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Understanding Health Insurance Exchanges

By Dr. David C. Pate, News and Community
January 10, 2012

I've been asked to take part in the Boise Metro Chamber of Commerce's 2012 Legislative Forum this week on health insurance exchanges, and thought I'd share some of my perspective here.

What are health insurance exchanges?

Health insurance exchanges are new marketplaces intended to create a more organized and competitive market for health insurance by offering a choice of plans, establishing common rules regarding the availability and pricing of insurance, and providing information to help consumers better understand the options.

In the simplest of terms, exchanges are web portals that will make it easier for consumers to shop for, compare, and enroll in a health insurance plan that meets their needs. The goal of an exchange is to decrease the number of uninsured people by providing access to affordable insurance coverage.    

Why are exchanges getting so much attention now?

The 2010 health care reform law (the Patient Protection and Affordable Care Act) mandated that every state have one by January 2014. The law gives states the option of creating their own exchanges, and provides federal grants for that purpose.

If a state does not create its own exchange, the federal government will implement and oversee an exchange for that state beginning in 2014. 

Any state that sets up its own exchange must be able to demonstrate by January 2013 that its exchange will be functional by January 2014, which means that our window of opportunity is now. Without action during the current legislative session, we will not be able to ensure that Idaho controls its own destiny by creating a solution that will be responsive to the needs of Idahoans.

Though exchanges are getting attention now because of the health care reform law, they are not new.  Although very different in structure, two states – Utah and Massachusetts – had exchanges in operation before the enactment of the health care law. And Idaho Gov. Butch Otter has indicated that our state has looked at the possibility since 2007.

What is the controversy?

Exchanges are expensive to create. For our own state, estimates have ranged from at least $20 million to as much as $40 million to create the exchange, not including the annual cost of running it. Idaho’s application to the federal government for funding to assist the state in creating its own exchange included a request for $31 million.   

There is also tension inherent in having Idaho move ahead and seek the funding the federal government can provide under the health care reform law while at the same time Idaho, and many other states, are asserting that the law is unconstitutional and have a challenge pending before the U.S. Supreme Court. 

What is my take on this?

I think Gov. Otter has it right on this issue. If we are going to have an exchange, it should be run by the state. As many have pointed out, if the federal government runs the exchange, the state will have essentially no control over its structure or operation.     

It’s also clear that a federal exchange would be expected to be built around larger, national insurance companies. This would undoubtedly hurt our Idaho insurance companies. Ceding control to the federal government and negatively impacting local business is not a winning strategy for the local economy.

Alex LaBeau, president and CEO of the Idaho Association of Commerce and Industry, summarized it perfectly during a recent legislative preview when he said, “It’s a lot easier to deal with the state’s DEQ (Department of Environmental Quality) than it is the EPA. The same principal applies here. I’d rather deal with (state Department of Insurance) Director (Bill) Deal than deal with” the federal government.

We have the opportunity to control how a health insurance exchange is structured and run in Idaho. A state-run exchange is supported by Idaho business. National polls suggest bipartisan support among the general public.   

For all these reasons, I would encourage the state legislature to enact the enabling statute to create the Idaho health insurance exchange so we can be in the best position to control our own destiny. If the law is struck down in its entirety, we can always decide to abandon the exchange and return the funds to the federal government or move forward with an exchange unfettered by the health reform law. 

On the other hand, inaction on our part will result in loss of control of our destiny if the law is upheld.  Let’s not cut off our nose to spite our face.

About The Author

David C. Pate, M.D., J.D., is president and CEO of St. Luke's Health System, based in Boise, Idaho. Dr. Pate joined the System in 2009. He received his medical degree from Baylor College of Medicine in Houston and his law degree from the University of Houston Law Center.