Much has been made of the health insurance exchanges in Utah and Massachusetts — for many observers they sit on opposite points of a continuum of what exchanges can and should provide for consumers and small businesses. As one Utah official put it, the two exchange models “may well serve as bookends for other states.“
But is that really true? Is the Massachusetts exchange — they call it the “Connector” — a heavy-handed arm of government, dictating prices and imposing continual mandates on health plans? And is the Utah exchange a pure free market? My colleagues and I at Georgetown University’s Health Policy Institute recently analyzed these questions and found that the reality is far more nuanced.
Yet many state policymakers seem to believe they have to make an either-or choice: the Massachusetts road or the Utah road. This kind of simplified contrast (largely fueled by those with strong financial interests at stake) does a disservice to the individuals and small business owners that could benefit from a well-designed and sustainable exchange. The truth is states can and should borrow from both models to develop an approach that works for their own citizens.
Certainly, the Utah and Massachusetts exchanges were launched with very different visions. The Utah model was designed to enhance the sharing of information among employers, employees, insurers and brokers, and to enhance predictability for employers via a “defined contribution” benefit. And it is open only to small employers, not to uninsured individuals seeking coverage. In Massachusetts, by contrast, the Connector was seen as a key gateway to universal or near-universal coverage for its residents.
In some ways, the states live up to these stereotypes.
The Connector has been very effective in using its clout in its subsidized market to keep premium increases down — they’ve been held under 5 percent, or about half the rate of growth in the outside market. And, in response to feedback from customers that the number of product choices it offered was overwhelming, the Connector has required considerable standardization. Participating plans currently can offer no more than one gold, three silver and three bronze products. The color-coding, of course, signals the level of coverage the plan will provide.
Utah’s exchange takes any willing plan, so long as that plan meets some minimal requirements. In 2010, there were 146 plan options for 436 enrollees. The multitude of choices is so great, in fact, that 55 percent of respondents in a 2009 survey of employers who registered for the exchange but did not ultimately enroll cited the process for choosing a health plan as the reason they walked away.
But in other ways the exchanges break down the stereotypes.
For example, the Massachusetts Connector has yet to turn away a plan that expressed a wish to participate. And it doesn’t dictate prices. For its unsubsidized population, including small businesses, it does little to negotiate premium discounts. It simply doesn’t have the leverage to do so. But it does use web-based decision tools to help consumers find the best value plan. Again and again we found evidence that the Connector was using free-market principles — not heavy-handed regulation — to generate better prices and quality for consumers.
In Utah, after the exchange struggled early on because of high prices, low enrollment and the limited number of available plans, the state enacted new regulations that require the same rating practices for plans inside and outside the exchange. These regulations also limit rating factors that plans can use to age, family composition and geographic area. And they moved to penalize insurers who do not participate in the exchange by barring them from joining later. In other words, to save its exchange, the state worked quickly to impose regulatory solutions.
Because there’s a competing insurance market outside both exchanges, both states have had to work hard to offer a mix of health plans that consumers and small businesses know and want, at prices they can afford. As Jon Kingsdale, the former executive director of the Connector puts it: the exchange is like an insurance “store,” it sells health plans. And without the enticement of subsidies, the store has to offer an attractive mix of products, or it won’t attract customers. In both states, consumers want to see plans they’re familiar with, that have a good reputation for quality and customer service.
Both models have shown that they can be effective market innovators, using web-based decision-support tools to help consumers and small-business owners shop for and purchase health insurance. And over time, empowering consumers and business owners in this way could prove to be one of our most effective tools for lowering health care spending.
Utah hopes to move in this direction by encouraging employees to choose high-deductible health plans that will give them “skin in the game” and make them more cost conscious before seeking health care services. And Massachusetts is doing this by giving consumers confidence that they’re choosing among quality products. This effort has resulted in lower cost plans gaining market share against bigger, “brand-name” plans in the commonwealth.
In the end, perhaps the most important element for both exchanges is the commitment of their political leadership to their long-term success and sustainability. In particular, both states have demonstrated a willingness to be flexible and pragmatic in making the legal and administrative choices necessary to innovate, adjust to market changes and respond to customer feedback. As other states begin the hard work of creating their own exchanges, they’d be wise to see the Utah and Massachusetts models — not as ideological “bookends” but rather as entities that must continually evolve to meet the needs of real people.