Health Insurance Exchanges Still Face Legislative, Economic Challenges

Despite confirmation of the Affordable Care Act’s (ACA) constitutionality by the Supreme Court, health insurance exchanges (HIX) still face many legislative and economic barriers.

Kaiser Health News recently reported that there is no shortage of attempts by critics to challenge the health reform law. Such challenges include the more than 35 lawsuits initiated by religious employers who are offended by the new mandate that requires them to provide insurance that covers women’s contraceptives without a copayment. But, as the report mentions, the most potentially damaging legal challenges hinge on “whether Congress intended that tax credits and subsidies to help consumers buy health insurance be available only through state-created exchanges.” This aspect of the reform is complicated because many states are opting now to create their own exchanges, leaving the federal government with the responsibility to do so. Unfortunately for supporters of the ACA, there may also be more lawsuits from employers and states on the way, primarily because of a lack of guidance on how the HIX should operate.

Another concern that has been discussed in recent weeks is the size of certain HIX. Dana P. Goldman, Director of the Leonard D. Schaeffer Center for Health Policy and Economics at the University of Southern California; Michael Chernew, Co-Editor in Chief of The American Journal of Managed Care; and Anupam Jena, Professors of Healthcare Policy at Harvard University recently wrote an editorial in The New York Times addressing some of the economic concerns related to the sizes of HIX. They wrote:

Economic theory is clear about its indispensable benefits. But not all health care markets are composed of rational, well-informed buyers and sellers engaged in commerce…So the question is: What effect does insurer competition have in a marketplace with so many imperfections?

The evidence is mixed, but some of it points to a counterintuitive result: more competition among insurers may lead to higher reimbursements and health care spending, particularly when the provider market — physicians, hospitals, pharmaceuticals and medical device suppliers – is not very competitive.

The researchers went on to provide concrete examples that speak to the instability of a market with so many unpredictable variables. For instance, despite having two insurers control more than 90% of the market in 2001, Hawaii’s average premium rose only 72% over the next decade. Conversely, Virginia, a state rampant with competition in the health insurance market (the top two providers only controlled 25% of the market in 2001), saw premiums increase 140% on average over the same time span. As Goldman, Chernew, and Jena mentioned, “In financial markets, we ask if banks are too big to fail. When it comes to healthcare, perhaps we should ask if insurers are too small to succeed.”