There is plenty of confusion and debate about the Affordable Care Act. One element of the 900-plus-page legislation is crystal clear, however: Each state must establish an insurance exchange or the federal government will step in to fill the void.
The insurance exchange is the cornerstone of the ACA. It is an online marketplace for consumers to shop for insurance just as they shop for an airline flight. Those who qualify for federal health care subsidies will be able to use them only to purchase plans offered on the exchange. This will attract relatively healthy individuals and help drive down premiums for everyone shopping there.
When the spring legislative session adjourned recently in a welter of debate over pension funding, the possibility of bipartisan design of the Illinois' exchange vanished. Reasoning that part or all of the ACA could be stricken down by the Supreme Court this month, our legislators decided to delay action. But they're taking a grave risk: If the exchange-related parts of the ACA survive, Illinois will need to provide a detailed blueprint of an exchange by November. We have been awarded $38 million toward exchange planning. There's just one glitch—our legislators haven't authorized the establishment of an exchange.
If Illinois is to have any chance of a state-designed exchange, Gov. Pat Quinn immediately must issue an executive order to establish one.
The authority operating the exchange (an entity our state should design) would ensure that only plans providing the full range of benefits required by the ACA participate. A state exchange could take a more active role, limiting participation, for example, to the lowest-cost and highest-quality plans.
The broker industry is rightly concerned that exchanges will put them out of business, just like Orbitz and Expedia decimated the travel agent industry. Once the insurance market becomes transparent, individuals and small groups will need the services of brokers less and less, and insurers will not be willing to pay their high commissions. Cutting brokers out of the equation should reduce premiums by 5 to 7 percent—no small feat given how hard it is to cut health care costs.
We have $38 million in hand, and more funding is available if we apply by the end of the month. Illinois will be responsible for financing the exchange regardless of whether we operate and design it ourselves. Should we not seize the opportunity to use these funds to craft something that suits our circumstances and tastes?
The Legislature has effectively cut itself out of the picture. The question now is: Will the governor move in time to protect the public interest?
Leemore S. Dafny
Associate Professor of Management and Strategy
Kellogg School of Management, Northwestern University
(Original article posted here at Crain's Chicago Business, June 21, 2012)