March 6, 2021

Today’s Economist: What Makes U.S. Health Insurance Exchanges So Complicated


Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

There is much coverage and commentary on news Web sites about whether the health insurance exchanges called for in the Affordable Care Act will be ready by Oct. 1 for enrollment by individuals seeking health insurance in the nongroup market. Insurance bought there takes effect on Jan. 1. I sense that many of those commenting would like the exchanges to fail.

Today’s Economist

Perspectives from expert contributors.

Why is setting up these exchanges so difficult? After all, they are not a novel invention. The Web site, for example, has since 1997 functioned as an electronic exchange for private health insurance products sold in the nongroup United States market.

That exchange and similar existing private exchanges, however, are not suitable models for the exchanges envisaged in the Affordable Care Act. They function merely as passive brokers for whatever policies private insurers under contract with them choose to list. It is up to consumers to pore over the fine print of any particular insurance contract listed on an exchange for a detailed description of coverage benefits, limitations and exclusions.

There have been many reports on how coverage gaps in the fine print of such policies can leave people who believe they have health insurance in serious financial distress once they fall ill. See, for example, an analysis by Consumer Reports.

More relevant as a model in this context might be the health insurance exchanges in several European countries that operate social health insurance systems with multiple competing private insurers — Germany, the Netherlands and Switzerland prominent among them.

Let us therefore pretend that we are residents of Switzerland and rummage around in a Swiss health insurance exchange.

All Swiss residents are required by federal statute to purchase insurance coverage for a common, comprehensive benefit package prescribed in the statute. Individuals buy that coverage on health insurance exchanges whose architecture is broken down by canton and that facilitate easy comparisons of the community-rated premiums charged by the competing private insurance carriers active in the individual’s canton.

Individuals can purchase supplemental benefits — e.g., coverage for private rooms in hospitals or alternative medicine — from the same companies on the same exchanges. The premiums for these benefits, however, are medically underwritten, which means that they depend in part on the applicant’s health status.

Private insurers in Switzerland are not allowed to earn profits on the common, comprehensive, social-insurance benefit package they cover, but they can earn profits on the supplemental benefits.

The Swiss company Comparis, a general insurance broker, among other exchanges operates one for health insurance, and it is available in English.

To receive premium quotes from competing insurers, one enters the postal code of one’s residence (e.g., 3010 for a part of the city of Bern). One is also asked to identify one’s current insurance carrier in a pop-up list of carriers serving the canton. As if I were a Swiss resident, I randomly clicked on “Publisana” from that list. (A new resident would click on “Relocating to Switzerland.”)

Because basic benefits are standard across Switzerland, the only consumer choice with regard to the benefit package is the deductible, which can range from 300 to 2,500 Swiss francs. (At current exchange rates, a Swiss franc is about $1.06.)

At the bottom, one can choose comparisons among standard coverage, a gatekeeper model (with a general practitioner), health maintenance organizations and telemedicine (shown as Telmed). I recommend “standard,” offering free choice of provider.

Click on “Continue,” and up comes the comparison of premiums for one’s chosen deductible for policies sold in one’s canton. Monthly and annual premiums of the various insurers are shown, along with the savings one could achieve by switching insurers.

A click on “request quote” leads to a page offering supplementary insurance for various items. A click on the “i” in green provides information on each supplementary benefit. Note that generous maternity benefits are included in the basic coverage and one can opt for additional services. (European men do not seem to view being forced to pay for maternity care an affront. At least one critic of the Affordable Care Act in the United States, on the other hand, has denounced inclusion of maternity benefits among the basic benefits as “Obamacare’s War on Men.”)

Swiss insurance exchanges seem quite simple and user friendly. Presumably, no one needs the assist of an insurance navigator to work through this Web site.

So why can’t the insurance exchanges under the Affordable Care Act be as simple as those in Switzerland? Why would it take almost three years to set up the American exchanges? And why will American buyers of health insurance need specially trained navigators to help them navigate these exchanges?

There are several reasons.

For one, the exchanges are but one small component of America’s highly complex health insurance system and must be stitched smoothly onto its many facets — a challenge that would be just as demanding for anyone proposing to move toward universal health insurance coverage through private insurers, even in the absence of deliberate attempts to sabotage the effort.

Swiss exchanges do not determine the public subsidies to which lower-income Swiss residents are entitled. These subsidies are handled by a different, cantonal authority. Therefore the Swiss exchanges do not have to determine eligibility for insurance. By contrast, in the United States, state-based exchanges must coordinate with the Internal Revenue Service to determine eligibility for subsidies and their magnitude.

The American exchanges must also work with the state-administered Medicaid programs, to determine whether an applicant on the exchanges should be referred to Medicaid, and with small employers.

Furthermore, some American exchanges will be “active” — they will actually negotiate premiums with insurers.

Finally, the Swiss exchanges need to feature premiums only for exactly the same health benefits. Individuals have a choice only over the deductible in the policy. The Affordable Care Act does specify the basic benefits that must be covered, which each state can translate into its own basic benchmark package. There will be four levels of covered benefits (bronze, silver, gold and platinum) that are likely to differ mainly by the degree of cost-sharing (deductibles, co-payments and co-insurance). But some variation of covered services around the state benchmark package nevertheless will be possible within the same actuarial value of a policy, adding some complexity.

Benefit packages on the American exchanges will also vary by the degree of choice among providers that different policies permit. Presumably, the exchanges will have to ascertain the adequacy of the networks of providers attached to particular policies.

In short, comparing the various offerings on the American exchanges will not be nearly as simple as it is on the Swiss exchanges; hence the need for the specially trained navigators.

Americans insist on choice and pluralism among insurance products, enabling them to find coverage they believe will fit their personal needs. That choice, desirable though it may be, comes at a stiff price, with two dimensions.

First, it adds considerably to monetary outlays on administrative functions, which in the United States run about twice per capita what they are in other countries. And to make careful and responsible choices takes a great deal of a person’s time.

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