The future of insurance exchanges

Henry J. Aaron of the Brookings Institution.

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TESS VIGELAND: And this week we are going through some of the major elements of the new health care law that will affect you as patients. For many Americans, the issue of health insurance has played an outsized role in employment decisions. Changing jobs? How's the insurance? Starting your own business? How're you gonna get insurance?

Well, under this bill something called a state insurance exchange may change the balance in terms of how you weigh those life choices. Before we get to the details, here's an example of what we're talking about, a personal story gathered by Entrepreneurship reporter Mitchell Hartman.

Erik Filkorn: I'm Erik Filkorn, I'm 44 years old, and I am a public relations consultant.

Otie Filkorn: I'm Otie Filkorn, 48 years old, I've been working as a consultant in packaging and purchasing. And since bringing children into the world, being a housewife has become more of a full-time occupation.

Erik: I think I had my first reliable health insurance when I married Otie, and she was an assistant director, a member of the Directors Guild of America, and we worked off of her health plan for the first couple years that I was starting my independent PR business.

I can't remember, did we COBRA DGA for a while then?

Otie: No, no. I went straight, took a full-time job in Vermont and that job came with health benefits.

Erik: Then you went out on maternity leave and were able to COBRA. And then I went to work at Spike Advertising. When I figured out that I was really meant to be a self-employed guy, you started at True Body Products.

Otie: Definitely one of the appeals about that job was that it offered health benefits. I can look back on it and see that a lot of our career choices, while they haven't been completely autonomous choices, have been flavored by the appeal of somebody offering health insurance.

That was Erik and Otie Filkorn in Richmond, Vt. And now we turn to Henry Aaron. He's a senior fellow studying health care issues at the Brookings Institution. And Mr. Aaron, if you would, explain for us what a state-run exchange will look like.

Henry Aaron: Well, first of all, there will be a couple of them. One for individuals and one for small businesses. Companies with up to a 100 employees will be able to buy insurance through the company exchange.

Vigeland: And for individuals?

Aaron: Individuals who are not covered at work can buy insurance through the exchange. And if their income is low enough, they will qualify for income-related subsidies on that insurance.

Vigeland: Will these exchanges vary from state to state? I mean, would you end up going kind of state shopping for the state that provides the best options?

Aaron: You'll buy insurance through your own state, but each state can team up with other states, and I don't think they even have to be neighboring states to form a single exchange. States can divide themselves. For example, one can well imagine a separate exchange, say, in the state of California for northern and southern California.

Vigeland: Because we are completely different states.

Aaron: Absolutely, and California's a different nation.

Vigeland: Now, just for clarity, we do want to explain that the exchange is simply a place to look for insurance options. You are not being insured by the state government.

Aaron: You are not being insured by the state government, you are not being insured by the exchange. You are being insured by the private insurers, which makes the allegation that this is a government takeover seem a bit odd.

Vigeland: And when will these be made available for people who are looking for insurance. If you need insurance right now, can you get it through a state exchange?

Aaron: Not until 2014.

Vigeland: So what is the advice to consumers in the mean time, prior to 2014, if they're looking for insurance?

Aaron: Well, as always, the advice is shop carefully, don't buy into plans that have unduly high administrative costs -- a good signal for that would be very aggressive selling techniques.

Vigeland: Who will be required to buy into the exchanges?

Aaron: Nobody is required to buy into the exchanges. The exchanges are going to have to win on their merits. Insurance companies will continue to be allowed to sell insurance outside the exchanges and individuals would be allowed to buy insurance from them outside the exchanges.

Vigeland: And what kind of cost is involved in premiums and other out-of-pocket expenses? Is it possible at all to say what this kind of state exchange insurance might cost?

Aaron: There's no reason to expect insurance prices, merely because of the creation of the exchanges to change materially. What is hoped is that the increased competition among insurers, who will be required to offer certain standard plans and to use similar informational formats, it's hope that that competition may, in some degree at least, drive down the price of insurance. But if you're looking for what insurance will cost, the best indicator would be what does it cost today plus alas, the inflation in health insurance costs that has been going on for some time.

Vigeland: Henry Aaron of the Brookings Institution speaking with us about the state-run health insurance exchanges that will be available in four years.

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