Utah state officials have launched an online health insurance exchange for small businesses and individuals that they believe could be a national model for market-based health care reform.
The Utah Health Exchange, open to a limited number of small businesses this fall, is being described as a way for employers to make fixed-dollar contributions to the health insurance of their employees, who will use the money to shop for health insurance much like consumers shop for airfares on Web sites such as Travelocity.com.
The exchange, the product of health care reform legislation signed in March, is intended to help employers provide health care without worrying about unpredictable spikes in health care costs.
“This allows employers’ costs to be fully predictable,” says Norman Thurston, health policy and reform initiatives coordinator for the state.
National health reform legislation has included exchanges, but the details have not been worked out. As has been the case nationally, rising health care costs have been particularly burdensome for small employers in Utah.
Today, less than 45 percent of small businesses in the state provide health insurance.
All small employers with two to 50 people will have access to the exchange January 1, while large employer groups will have to wait until 2012.
Utah’s exchange differs from so-called health insurance purchasing cooperatives set up by groups of small employers elsewhere to use their collective purchasing power to reduce premiums.
Many of those cooperatives, however, did not last long.
“As the premium went up and the good risk left the group, you’d end up in this death spiral and the group died,” says Larry Boress, president of the Midwest Business Group on Health.
The exchange is intended to do what the purchasing cooperatives could not—simplify health plan administration, offer employees more choice and keep health care costs fixed.
“What’s revolutionary about the Utah exchange is the defined-contribution piece for business,” says Samuel C. Gibbs, a senior vice president with Mountain View, California-based eHealth, an online health insurance portal. Utah is using eHealth’s Internet platform for a similar insurance exchange for individuals.
State law now allows employers to contribute a fixed-dollar amount to a person’s health insurance, enabling them to customize their contribution for each individual, and send one check once a month to the exchange administrator.
Once employers sign up, employees fill out a health questionnaire that insurers use to evaluate the group’s risk and the price of their premiums. Consumers will have as many as 15 plans to choose from, Thurston says.
The exchange will provide information on the cost and quality of each plan. The minimum benefit the state will require insurers to provide will be equal to the value of a high-deductible plan. Employees would be responsible for the difference between what their employer gave them and the cost of the insurance they want to purchase.
Individuals will be free to choose any plan they want. Insurance carriers that end up with healthier people, however, will have to pay a fee to carriers that provide insurance to sicker people more likely to use health services.
Utah officials believe their system will reduce costs.
“Now insurance companies will have to compete at the consumer level,” Thurston says. “They are going to have to think about bigger and better ways to keep costs down because costs are going to be transparent. People will move to cheaper plans.”
If national health reform fails, states may be more inclined to create exchanges, Gibbs says.
In addition to Utah and Massachusetts, where an exchange exists to help residents comply with state law that requires them to purchase health insurance, Oregon in June passed a law to set up a statewide health insurance exchange.