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Timothy Jost: Advice to States on Developing Health Insurance Exchanges

For our Ask the Expert column, Timothy Jost, J.D., law professor at Washington and Lee University School of Law and author of Commonwealth Fund and other analyses on health insurance exchanges, answers questions about states' purchasing role in selecting plans to participate and options for reducing adverse selection in health insurance exchanges.  

Given some uncertainty about the court challenges to national health reform (or components of it), should states "wait and see" before planning for insurance exchanges, or should they move ahead?

States should definitely move ahead. Currently, there's no injunction against implementing the Affordable Care Act, and I think it's highly unlikely that the court will strike down the entire statute. Meanwhile the clock is ticking, and if a state does not have an exchange ready in 2013, the federal government will take that role.

Where should states begin?

States must first determine governance of the exchange, and pass exchange legislation. The federal statute clearly sets out the exchange requirements, and the National Association of Insurance Commissioners has developed a model law incorporating those requirements. States have flexibility, but so far the laws being considered share more in common than they differ.

What regulatory functions are most important to an exchange's success?

Exchanges' primary regulatory function is to certify health plans. At a minimum, an exchange must certify health plans as complying with the requirements of the Affordalbe Care Act—including reporting on member satisfaction, quality improvement activities, premiums, and others. Exchanges also must determine whether the plans offered through the exchange are "in the interest" of qualified individuals and employers. How actively or passively exchanges perform this role will vary from exchange to exchange.

How actively or passively should an exchange be certifying health plans to be offered in the exchange, and how will their purchasing role affect the quality and cost of health insurance available?

In general, it's a good idea for exchanges to drive value for their members, just as large employers try to get the best deal for their workers. Exchanges can take an active role in negotiating with and selecting those health plans that offer high quality at the best prices. And the exchanges will have great leverage through the comparative health plan information they put out. But the exchange's ability to be an active purchaser will be limited by the market power of the exchange, determined by the numbers of covered lives, and the concentration of the market; if there are only two insurers, the exchange could not choose one and not the other.

What are the best options for states to reduce the risk of adverse selection against the exchange?

States need to try to make health plans inside the exchange look like those outside the exchange. For example, they should require insurers to offer the same plans inside and outside the exchange, and standardize plan benefits inside and outside. A concern is that there are many ways to risk select through marketing and plan design; states should discourage that to the extent possible.

How can states reduce adverse selection among plans within the exchange?

Exchanges need a rigorous risk adjustment program. There's a short-term reinsurance program and a risk corridor run by the federal government. The federal Department of Health and Human Services must design or set general criteria for a long-term risk adjustment program, and then the states will likely implement it.

Finally, what objectives should state policymakers keep in mind as they design and implement insurance exchanges?

The ultimate goal is to expand the availability of health insurance to consumers and hold down the cost.

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