On Opening the Exchanges

Over at the Health Affairs blog, Chris Fleming discusses the exchanges in the Senate Finance Bill and quotes Elliot Wicks, a senior economist at Health Management Associates, with respect to Ron Wyden’s failed amendment to open exchanges to everyone.

Wyden’s amendment has attracted both enthusiastic support and fervent opposition. Elliot Wicks a senior economist at Health Management Associates, warns that Wyden’s proposal could saddle the insurance exchanges with the sicker, more expensive members of an employer’s workforce. “If individual employees had a choice of staying with their employer’s plan or going to the exchange, employers would find ways to make their plans more attractive to healthier workers and less attractive to sicker individuals,” Wicks tells the Health Affairs Blog.

That might be true, but this isn’t an argument against Wyden’s Free Choice Amendment as much as it is an argument against the entire employer based system of health insurance. If employers didn’t play a role in health insurance, everyone would simply go to the exchanges and voila! No more adverse selection based on employer preference. This is why Wyden’s original bill removed the tax exemption on employer based health insurance. Without an ability to offer insurance tax free, there’d be no incentive to go through your employer at all, and more to the point, employers would have no incentive to offer plans outside of the exchange.

What’s  more, I’m not entirely convinced by Wick’s argument. In particular, I’m not sure how it would be reconciled with Federally mandated standards for minimum insurance benefits. Presumably, plans that are attractive to healthier people are plans that are light on benefits. Assuming the minimum benefit package precludes the existence of such bare bones plans and also places a cap on lifetime out of pocket fees, I’m not sure the difference between what’s attractive to healthy people and what’s attractive to sick people would be so large as to create a serious adverse selection problem. In any event, I stand to be corrected on this, but it’s really not the point. The problem is entirely a product of an unwieldy and illogical employer tax exemption.

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