The Role of State-Based Health Insurance Exchanges

Under the Obama Health Care Law, beginning in 2014 there are to be state-based health insurance “exchanges.” These are designed as marketplaces through which, initially, individuals and employees of small businesses and, later, employees of large employers as well, will on an annual basis choose their health insurance plan for the next year. Originally, state-based "exchanges" were designed to allow comparison shopping among all insurance plans that provided the basic benefits. Instead, however, consumers will be denied the choice of plans offered by insurers who allow their customers to spend what state bureaucrats deem an “excessive or unjustified” amount for their health insurance.

Exclusion of Health Insurers Who Allow Their Clients to Choose “Excessive” Insurance

Section 1003 of the law,1 codified at 42 USC § 300gg-94, together with Section 1311(e)(2),2 codified at 42 USC § 18031(e)(2), has the effect of instructing and authorizing state bureaucrats to limit the value of the insurance policies that Americans using the exchanges may purchase. Under it, state insurance commissioners are to recommend to their state exchanges the exclusion of .“particular health insurance issuers ... based on a pattern or practice of excessive or unjustified premium increases.”3 Not only will the exchanges exclude policies from competing in an exchange when government authorities do not agree with their premiums, but the exchanges will even exclude insurers whose plans outside the exchange offer consumers the ability to reduce the danger of treatment denial by paying what those government authorities consider an “excessive or unjustified” amount. This will create a “chilling effect,” deterring insurers who hope to be able to compete within the exchanges from offering adequately funded plans even outside of them, with the result that even outside the exchanges consumers will find it difficult to obtain health insurance that offers adequate and unrationed health care.

Limits on What You Are Permitted to Pay Restrict What You Are Allowed to Buy

When the government limits what can be charged for health insurance, it restricts what people are allowed to pay for medical treatment. While everyone would prefer to pay less – or nothing – for health care (as for anything else), government price controls in fact prevent access to lifesaving medical treatment that costs more to supply than the price set by the government.

1. Patient Protection and Affordable Care Act, § 1003, Pub. L. No. 111-148, 124 Stat. 119, 139-40 (2010).

2. Id., § 1311(e)(2), 124 Stat. at 178. It provides:

The Exchange shall require health plans seeking certification as qualified health plans to submit a justification for any premium increase prior to implementation of the increase. Such plans shall prominently post such information on their websites. The Exchange may take this information, and the information and the recommendations provided to the Exchange by the State under section 2794(b)(1) of the Public Health Service Act (relating to patterns or practices of excessive or unjustified premium increases)[this is the section cited in endnote 1 above], into consideration when determining whether to make such health plan available through the Exchange. The Exchange shall take into account any excess of premium growth outside the Exchange as compared to the rate of such growth inside the Exchange, including information reported by the States.

3. Id. Ironically, Section 1311(e)(1)(B)(ii), 124 Stat. at 178, codified at 42 U.S.C. § 18031(e)(1)(B)(ii), retains a provision barring an exchange from excluding health plans “through the imposition of premium price controls.” Following standard norms of statutory construction, the two provisions would presumably be construed together to prevent state officials from imposing specific, explicit premium price controls on plans offered in an exchange while nevertheless allowing these officials to exclude insurers they deem to have a pattern or practice of what they consider “excessive or unjustified” premium increases.