Health Insurance Exchanges: Long on options, short on time

One year from now, 12 million Americans are expected to begin purchasing health insurance through newly-created marketplaces known as exchanges. Federal subsidies will entice many would-be participants to the program that will offer coverage starting in 2014. By 2021, the size of the exchange market is projected to more than double, marking the single largest expansion of health coverage in this country since the creation of Medicare in 1965.

States have until November 16 to notify the Department of Health and Human Services on whether they plan to form their own distinct marketplaces or collaborate with the federal government to operate an exchange. Many are waiting for the November election results before deciding how to proceed. This wait-and-see stance leaves an increasingly short decision window, which in turn shortens the time available for implementation by states and insurers.

Thus far, 13 states and the District of Columbia have issued formal letters of intent to establish their own exchanges, but not all will be ready for enrollment by October 2013. The majority of the remaining 37 states will have the federal government directly involved in running their exchanges—eight states have already chosen to have a federally-facilitated exchange, while three have selected an approach that divides duties in a state/federal “partnership.” Public exchanges will create an irreversible shift in the insurance market that will ultimately change the way medical care is sold in the US.

For the insurance industry, the new state-based exchanges represent a major business opportunity—an estimated $205 billion in premiums by 2021.

But thriving in this new market won’t be easy. Insurers will continue their battle to keep a balance of healthy and sick members to limit adverse selection. Providers and insurers will face clear challenges in serving a new customer base with a demographic profile and health needs that differ from today’s insured population in meaningful ways.

States will carry the responsibility to make consumers aware of new coverage and financial assistance options. Success will require a firm grasp on emerging public exchange models, a sophisticated understanding of the individuals who will be purchasing coverage and the skill to help consumers navigate an increasingly complex health system.

Private exchanges, already up and running in a handful of markets, may serve as innovation models in this new purchasing environment—targeting employers and consumers seeking lower costs, greater transparency and convenience.