Building the New Insurance Marketplaces: Future of One State-Based Exchange Threatened

The District of Columbia is not technically a state, but it is one of the few that plans to run its own health insurance marketplace (called the “Exchange”) under the Affordable Care Act. Early on, however, DC planners realized that they had a very small pool from which to draw potential enrollees. DC has a relatively small population base, generous Medicaid and CHIP eligibility rules, and a city-subsidized health insurance program (the Alliance) for low-income people. The availability of these coverage options leaves fewer people in the individual market to enroll through the exchange. The Exchange’s market analysis demonstrated that, without changes to the marketplace, enrollment would be unlikely to be more than 60,000 people.

Simply put, with such a small number of enrollees, the DC Exchange would have difficulty sustaining itself financially. In addition, if insurers were allowed to continue to market products to individuals and small businesses outside the Exchange, it could put the Exchange at risk for adverse selection, particularly if insurers are allowed to market low-cost options to younger and healthier individuals and groups. Lastly, having a small pool of enrollees significantly limits the Exchange’s market power, reducing its ability to demand higher standards and value from the health plans.

As a result, after receiving input from a wide range of stakeholder groups, including insurers, brokers, consumers, and business owners,  the Exchange’s Board of Directors voted unanimously this week to transition to one, DC-wide marketplace for the sale of individual and small group health insurance coverage. Under the plan:

  • Currently insured small businesses wishing to stay with their current insurance carrier or change to a new carrier can transition to the new market over a two-year period. In 2015, renewals of these policies will be through the web-based Exchange portal;
  • Small businesses that want to buy coverage for their workers for the first time in 2014 will do so through the Exchange portal. Some will receive federal tax credits to lower their premium costs;
  • Consumers currently covered in the individual insurance market and those buying coverage for the first time will purchase those policies through the Exchange portal beginning in 2014 and receive federal tax credits due them; and
  • All plans sold outside of the Marketplace Exchange during the two-year transition period will be required to comply with all of the requirements applicable to coverage sold through the Exchange portal.

The Exchange’s plan now needs to be approved via legislation by the D.C. Council, in a vote that could take place soon. However, in the wake of the Exchange Board’s vote, ACA opponents are mounting a campaign to defeat the plan and protect their own special interests.

This campaign is unfortunate. Unifying the marketplace is essential to the survival of the DC Exchange. Not only that, but for the first time, it would give individual and small business purchasers some real marketplace power to get a better value for their health insurance coverage. Right now, small business owners and individual purchasers are over a barrel – they have to take whatever price and product the health plans want to offer them, because they have no market power. The proposal by the DC Exchange to unify the market turns that dynamic on its head and gives the small guys the same ability to negotiate what the big guys have.

One hopes the DC Council will have the wisdom to see the cynicism behind this well-funded effort to kill the DC Exchange, and vote to support the unification plan.

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