The second main thrust of the argument against PPACA by the Republican Party has been to paint it as a major drive towards socialism, an overt attack on privately run insurance companies and a gross attempt to kill the free market, all bundled in one. To that end, much misinformation has been disseminated into the public consciousness that state run "Health Insurance Exchanges" -- also mandated by PPACA -- are government run insurance companies, are designed to force public insurance companies into bankruptcy, and kill tens of thousands of jobs. This could not be further from the truth.
What follows is a commentary I'd written some weeks back on an article describing what these exchanges are and how they work. I'd intended to write a full blog post on the subject but had procrastinated, as I am wont to do. I've posted the original text here, with my commentary emphasis added.
(To see my original annotated commentary, click here. I also suggest watching the Fareed Zakaria GPS special, entitled Saving Health Care. I believe it is now available on iTunes.)
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How will health insurance exchanges work under new federal health care legislation?
To put it simply, health insurance exchanges will sell insurance.
This is highly inaccurate. The exchanges themselves will not sell anything. Private insurance companies will sell insurance *at* the exchanges. I provide more detail below
The health insurance exchanges (that will be established as part of the implementation of the new health care reform bill) are places where you can get coverage at competitive prices. It is aimed to give more choices to you, the consumer, by allowing you to do comparison shopping, even as you are armed with the information you need to make your decision.
Supply Management is the discipline that defines the optimal way to procure goods and services, regardless of the specific characteristics of those goods or services. It delineates higly structured, repeatable, uniform processes and denotes best practices in the execution of those processes.
Almost all large corporations have dedicated supply management divisions that ensure the corporation intelligently acquires goods and services at the most competitive costs possible. (More information: http://bit.ly/vbk8Ym )
What is important to ephasize is that the methods and processes used in Supply Management are *independent of* the specific goods or services being acquired. Moreover, Supply Management enables an entity to acquire highly complex goods or services at very competitive costs, and with highly quantifiable savings. As you can see from these images, Supply Management is a complex discipline: http://bit.ly/zLVfws
The following commentary includes a Supply Management perspective, which in this instance defines the best way to procure health insurance products.
The health insurance exchanges will also establish regulations to ensure that insurance companies "toe the line" and avoid abusive practices such as arbitrarily raising the premiums or denying coverage to those who get sick.
Here's how it works, in a nutshell.
State autonomy. The federal government will decentralize the exchanges and leave the decisions to the state. The state will receive funding from the central government but it will be the one to establish the exchange.
This is a basic tenet of conservative Republican ideology. It speaks to
less federal government involvement, as well as states' empowerment to
manage civic programs, and the funding thereof, as they see fit.
"Central" (federal) government funding will be used in facilitating the establishment of the exchanges. It may also be used to help fund vouchers granted to low-income individuals -- the definition of which has specific criteria -- to assist them in buying insurance from a private insurance company.
It may also decide to let a private institution run the exchange for the state. The only time the federal government will step in is if the exchange run by state does not meet minimum standards.
This establishes a set of minimum basic standards that all insurance providers' products must meet in order to be eligible for sale at any given exchange. Among the 10 established categories of standards are: comprehensive coverage; maternity care; mental health treatment; and prescription drug coverage.
An analogy to this might be that all cars must have seat-belts that can withstand X amount of impact force. This is a basic minimum standard that any car providers' products must meet in order to be eligible for sale in any individual state.
The only other time the federal government can step in is if a state refuses to establish such an exchange, as is the case with New Hampshire (source, the New York Times: http://nyti.ms/wbes3p .) In that instance, the federal government would establish that state's exchange.
If you have further interest on this point, see this interview with Secretary of Health and Human Services, Kathleen Sebelius: http://bit.ly/yxYT0L
Improved access to health insurance. When in the past, those who can only buy on the individual market find it hard (and expensive!) to get insurance, now these can have the same kind of access as those who are employed.
Comprehensive and high-value products. The exchange will give people access to insurance that is affordable to all. In fact, to keep things interesting to the consumer, the exchange has the job of providing as much good "stock" or "merchandise" for the consumer to choose from.
An analogy is a mall in which there are three clothing stores. From the stores' perspective, the mall provides a central location in which each store can sell to a large customer pool that is motivated to buy. From the customer perspective, they have ease of access and of product comparison.
The success of the mall lies in its ability to attract numerous vendors of sufficient quality. From a buying and selling perspective, the superficial qualities of the mall are immaterial. The availability of numerous competitive vendors and of a large motivated consumer base define the efficacy of the mall.
Free-market laws of supply and demand determine the prices as the three clothing stores compete against one another for the customers. In this analogy, the health insurance exchange is the mall and the private insurance providers are the clothing stores.
Special accommodations for the uninsured. The exchange should also ensure that uninsured people will finally get the coverage they need, even if it means automatically enrolling them in a plan and providing subsidies so that they can afford to be in the plan.
Personal benefits specialists. To help you buy insurance, the exchange will act as your personal benefits specialist, who will negotiate for you and secure a plan that best suits your needs and budget.
There is a maxim: “He who is his own lawyer has a fool for a client.” This holds true not just in the realm of law, but also in the realm of the free-market.
Negotiation is a skill and an art; most people do not appreciate this crucial point. Much as lawyers are advocates to individuals within the legal process, these "personal benefits specialists" are skilled, knowledgeable advocates to individuals in the insurance procurement process.
These specialists are familiar with the intricacies of health insurance products, and this will allow them to more skillfully negotiate the costs and features of an insurance product on behalf of an individual.
Participation of health insurance providers. Now, don't worry that health insurance companies will be pushed out of the picture. On the contrary, they will be part of the exchange. They will be the ones who will supply the insurance plans. But there will be a more competitive atmosphere, since the exchange allows people to compare different plans available.
Q.E.D., This is not socialized medicine. On the contrary, it is a perfect construct of free-market exchange.
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