A Plea For National Exchanges.

At 8am on Christmas Eve morning, the Senate passed their health care bill on a party-line vote: 60-39. Typically, at this point in the process, the Senate and House would now go to a conference committee to merge their two bills into one final piece of legislation. However, everybody, right now, is currently unsure as to whether or not a conference will actually take place, because it looks as if [to save time and Republican obstructionism], the leadership has decided to have the House simply amend the Senate bill, rather than officially merging the two. [UPDATE: All signs are currently looking to an informal conference.]

I would certainly prefer a conference, but either way, the House will obviously have some input on what the final health care legislation looks like. The most important thing the House can do, I think, is push for their national exchanges instead of the Senate's state- or region-based exchanges.

For some reason, the insurance exchanges have gone very under-noticed in this health care debate. It is one of the most vital provisions in the legislation and is arguably the cornerstone for increased competition and regulation on the insurance industry.

As Ezra Klein puts it to other health care wonks, "The Health Insurance Exchange, combines the benefits of choice that are theoretically available on the individual market with the bargaining power and scale that's generally accessible only in large employers."

What Ezra's saying is that there's much more choice available right now for the consumer that is on the individual market, because they can theoretically choose any plan they'd like. However, under the current health care system, one individual has zero bargaining power, unlike how large employers can negotiate with insurers to reduce prices for their workers and provide greater benefits. What the insurance exchange can do is give that power to individuals by letting them look at the pros and cons of different plans and choosing what is best (and cheapest) for them.

Basically, the Exchange is a health insurance marketplace -- much like websites you can go to that compare prices, co-pays, and deductibles on car insurance. As the White House likes to put it, it's "one-stop shopping" for your health insurance needs. Simply allowing the consumer to compare prices between plans would do wonders for competition in the insurance industry, as it does not happen now.

Derek Thompson at The Atlantic made a good find of an attempt to see what an insurance exchange might actually look like: (click to make larger)

As you can see, a government-regulated insurance marketplace could bring down costs, because it would finally make insurance companies compete with each other for the consumer's benefit.

Moreover, after the image above was constructed, an amendment was passed by Mark Pryor (D-AK) -- backed by a 98-0 vote -- that directs "the Department of Health and Human Services [to] establish, gather and post online consumer feedback about the health care plans offered through the proposed health care exchange." Ultimately, it makes the Insurance Exchanges function a little more like Amazon.com. By allowing consumers to review health insurers in public, it (1) gives other consumers additional information about the plans they're buying to and (2) threatens the insurance companies. After all, why would people on the Exchange choose to buy into a plan that has, something like, a 10% positive rating, especially if they're in a similar price-range as the other plans?

The Exchanges would also do even more than what is noted above -- including substantial government regulation and an easier allocation of subsidies for people to purchase health insurance -- but this post is more to point out that, while any exchanges are better than no exchanges, a national exchange far exceeds a state-based (or region-based) exchange.

The arguments for a national exchange instead of one that is state-based, I think, are fairly simple. With regards to competition, state-based exchanges are more favorable to the insurance industry because they will not create institutionalized competition like a national exchange would. Also, the federal government could make insurance more accessible and affordable by allowing individuals and small businesses to choose the best policy for their needs than the individual states could.

I don't think that you even need to understand a lot about health care policy to understand the virtues of a national exchange as opposed to one that is state-based. Just think of the following questions: Would it be easier to set up and regulate one government program or 50? Would it be better to let insurance companies compete with each other nationally or would it be better to leave them only to compete with the other companies offered in their state? Since bargaining power is generally based on how many people you have on the Exchange, is it going to be easier for consumers to hold bargaining power in a large national exchange or 50 smaller state-based exchanges?

Finally, for any state that feels that they can do it better than on a national scale, the House's Exchange provision allows individual states to opt-out of the national Exchange and forming a state-based one instead. Said state would simply have to put together a plan that shows the regulatory agency overseeing much of the reform (whether it be the Health Benefits Advisory Committee or the Medical Advisory Committee) that their state-based exchange would provide better quality care, prices, etc. for their constituents than the national exchange would (much like how states can also opt-out of the individual mandate). All bases covered!

Especially since most all health economists agree that Exchanges will expand and likely will (and should) be the future of our health care system, starting off with a national exchange is a big deal. And as corny as this ending sentence may sound, we are the United States of America. It would make sense to act like it in this regard.