Priority Area 1: Be Strategic with Health Insurance Exchange

The insurance exchange will be the exclusive vehicle for individuals and families to obtain subsidized insurance coverage, and it may also become a place where many individuals and firms purchase coverage without subsidies. As such, the insurance exchange presents each state with the opportunity to organize the chaotic and inefficient small group and individual insurance markets. A better-functioning market can improve choice and value for individuals, families, and small businesses, all of which are struggling to afford health insurance. States have many choices with respect to the exchange. They may create separate exchanges for individuals and small businesses, or they may combine the two. They may create a statewide exchange, subdivide the state regionally, or join together with other states.
 

States also may elect not to create an exchange at all, in which case the federal government will carry out these functions. Any one of these may be a reasonable choice for a state depending upon its own capacity and the nature of the insurance market. Beyond the number and size of the exchange( s ) , states must make choices about exchange governance, including whether the exchange is inside or outside state government, and, if inside, whether it resides in an existing agency, a new agency, or has an independent status.

Structural choices regarding the exchange will affect the state’s ability to integrate the exchange into its overall implementation strategy. Critical exchange functions include selection of participating health plans and review of their rates, standardized presentation of information on benefits so people can make informed choices, standardized data collection across plans, holding plans to high standards in providing access to services and achieving health outcomes, and an effective risk adjustment mechanism to avoid incentives for risk selection and to assure that plans have sufficient resources to provide services to enrollees with high health needs. How the state approaches these functions—in particular how active or aggressive a role it plays in defining health insurance options within the exchange—will have a significant effect on the ultimate shape of the health insurance marketplace. An effective exchange will be a force for efficiency and an orientation toward quality in the insurance and health delivery sectors.