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Opinion: Active or Passive, That Is the Question

The rhetoric about the final form of NJ's health insurance exchange belies the fact that both sides may be closer than they seem.

But is it the right question? The current version of the "New Jersey Health Benefit Exchange Act" under consideration in the state legislature would create a new health insurance marketplace for thousands of individuals and small businesses. The national Patient Protection and Affordable Care Act (ACA) requires establishing exchanges in every state. Whether to create an exchange is up to each state, but states that fail to do so will have one created for them by the federal government. This promise, or, in the view of many, this threat, is enough to motivate nearly all states regardless of political stripe to move ahead with exchange legislation. In either case, open enrollment in the New Jersey exchange will begin in the fall of 2013.

As the New Jersey exchange bill works its way through the legislative process, areas of agreement and disagreement among stakeholders are emerging. Section 7a(1) in the current Senate version of the bill has become one such point of contention. This section calls for the exchange board to offer only those plans that provide "the optimal combination of choice, value, quality, and service to enrollees, so as to provide an appropriate range of healthcare coverage choices . . ." Of course, nobody is arguing against encouraging optimal choice, value, quality and service. So where is the rub?

Disagreement on this point boils down to whether the exchange should be a passive clearinghouse that offers all qualified plans or serve as a selective purchasing agent that acts to assure "choice, value, quality, and service." The argument is primarily about means, not ends.

The views expressed by New Jersey healthcare stakeholders in a series of forums and a survey conducted last year by the Rutgers Center for State Health Policy to inform the state's exchange planning process shed light on these differing perspectives.

Opponents of the active purchaser model argued that it would add a new layer of bureaucracy on top of extensive oversight already provided by the Department of Banking and Insurance and the governing boards of New Jersey's small employer group and non-group insurance programs. Further, they argued that excluding plans under an active purchaser model would stymie choice and competition, and it is that very competition that advances value, quality and service.

Proponents of the active model argued that a proactive exchange can promote the best attributes of health plans more effectively than the invisible hand of the market alone. This view suggests that the exchange should assume a role much like that of an HR department of a large corporation, which procures plans in an effort to offer employees a manageable set of benefit options. The argument follows that if this plan selection strategy works for Fortune 500 companies, it would be a wise approach for the exchange.

The clearinghouse model was supported most strongly by insurers, with many healthcare providers and insurance brokers also agreeing. The active purchaser model is advocated most strongly by some consumer groups, with business interests and others also voicing support. It is clear, though, that even within each of these constituencies, a mix of views were expressed at the time of the research.

One can see merits to both sides: keep regulation manageable and select only the best plans. This debate is worth having, but it misses two important points. First, a close look at the legislative language suggests that the sides may not be as far apart as the rhetoric suggests. The word "active" is not used in the bill, and in fact, the language that seems to imply that the exchange would be an active purchaser is rather general.

As noted, the bill calls for certifying only those plans that achieve the "optimal" mix of desired outcomes. This language does not offer guidance on how many plans should be offered and it does not provide clear definitions of performance criteria. To be enforceable, much more specificity would be needed. The standard to which the exchange must adhere in procurement of plans is different than a corporate HR office. As an arm of government, the exchange must extend due process in plan certification. Without specific criteria defining "optimal choice, value, quality, and service," health insurers would be on firm ground to challenge the exclusion of any health plan meeting basic qualification criteria.

New Jersey has unfortunate experience of this type of litigation. It took years to resolve lawsuits stemming from regulatory actions of the Individual Health Coverage Program in the early 1990s.

Even if more detailed review criteria emerge from the post-enactment rule-making process, there is no guarantee that they will result in clear guidance. In fact, the ACA already defines purchasing powers of exchanges in some depth. Exchanges must review and certify for offer health plans based on their scope of benefits, marketing practices, provider network adequacy, inclusion of safety net providers, enrollment practices, quality measurement, and other factors. One could argue that if these standards are implemented rigorously, the "active purchaser" clause of the New Jersey bill is redundant.

A second consideration for policymakers as they debate the role of the exchange is perhaps the most important: how should the exchange function in the context of the rest of the New Jersey health insurance market? It is likely that there will be parallel insurance markets starting in 2014, one within and one outside the exchange. The exchange will serve people eligible for federal subsidies (legal US residents with incomes up to about $76,000 for a family of three). All other individual purchasers, i.e., those with higher incomes and unauthorized immigrants will buy in the outside market. Small businesses will likely have a choice of whether to buy within the exchange or not.

Policymakers should consider whether standards and regulations for plans inside the exchange should be any different from the outside market. I can think of no good reason for treating these markets differently. In fact, having different market rules within and outside the exchange could be fraught with peril. If, for example, insurers were able to offer plans with more limited provider networks or benefits outside the exchange than within, comparatively young and healthy individuals and small employer groups would flee the exchange, leaving higher exchange premiums in their wake. A working group of the National Association of Insurance Commissioners recognized this danger when they wrote, "The most important thing that states can do is to help facilitate a level playing field between participants inside and outside of the exchange."

New Jersey has had bad experiences with adverse risk selection in its non-group health insurance market, making standard coverage unaffordable for many. Now is the time to assure that this history is not repeated. We should debate what powers the exchange ought to have to guide plan selection. But it seems the more important questions are how best to implement ACA requirements for plan selection and how to ensure a level playing field between exchange and non-exchange markets.

Joel C. Cantor is the director of the Center for State Health Policy and professor of public policy at Rutgers University. He has authored numerous studies of health insurance regulatory policy, healthcare delivery system performance, and access to care for low-income and minority populations. He serves frequently as an advisor on health policy matters to New Jersey state government.

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