What’s a Health Insurance ‘Exchange’?

“What’s an exchange?” the woman asked me. She heard President Obama talk about the idea during his speech on health care reform.

“Do you remember the Progressive Insurance commercials?” I asked. “Where Flo, the sales clerk, chooses between a number of white boxes on the shelf and hands one to the customer, saying something like ‘this one should meet your needs’ – that’s the idea behind an exchange for health insurance.  But the exchange would include a variety of health insurance companies.”

This past week the President explained the idea this way: a market place where individuals and small businesses will be able to shop for health insurance at competitive prices… as one big group, these customers will have greater leverage to bargain with insurance companies for better price and quality coverage.

When you have insurance through your job, most of the time you have only one choice – the company your employer contracted with to provide insurance for all employees. You may be able to choose an individual or family policy; a low or high deductible – but only with that one company.

When your boss chooses your health care plan, you may not end up with something that works for you. A good example is a moderate income family forced to take a high deductible plan knowing they can’t really afford to pay the deductible.

Why not have the employees themselves choose the plans? If employees had the choice, competition among the plans might help lower health care costs.

This is a system that works for our state and federal employees. Wisconsin has been a leader in using the idea of an ‘exchange’ to keep low the cost of state employee’s insurance. Plans are ranked on cost and quality.

State employees choose from a menu of different plans by reviewing plan-specific information such as major provider information, dental benefits and service area. Plans are different depending on where you live, but all doctors or hospitals would be available in at least one plan. If you have a favorite hospital out of state– say for cancer treatment in Cleveland - you could choose that hospital but you might pay more. In the Wisconsin state system, the most you would pay for a family plan is $412 a month; the least is $31 a month.

When many companies experienced double digit increases in health insurance premiums, in 2007 and 2008, the state employees’ plan kept premium increases to 5 – 7% depending on the plan.

The system for federal employees and the University of California employees is similar to that found in Wisconsin. But the arrangement is not limited to government employees.

Wells Fargo and Hewlett Packard have a similar arrangement for employee health insurance. All of these employers found that 75% to 80% of employees choose the least expensive plan – usually a group practice HMO. People tend not to choose the more expensive insurance – generally these are the policies that pay doctors and hospitals on a ‘fee for service’ basis – for every service provided, the doctor or hospital is paid a fee.

Choosing high quality low cost plans saves the employee and the company money. And it gives families with differing needs an affordable choice.

As the President said in his speech, “This is how large companies and government employees get affordable insurance. It’s how everyone in Congress gets affordable insurance. And it’s time to give every American the same opportunity that we have given ourselves.”