A Quick Summary of the Health-
care Insurance
Exchange
Situation

By: Colin Toney

Four weeks ago, on October 1, the federal government and 14 state governments launched 15 websites known as healthcare insurance exchanges to allow consumers to shop for and purchase health insurance.  Though the story has been largely overshadowed by political battles surrounding the debt ceiling and federal government shutdown, the exchanges are a core feature of the Affordable Care Act (also known as the ACA or Obamacare) and have the potential to radically reshape the U.S. healthcare industry.

In July 2012, after several years of political battles and dozens of lawsuits, the U.S. Supreme Court upheld a key clause of the ACA known as the individual mandate, which requires that uninsured people obtain health insurance or pay a fine (the mandate takes effect in 2014).  The fines are relatively low in 2014 (the greater of 1% of income or $95 per year) but increase substantially by 2016 (the greater of 2.5% of income or $695 per year).  However the cost of health insurance through the exchanges (excluding subsidies for those who qualify) is about $249 to $328 per month, or about $3,000 to $4,000 per year.  Consumers must be convinced that insurance coverage is valuable or they might not pay $3,000 to $4,000 in premiums to avoid $95 to $695 in penalties.

Congress passing the law was the first major milestone for the ACA, and the Supreme Court victory was the second.  The third major milestone is the launch of the exchanges, which are the government’s primary method of outreach to people who are uninsured (though consumers may still purchase insurance directly from insurance carriers without using the exchanges).  Since about 50 million people in the U.S., or about 15% of the population, do not have health insurance, the success or failure of the exchanges will have a serious impact on our country and on the broader idea of healthcare reform.

A healthcare insurance exchange is a website which allows a consumer to shop for health insurance with a (theoretically) intuitive user experience similar to Priceline or Orbitz.  The federal government operates a single exchange, www.healthcare.gov, for the 36 states which declined to build their own exchanges, and the other 14 states each operate their own independent exchanges (New York, for example, is running its own exchange, nystateofhealth.ny.gov).

Despite government spending of $170 million to $300 million on the project, the rollout of the federal exchange has been troubled, and some state exchanges have reported problems as well.  An estimated 15 million people visited the federal exchange in the first 10 days after its launch, but most were not able to apply for insurance.  An estimated 700,000 have now applied for insurance, though it’s likely that fewer than half of those have actually been able to purchase coverage.  Coding problems and flawed system architecture have caused problems ranging from login failures and website outages to data transmission issues which have resulted in insurers receiving data that is incorrect (e.g., duplicate enrollments, spouses reported as children, missing data fields, suspect eligibility determinations).  Recent attempts to fix or upgrade the site have resulted in price quotes that are significantly different from the actual cost to purchase insurance.  The problems are so severe that officials are even considering rebuilding parts of the site that suffer from design flaws.

With the immediate danger of defaulting on our debt now settled (for the moment) thanks to a last-minute, short-term agreement in Washington, focus has appropriately shifted to the healthcare exchanges.  Congress is holding hearings, the President announced a “tech surge” (hiring talented programmers to combat the problems), and comedians are having a field day.  As the errors become more widely recognized, people are increasingly looking for someone to blame.  Creating the exchanges required the combined efforts of 55 contractors and dozens of federal and state agencies, all overseen by a division of the federal government called CMS, and they all seem to think that someone else is at fault.  No matter who is to blame, if the problems aren’t fixed soon, the credibility of the exchanges could be questioned.  More importantly, if young, healthy people – who have short attention spans – avoid exchanges because of the technical hassles and the relative cost of the premiums versus the penalties, the pool of people enrolled through the exchanges could be disproportionately sick and unhealthy (which makes sense, as the people who are most likely to put up with hours of websites hassles in order to buy insurance are those who believe they have impending medical bills).  As the pool of people becomes unhealthier, the costs of insurance for that pool of people will also increase.  Higher overall costs of health insurance would be a political nightmare that could further polarize the debate about health insurance and undermine future government efforts to help provide access to high quality, affordable health care to those who need it.

Given the numerous issues with the exchanges, we can be thankful that they are somewhat limited in scale.  Over 80% of Americans are covered by plans that are not impacted by the exchanges:  primarily employer-sponsored health insurance (154 million), Medicare (50 million), or Medicaid (54 million).  The reality is that the whole system – all 100% – will need to change in order to create meaningful and long-lasting improvements, but targeting uninsured individuals using the exchanges is a decent place to start.

This situation is a microcosm of the broader U.S. healthcare system, which is broken in many ways.  In 2011, the most recent year for which data is available, our country spent $2.7 trillion, or 17.9% of GDP, on healthcare.  That is an almost incomprehensibly large amount of money.  One trillion = one million squared!  Compared to other developed countries, U.S. healthcare spending is by far the highest per-capita (around $8,000) and is also the fastest growing (8% per year since 1970).  Yet studies have not shown that the high cost of U.S. healthcare has yielded comparatively high quality of care.  As the costs of healthcare continue to grow faster than the rate of inflation, the traditional sources of funding (employer-sponsored health insurance and government programs like Medicare and Medicaid) are shifting a larger burden of the cost to the consumer.  Perhaps most unimpressive is the fact that the industry has estimated that about 30% of total U.S. health spending – roughly $750 billion – is wasted on unnecessary services, excessive administrative costs, fraud, and other problems.

We now find ourselves in an untenable situation, and status quo is not an option for the future of U.S. healthcare.  Could there be a more exciting time for a large and staid industry than when it is forced to reinvent itself?  There are now massive opportunities for innovation and change – driven by doctors, patients, entrepreneurs, investors, researchers, and even some government officials – which can actually increase quality of care while also decreasing the cost of care.  We are reminded every day that this world is fallen, but also that there is hope of redemption through God’s sovereignty in this industry.  Each successful clinical innovation, better healthcare business model, or more advanced medical software platform provides a glimpse of a brighter future.  Now that healthcare is in the national spotlight and its major problems have been exposed to the public, there is hope that we will someday put aside our political differences to focus on fixing the system which so desperately needs to be fixed.  And because the healthcare system is so very broken (not to mention decades behind other industries technologically), there exists significant opportunity for successful innovation:  this is one field in which people can do well by doing good.