insurance reforms are still a work in progress, and several issues have received attention—most notably, the necessity for good quality indicators, as well as better purchasing and payment methods. Furthermore, health care costs have continued to rise faster than inflation. The private insurance market has become heavily consolidated, with four insurers controlling 90 percent of the market, potentially raising concerns about the degree of competition. Finally, approximately 3 percent of the Dutch population is either uninsured or has defaulted on their premium payments, raising questions about how to better enforce the individual mandate.
Further Reading
- R. E. Leu, F. F. H. Rutten, W. Brouwer et al., The Swiss and Dutch Health Insurance Systems: Universal Coverage and Regulated Competitive Insurance Markets, The Commonwealth Fund, January 2009.
- J. Cohn, Lessons from Abroad: The Dutch Health Care System, Parts 1 & 2, The Commonwealth Fund Blog, October 2011.
- R. Grol, Quality Development in Health Care in the Netherlands, The Commonwealth Fund, March 2006
- K. G. H. Okma, T. R. Marmor, and J. Oberlander, Managed Competition for Medicare? Sobering Lessons from the Netherlands, New England Journal of Medicine, July 2011 28;365(4):287–9.
- C. Schoen, D. Helms, and A. Folsom, Harnessing Health Care Markets for the Public Interest: Insights for U.S. Health Reform from the German and Dutch Multipayer Systems, The Commonwealth Fund and AcademyHealth, December 2009.
- F. T. Schut and W. P. van de Ven, Effects of Purchaser Competition in the Dutch Health System: Is the Glass Half Full or Half Empty? Health Economics, Policy and Law, January 2011 6(1):109–23.
Regional Insurance Exchanges in Switzerland
Since 1996, everyone in Switzerland has been required to buy a standard, comprehensive insurance package from a private insurer in their canton (similar to a U.S. state). Premiums are community-rated and low- and moderate-income households can receive subsidies to make coverage more affordable. A relatively crude risk equalization scheme redistributes much of the funding between insurers based on their enrollees’ age, sex, and canton. In 2012, this risk-adjustment formula will be modified to include hospital and nursing home stays in the previous year. Many people also buy supplemental insurance for services such as dental care, increased choice of provider, or hospital amenities. Insurers are not allowed to make a profit from the standard package, but may profit from the supplemental plans.
Unlike in the Netherlands, the Swiss insurance exchanges operate on a cantonal rather than national level—similar to how the U.S. exchanges will be state-based rather than federally run. Within regions (up to three per canton), an insurer’s premiums for the standard insurance package can vary only by age and the size of the deductible. Yet, wide premium variations persist among insurers within the same region. This variation is considered evidence of insufficient risk adjustment, which rewards insurers for enrolling healthier people, as well as the fact that consumers face barriers to switching plans (only 3% to 5% switch annually, despite guaranteed issue).
The Swiss insurance market is not as heavily concentrated as in the Netherlands, but rather is heavily fragmented, with the top five insurers making up 43 percent of market share. As in the Netherlands, a small proportion of the population (about 2% or 3%) is uninsured or has defaulted on their premium payments.
Further Reading
- R. E. Leu, F. F. H. Rutten, W. Brouwer et al., The Swiss and Dutch Health Insurance Systems: Universal Coverage and Regulated Competitive Insurance Markets, The Commonwealth Fund, January 2009.
- OECD Reviews of Health Systems – Switzerland, Organization for Economic Cooperation and Development and the World Health Organization, October 2011.
- S. Thomson, R. Osborn, D. Squires et al., editors, International Profiles of Health Care Systems, 2011, The Commonwealth Fund, November 2011.
