Health Care Overhaul Depends on States’ Insurance Exchanges

WASHINGTON — In Massachusetts, which has had a government-run health insurance marketplace for four years, people typically file paper applications for subsidized coverage offered by one of five state-approved insurers.

In Utah, employees of small businesses can go to a state Web site and sign up for insurance over the Internet, almost as easily as they download music from iTunes.

The success of President Obama’s health care overhaul, with its promise of affordable coverage for all, depends on the creation of such retail shopping malls, known as health insurance exchanges.

Massachusetts and Utah provide a glimpse of the future, and they offer radically different models for other states. The battle over health care is shifting to the states, and the design of insurance exchanges will be one of the most pressing issues for state legislators when they convene early next year.

“Utah and Massachusetts may well serve as bookends for other states,” said Norman K. Thurston, the policy coordinator at the Utah Health Department.

The Congressional Budget Office predicts that by 2019, about 24 million people will have insurance through exchanges, with four-fifths of them getting federal subsidies that average $6,000 a year per person. People with incomes up to four times the poverty level (about $88,000 a year for a family of four) will be eligible for subsidies.

The Utah Health Exchange organizes the market, allowing consumers to compare a wide variety of health plans sold by any insurers that want to participate.

In the Massachusetts exchange, known as the Connector, the state serves as an active purchaser, soliciting bids from insurance companies and negotiating prices and benefits in an effort to secure the best value for state residents. Health plans cannot be sold through the Connector unless they receive its seal of approval.

“Massachusetts has been more selective and aggressive in contracting,” said Jon M. Kingsdale, who was executive director of the Massachusetts exchange from its creation in 2006 until June of this year.

Matthew A. Spencer, manager of the Utah exchange, said: “We are on the other end of the spectrum from Massachusetts. Our exchange is wide open for any carrier that wants to participate. We define the minimum benefits that plans need to offer. But we step back and allow carriers to compete within the exchange, setting their own prices.”

The idea of an insurance exchange has bipartisan appeal.

Liberals and conservatives alike see it as a way to concentrate the purchasing power of individuals and small businesses.

The federal law was shaped, to a large degree, by the experience of Massachusetts. But Senator Orrin G. Hatch, Republican of Utah, said: “Utah is not Massachusetts. Nor does it want to be.”

Other states will probably fall somewhere along the continuum from Boston to Salt Lake City as they try to figure out the right mix of regulation and competition.

State legislators are asking: Can we get a better deal by limiting competition in the exchange or by accepting all qualified health plans? Should states negotiate premiums or rely on market forces to set rates?

David Clark, a Republican who is speaker of the Utah House of Representatives, said: “In our exchange, the government is a market facilitator, not a contracting agent. We believe in the invisible hand of the marketplace rather than the heavy hand of government.”

Utah has no interest in putting its exchange plans out for bid, Mr. Thurston said. “Any attempt to standardize benefit designs tends to discourage competition and entry into the market, and limits choice,” he said.

In Massachusetts, State Senator Richard T. Moore, a Democrat who is president of the National Conference of State Legislatures, said: “We took a much more governmental approach. But both models make sense. Small states might find Utah is a good model. Bigger industrialized states might go the route we went.”

Massachusetts officials point to the state’s near-universal coverage as evidence that their approach is working. The Census Bureau says 95.6 percent of Massachusetts residents were covered by health insurance last year, compared with 83.3 percent for the nation as a whole and 85.2 percent for Utah.

“We have the lowest uninsured rate in the nation, and we are immensely proud of that,” said Glen Shor, executive director of the Massachusetts Connector.

The White House has provided $49 million to states to help them set up exchanges, which are envisioned as a kind of bazaar where insurers will offer their products side by side, so consumers and employers can make intelligent comparisons.

Congress assumed that insurance would also be sold outside the exchange. But federal subsidies, to help pay for insurance, will be available only to people who enroll in health plans through an exchange.

Exchanges will also play a crucial role as gateways to Medicaid and other public health programs. If people are found eligible, the exchange will help them enroll. In Massachusetts, the same application form is used for Medicaid and for subsidized private insurance purchased through the Connector.

California is another pioneer. On Sept. 30, Gov. Arnold Schwarzenegger, a Republican, signed two bills establishing the California Health Benefit Exchange, with broad powers to “negotiate on behalf of the public” and select qualified health plans.

The legislation generated intense lobbying, and the governor’s intentions were unclear until the last minute. Mr. Obama had urged him to sign the bills and was thrilled when he did, aides said.

The fight in Sacramento offers a preview of what other states can expect. In a letter to California lawmakers in August, Natalie Cárdenas, regional director of government relations for Anthem Blue Cross, a unit of WellPoint, complained that the exchange would have the power to pick winners and losers in the insurance market.

“Federal law will already limit the types of products that carriers can offer,” Ms. Cárdenas said. “Beyond that, the marketplace should determine what products consumers and small employers can purchase, not a government bureaucracy.”

The California Chamber of Commerce urged a veto of the bills, saying they “could lead to unnecessary cost increases and limited choice for employers.”

But Betsy M. Imholz, a lobbyist for Consumers Union, said the California laws struck the right balance.

“At first,” Ms. Imholz said, “the exchange may want to have a large number of health plans participating. But then the state needs to winnow down the number so consumers can see where they will get the best value.”

The California law says the exchange should choose health plans that “offer the optimal combination of choice, value, quality and service.”

Massachusetts requires people to have insurance. Utah does not.

Massachusetts provides more generous subsidies. But, Mr. Kingsdale said, the biggest difference is the magnitude of the two state programs.

In Massachusetts, more than 154,000 people receive subsidized coverage through the exchange, and 40,000 receive unsubsidized coverage, which can be bought on the Web. The Utah exchange, created under a 2008 state law, began enrollment this year. About 1,200 people have coverage through the Utah exchange, and the number is expected to grow to 10,000 by July 2011.

“We anticipate exponential growth,” Mr. Spencer said.

Under the new federal law, the exchanges must be in operation by January 2014. Federal officials will assess states’ progress as of Jan. 1, 2013, and will run the exchange in any state that is unable or unwilling to do so.

The exchanges will have a huge number of duties. They must evaluate health insurance plans and publish “standardized comparative information.” They must set up telephone call centers to answer consumers’ questions. They must determine who is eligible for subsidies and who will be exempt from the penalties imposed on people who go without insurance. They must build new computer systems to exchange data with state Medicaid agencies, insurance companies, employers and federal agencies.

While the exchange cannot explicitly control prices, it can exclude health plans that show a pattern of “excessive or unjustified premium increases.”

State officials worry that sick people will gravitate to the exchange, while healthier people who do not need subsidies will buy insurance outside it. However, insurers must agree to charge the same prices inside or outside the exchange.

Moreover, the law stipulates that members of Congress must get their health insurance through an exchange. So lawmakers will presumably be alert to problems.

NY TIMES By ROBERT PEAR