Promoting Healthy Competition in Health Insurance Exchanges: Options and Trade-offs

NIHCR Policy Analysis No. 6
November 2011
Chapin White

Under national health reform, new federal rules will govern the nongroup and small-group health insurance markets, including a requirement for state-based health insurance exchanges, or marketplaces, to be operational by Jan. 1, 2014. Between now and then, both the federal government and states must make key decisions about the design and operation of the exchanges. This Policy Analysis examines five design decisions that federal and state governments will face related to the degree of benefit and premium standardization of health insurance products sold in the exchanges. Within broad federal guidelines, states inevitably will make different policy decisions, but all states will face a similar set of trade-offs. The most basic trade-off is between simplicity and flexibility—a highly standardized health insurance market simplifies the consumer shopping experience and intensifies insurer competition but limits insurers’ flexibility to develop innovative products. While these policy decisions involve fairly arcane concepts—such as quantifying the actuarial value, or comprehensiveness—of coverage—the overarching question for federal and state policy makers is straightforward: How can the exchanges promote healthy competition among insurers to provide better health care at lower total cost?

This article is available at the National Institute for Health Care Reform Web site by clicking here.