ACA - a look at the health insurance exchanges

I'm one of the lucky ones. I have health insurance through my employer - who pays 85% of the premiums on a plan with 100% coverage (no deductibles) and small co-pays. The fact of the matter is that I live in a state (Minnesota) where that's not unusual. We rank 3rd in the nation in terms of those who are insured (91%), with only Massachusetts and Hawaii doing better (we're tied with Wisconsin and Vermont). Frankly, when all the conversation about health care reform happened a few years ago, I got educated real quickly about just how lucky I am from the stories I began reading in the media and on the blogs. So in many ways, my support for this legislation has always been mostly about what it would mean for other people who aren't so lucky.

But there's one aspect of health care reform that has always been important to me - the exchanges that are scheduled to go into effect in 2014. That's because at my place of employment, I am responsible for our budget - which means finding a way to pay for that 85% of the employer contribution.

As you probably already know from reading here, I'm the executive director of a small nonprofit. We have about 25 employees (less than 20 who participate in our health insurance plan) and the average age is probably about mid-30's.

Some people might not know that when an insurance company provides quotes for the costs of insurance, they take into account what the individual or group has cost them in the past. For large companies, that means that costs are averaged over a large pool of people. For someone like us - one person who needs surgery or has a chronic illness can send our rates sky high. As a matter of fact, for several years now we have been at the very top rate our insurance company charges - even though our pool tends to be young and pretty healthy. Overall, we pay much higher rates than large companies do.

I first realized the cost of this to our small nonprofit when we hired a woman many years ago who had a chronic illness. About the time our annual insurance quote was provided to us, she had realized that the job wasn't a good fit and had moved on. But our rates went up by double digits. When we told the insurance company that she was no longer an employee, our rates went way down.

This is the problem the health insurance exchanges in ACA are meant to address. Each state will be required to set up these exchanges where individuals and small businesses can purchase their insurance. That means that - once they're up and running - the rates in the exchanges will be set by a much larger pool of participants. So instead of our rates being determined by the use of the 20 or so individuals at our nonprofit, they will be based on all of the participants in the Minnesota exchange - thus extending to us the kind of benefit experienced by large companies.

The ACA requires that there be at least 2 insurance companies included in each exchange, and that at least one of those has be a non-profit. It also requires that each insurance company included in the exchange offer at least 4 options of coverage for the individual/business to chose from and there are limits on the amount of out-of-pocket expenses that can be charged to individual customers via co-pays and deductibles.

But here's a really interesting aspect to all of this that many of those who were in perennial poutrage mode about the public option missed. ACA allocated $4.8 billion towards establishing something they call a Consumer Operated and Oriented Plan (CO-OP) to compete in the exchanges. Here's how Kaiser describes it (pdf):

...to foster the creation of non-profit, member-run health insurance companies in all 50 states and District of Columbia to offer qualified health plans. To be eligible to receive funds, an organization must not be an existing health insurer or sponsored by a state or local government, substantially all of its activities must consist of the issuance of qualified health benefit plans in each state in which it is licensed, governance of the organization must be subject to a majority vote of its members, must operate with a strong consumer focus, and any profits must be used to lower premiums, improve benefits, or improve the quality of health care delivered to its members.

Finally, there is one very interesting thing the ACA did to ensure these exchanges work. The law requires that all members of Congress and their congressional staff purchase their health insurance through these exchanges (page 81, sec. 1312). So starting in 2014, my two Senators and Congresswoman (along with all their staff) will be participating in the same exchange my little nonprofit does to purchase health insurance.  If it doesn't work, they'll feel it too...personally.

Initially setting up these exchanges has been left to the states. You might have heard stories about Republican governors and legislatures refusing to do so. That will come back to haunt them because if they don't have one going by 2014, the federal government will be setting one up to offer to their constituents. During the passage of ACA, there was a big argument over whether the exchanges should be set up in the 50 states or simply have one national exchange. Progressives favored the latter (even bigger pool and potentially lower rates) but that move was defeated. So those Republican governors would simply be promoting the progressive alternative by refusing to participate ;-)

So there you have a brief outline of just one very important aspect of ACA. I would venture to say that not many outside the political junkie class have any idea about it or the benefits it will afford to those who must purchase health insurance either individually or as a small group. But as VP Joe Biden said, to those of us in that situation, this really is a BFD!