Where the Action Really Is

Jonathan Cohn of the New Republic warns us not to be distracted by the debate over the "public option." The real action is the debate over the regulation of health insurance exchanges, the place where small businesses and the currently uninsured will buy their coverage - but where over time, more and more of us will drift.

Jonathan Cohn of the New Republic warns us not to be distracted by the debate over the "public option." The real action is the debate over the regulation of health insurance exchanges.

Remember, these exchanges are the place where small businesses and the currently uninsured will buy their coverage - but where over time, more and more of us will drift. As currently envisioned, only plans with coverage deemed "adequate" will be sold on the exchanges. Coverage will be rated as platinum, gold, silver, or bronze, with prices standardized in each band.

Here's Cohn on the exchanges:

They're basically regulated marketplaces, where you get to choose from among insurance plans more or less the same way folks in large companies do. Your premiums should be more affordable, since now you're part of a large bargaining group. You should be able to get coverage regardless of preexisting conditions, since insurers can't pick and choose which exchange customers to cover. And you should have the peace of mind that the coverage is good, since you know it's been screened by the exchange. ...

In the bills that passed three House committees and the Senate Health, Education, Labor, and Pensions (HELP) Committee, the exchange would be a "prudent purchaser." In other words, it would have a staff that bargained with insurers to bring down premiums--and that made sure all plans lived up to strict guidelines for coverage and customer service. In effect, any insurer that wants to offer coverage through the exchanges has to get the equivalent of a "Good Housekeeping Seal of Approval" from the administrators. ...

By contrast, the Senate Finance bill envisions much weaker exchanges. Instead of choosing which plans to make available, the exchange administrators would, by law, have to accept any plan that meets a relatively minimal set of standards.

Jon Kingsdale, who runs the Massachusetts exchange, calls that a recipe for "policy disaster," as consumers faced a dizzying array of more expensive, less regulated choices. "It would be like telling your grocery store they have to offer every single kind of bread baked by every single bakery. ... The exchanges would be nothing more than an automated Yellow Pages."

Cohn's promise of lower costs via tightly regulated exchanges should ring alarms. After all - state governments already tightly regulate existing health insurnace plans. This regulation has pushed costs endlessly higher as interest groups have pushed their demands through compliant state legislatures.

Cohn's piece comes pre-rebutted by Keith Hennessey in a post last week on his (indispensable) blog:

• Despite having no public option, the [Baucus] bill in effect turns the private health insurance industry into a utility, implementing public policy goals through privately owned firms.  Health insurance would be transformed from what it is today, a highly imperfect voluntary financial arrangement, into a tool of mandated redistributive social policy.  The insurance premiums you pay would consist in part of payments to others deemed by policymakers to be more deserving or needy than you.  I believe that the power this gives to the government officials who would design those premium rules is one of the two most dangerous elements of this bill.  The other is the long-term fiscal impact on taxes and spending.
• The government would create standardized benefit packages, cost-sharing structures, and minimum actuarial values.  The problem here is that the government can’t keep up with innovation, either in medical technologies, medical practices, or financing structures.  Medicare is still based on an early 1960’s Blue Cross insurance model, and just added a drug benefit six years ago.  This new government control will crush innovation.  Also, people are different.  I believe we should not all be forced to fit into “bronze, silver, gold, and platinum” boxes.  I would like a cheap copper box so I can have more cash for other needs. ...
• The State exchanges are going to be a bureaucratic and lobbying mess.  In addition to all the normal bureaucratic wrangling, every health interest group will lobby 50 State legislatures and bureaucracies to protect their (generally financial) interests.  The President and his Congressional allies argue these exchanges will be neutral marketplaces.  I instead anticipate ugly stories about mismanagement, greedy self-interest, intergovernmental fights at all levels, and corruption.