Moving Forward on Health Reform’s Insurance Exchanges

Even as a number of states challenge the health reform law (the Affordable Care Act, or ACA) in court, virtually every state has begun deciding how to implement a key part of it:  creating state-based exchanges that will give individuals and small businesses a choice of coverage options and promote competition among insurance companies.  A study panel of the National Academy of Social Insurance released a toolkit last week to help states design these exchanges to offer affordable and accessible coverage.

As members of the panel, Center board member Dick Nathan and I have written a brief paper outlining the issues involved in designing a governance structure for an exchange.

Under the ACA, a state can operate an exchange through a new or existing state agency or a nonprofit entity that the state establishes for this purpose, or it can collaborate with other states to establish a multi-state exchange.  States may also establish one or more sub-state exchanges to serve geographically distinct areas within the state.  If a state doesn’t want to establish an exchange, the federal government will operate one within the state.

States offer a range of governance models for health insurance exchanges; there is no one correct approach.  Utah established an exchange within an existing state agency, for example, while Massachusetts established an independent public authority inside state government.  New Mexico is considering establishing a nonprofit public corporation.

Whatever form of governance a state chooses, it will have to address issues such as ensuring the exchange’s political independence and accountability, preventing conflicts of interest, and deciding the extent to which the exchange will be subject to state laws related to hiring, procurement, and the like.  Establishing a nonprofit entity, multi-state exchange, or sub-state exchange would raise additional issues.

Because the exchanges will face many unanticipated challenges, states would be well advised to give them substantial flexibility and discretion in setting policies.  Just as the ACA didn’t try to specify in law every detail of federal health reform, the statute establishing a state’s exchange can leave many issues to be worked out later by the exchange as more information becomes available and the exchange gains experience.