Idea of a Health Insurance Exchange Common to House and Senate Healthcare Reform Bills

On June 9, 2009, the Senate Health, Education, Labor and Pensions (HELP) Committee released its 615-page bill to expand health insurance coverage and improve health care quality. On June 19, 2009, the House released an 852-page draft of the Tri-Committee (House Ways & Means, Energy & Commerce, and Education & Labor Committees) health reform bill. Both bills propose a health insurance exchange (HIE) in slightly differing forms.

Generally, legislators describe the HIE as an organized marketplace for the purchase of health insurance, either on a state or national basis. The idea is to create “one-stop-shopping” for consumers for health insurance, and to make health insurance portable rather than employer based. An exchange is also supposed to provide guaranteed coverage at affordable premiums.

Both bills propose that establishing an exchange will facilitate individual and employer access, through a transparent process, to a variety of choices of affordable, quality health insurance coverage. Theoretically, consumers could visit the exchange website to compare local prices, determine what government aid is available, and assess which plans best fit their needs.

The Senate bill refers to the exchanges as “gateways.” The Senate would require each state to establish a federally funded “gateway” to market only qualified health insurance plans to certain individuals and employers. If a state failed to do so, the federal government would create a “gateway” for the state. The House bill, in contrast, provides for a single, national exchange, unless a state develops a federally-approved, state-based exchange to replace the national exchange in that state.

In the House bill, an annual open enrollment period would occur between September and November, for no less than 30 days. During open enrollment, eligible individuals and employers would elect to enroll in an exchange-participating health plan for the following plan year. The House bill also provides special enrollment periods in certain circumstances, such as losing acceptable coverage, a change in marital or dependency status, or a significant change in income. The Senate bill does not provide for a specific enrollment period.

Both bills also provide that health plans participating in the exchange must be available to all applicants and cannot exclude preexisting medical conditions. Additionally, both bills preclude premiums from varying based on enrollees’ health, allowing only limited variance for age.

Under both bills, varying tiers of premium support would be offered to individuals and families meeting specific federal poverty level (FPL) requirements. The House bill provides subsidies, or “affordability credits,” to individuals purchasing through the exchange, phasing out at 400% of the FPL. The Senate bill also proposes government subsidizes for purchases made through the exchange for individuals and families with income between 150% and 500% of the FPL. The Senate bill also provides that subsidies cap premiums as a share of income on a sliding scale, starting at 1% for those with income equal to 150% of the FPL, and rising to 10% of income at 500% of the FPL. Accordingly, the caps would be indexed to medical price inflation so that over time, individuals would pay a higher portion of their income for exchange premiums. These subsidizing proposals represent the greatest single component cost in each bill.

Finally, both bills include a “public plan option,” i.e., health insurance offered by the federal government. Only the House bill, however, includes the public plan in the exchange. Neither bill specifies how the plan would work or addresses provider payment rates. Analysts estimate that total federal costs for the program, including the exchange, would approach $1 trillion over 10 years, with costs potentially as high as $1.5 trillion.