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On the Third Hand: Off-exchange

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One thing that I find strange about covering the Patient Protection and Affordable Care Act (PPACA) is that everyone, including me, ends up thinking about PPACA as “the health insurance exchange law.”

For the past few months, for example, other reporters and I reported breathlessly on any sign that the exchange enrollment systems had coughed, enrolled someone in health coverage, etc. Some people who say they hate PPACA seem to be mainly thinking about the exchange program.

PPACA is huge and does many things that don’t have all that much to do with commercial health insurance. It contains, for example, a provision that’s supposed to pay for research comparing whether various medical treatments are worth the money spent on them. It contains a tax on tanning salon, and all kinds of provisions about Medicaid.

For commercial health insurance, it contains plan decision appeal standards, standardized benefits summary requirements (basically: nutrition labels for health insurance), rules forbidding insurers from using health information other than age in decisions about issuing and pricing individual health insurance, and lots of other provisions.

Those commercial health insurance provisions apply to major medical plans sold both inside and outside the PPACA exchange system. In theory, the PPACA public exchange system could be a great way for the government to create a mechanism for everyone to see what consumers want in health coverage, and what health insurance really costs.

If, however, you — purely for the sake of argument — assume that the goals of PPACA are reasonable and that some government intervention in the health insurance market is reasonable — there’s no special reason why a PPACA exchange has to be a government agency. PPACA doesn’t even require that. There’s no reason why a PPACA exchange has to be the entity that achieves the goals set forth in PPACA.

The drafters of PPACA wanted to create a mechanism that health insurance buyers and sellers could use to do business in a fair, standardized, efficient, open fashion.

The drafters created the PPACA exchange system to meet those goals mainly because there were many practical barriers to private companies setting up big exchanges and getting enough carriers and consumers to participate to make the exchanges a fair test of the exchange concept.

In theory, if the goals of PPACA are valid and its underwriting and pricing rules are reasonable, having ordinary insurance agents and insurers sell PPACA-compliant policies could be as effective a way of achieving PPACA’s goals as having exchanges sell the policies.

PPACA itself sets up a competition between the traditional health insurance distribution system, the public exchange system, and nontraditional distributors other than the public exchanges. The nontraditional distributors could include anything from Web-based health insurance brokers, to, to Starbucks.

Off-exchange distribution of PPACA-compliant major medical coverage is as much a part of PPACA as exchange sales of PPACA plans.

But even the Center for Consumer Information and Insurance Oversight (CCIIO) — the federal agency in charge of implementing PPACA’s commercial health insurance provisions for the U.S. Department of Health and Human Services (HHS) — seems to be caught up in the idea that the exchange market is the real PPACA market.

On the one hand, it seemed as if CCIIO officials conveyed their disdain for the off-exchange PPACA plan market in a new batch of guidance. The good news (from an insurer’s perspective) was that CCIIO didn’t try to heap new regulations on what insurers selling coverage through the public exchanges off-exchange.

On the other hand, the bad news (from the perspective of someone fond of the traditional distribution system) was that CCIIO didn’t seem to find the idea of insurers selling major medical coverage off-exchange very appealing.

On the third hand: I think that kind of attitude could hurt efforts to maximize whatever good PPACA can do.

If both public exchange plans and non-exchange PPACA plans work out well, at least from the perspective of people who like PPACA or are neutral toward it: Cool.

If the public exchange plan system does well and the non-exchange system simply fades away, because no one but my readers likes it: That would be a case of the marketplace of ideas having its say.

But what if off-exchange PPACA plans do well, or, could do well, and the public exchange system fades away?

If CCIIO starts defining a universe in which the public exchanges fade away as a failure, whatever happens to the off-exchange PPACA plans, maybe that will limit the prospects of the non-exchange PPACA plans.

On the fourth hand, I think that would be unfortunate, even from the perspective of someone who loathes PPACA.

From the perspective of someone who loathes PPACA for non-partisan philosophical reasons, the best thing is for the PPACA exchange system and the PPACA commercial health insurance market rules to operate in their most reasonable, most seemingly practical form, to prove, once and for all, that the problem with PPACA is the theoretical ideas inside PPACA, not execution problems.

If we have a gridlock PPACA World, in which regulators, insurers, and exchange managers follow stupid rules because they can’t get Republicans in Congress to change what everyone knows are stupid rules, and because they have a hard time getting the regulatory flexibility to fudge problems away, then, if this PPACA World dies, we’ll get new PPACA laws.

PPACA defenders will always blame any PPACA exchange system or off-exchange PPACA health plan problems on the Gridlock Gorillas, not on the idea that, for example, health insurance exchanges are inherently unstable.


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