Most states are now scrambling to create health insurance exchanges. The U.S. Department of Health and Human Services will impose a vanilla federal model on any state whose exchange fail to meet Affordable Care Act standards. To avoid this, many state policy-makers are struggling to agree on what their exchanges should look like.
As they grope towards consensus on governance and transparency, a few have also begun to ask: Why not design an exchange that actually controls health care costs?
The challenge is that exchanges must meet three criteria to lower costs. First, their risk pools must be fairly average, so they don’t frighten away insurers. Second, exchanges must enroll a very high percent of the population—at least 25% of those not in Medicaid or Medicare—in order to induce insurers to want to hold down premiums. Third, participants in exchanges must have strong incentives to select low-cost plans.
Most exchanges will fail the risk and size tests. They must let anybody enroll regardless of health status, so they’ll have a high-risk profile. And, according to CBO and other analyses, they won’t have very big pools.
But there is one intriguing opportunity available to create exchanges with more average risk profiles and very big pools. States could place their “family” Medicaid enrollees into their exchanges.
To do this, states would have to (1) buy all “family” Medicaid enrollees into the most costly (Platinum) plan, paying the full premium; (2) pick up the deductible and most co-pays; and (3) directly finance out-of-plan benefits, such as dental and long-term care.
In addition, states would have to cut a deal to obtain deep premium discounts for Medicaid enrollees. Finally, states may need a federal waiver.
But if states can pull this off, they’ll see two big benefits. First, Medicaid recipients will enjoy greater continuity of care. As their income fluctuates, or their family status alters, they won’t have to switch health plans or providers. Second, the dramatic improvement in the exchange’s risk profile, and the huge increase in its pool size, will put serious pressure on insurers to lower the premiums bid on all exchange participants.