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Premiums Will Be Higher If Insurers Get Their Way on Exchanges, Consumers Union Says

By John Reichard, CQ HealthBeat Editor

October 12, 2010 -- If the Department of Health and Human Services goes along with the wishes of the insurance industry in setting rules for the creation of state-based exchanges, consumers won't get the best deals, a Consumers Union official said Tuesday.

Exchanges would lack the power to exclude plans that don't offer good deals, and insurers would be able to offer plans outside of exchanges that would siphon off good risks, said DeAnn Friedholm, director of health reform at Consumers Union. That would leave a disproportionate number of higher-cost enrollees—sick people—in plans offered inside the exchanges, driving up the premiums they charge, she said.
Friedholm was commenting on a 35-page letter filed with HHS by America's Health Insurance Plans (AHIP), the nation's largest health insurance association, on how exchanges should be structured. HHS requested public comment on the issue Aug. 3 and the comment period closed Oct. 4. HHS is expected to publish a proposed rule in coming months on requirements for exchanges under the health care overhaul.

"Probably our greatest heartburn would be over the premise that any plan that meets minimum standards would have to be in the exchange," Friedholm said. Consumers Union is the publisher of the influential consumer purchasing guide, Consumer Reports.

Friedholm emphasized, however, that "we have some points of close agreement" with insurers on how exchanges should operate.

Consumers Union says that exchanges should be permitted to be "active purchasers" rather than entities that simply serve as a kind of bulletin board that passively posts rates rather than trying to squeeze insurers for a better deal. But Friedholm said that's a longer term goal in the case of some exchanges because the markets involved may not have enough competitors to allow plans to be excluded.

AHIP argues against excluding any plan in compliance with solvency and other standards. Such an approach is needed "to maximize consumer choice," it says.

Friedholm also expressed concern about AHIP's comment that in the future "consumers seeking coverage should have options available both through the exchange and through new and existing products."

"They could offer skimpier boutique plans on the outside that would attract the low-risk people," she said.

Consumers Union agrees with AHIP on the need to encourage states to test certain exchange functions well before their required start date under the law, which is Jan. 1, 2014. And like AHIP, Consumers Union says enrollment periods for plans offered in the exchanges need to be limited in duration. Otherwise, people would be more likely to wait until they get sick to buy coverage, Consumers Union and AHIP say. Both organizations agree that the penalty under the law for not buying coverage is "weak," making it more important to have limited enrollment periods to limit bad risks.

Another point of agreement is on the need for an aggressive "outreach" program to make sure people know about the exchanges.

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