Why Does The Senate Bill Create Two Exchanges?

Unlike the House bill, the Senate bill creates not one but two exchanges. In each state there will be an exchange for individuals and a “Small Business Health Options Program” (SHOP) exchange. What is important is that these are not just two different portals or websites where people can buy health insurance--the two different exchanges will be two distinct markets with two separate risk pools.

(c) SINGLE RISK POOL.—
(1) INDIVIDUAL MARKET.—A health insurance issuer shall consider all enrollees in all health plans (other than grandfathered health plans) offered by such issuer in the individual market, including those enrollees who do not enroll in such plans through the Exchange, to be members of a single risk pool.
(2)SMALL GROUP MARKET.—A health insurance issuer shall consider all enrollees in all health plans (other than grandfathered health plans) offered by such issuer in the small group market, including those enrollees who do not enroll in such plans through the Exchange, to be members of a single risk pool.

This is a very bad idea. First it is unnecessary administrative featherbedding--it is wasteful to have two governmental entities doing the exact same thing in one state.

More importantly, this further divides what was already a small market (those eligible for the exchange) into two smaller markets. This reduces the size of the risk pool, and the purchasing power of the people on the exchanges. A major justification for creating the exchanges was to get a large number of people together where they can collectively get a better deal. Creating both an individual and a SHOP exchange with two separate risk pools would likely end up increasing individual premiums. Long term, it also inhibits the country from moving to a single, unified marketplace where most people select their own health insurance plan. There is no good policy reason to create two exchanges instead of one in each state. There are are plenty of good reasons not to crate a dual-exchange system.

The bill will allow states to merge the two exchanges and two risk pools into one if they want.

(3) MERGER OF MARKETS.—A State may require the individual and small group insurance markets within a State to be merged if the State determines appropriate.

That is good, I guess, but it should be that way by default. I have been unable to find a good reason why the decision was made to create two separate marketplaces.

I have some theories but none are particularly satisfying:

• They may have done it because at one point they planned on limiting something to only the individual exchange where people got affordability tax credits. They may have once planned to only offer the public option on the individual exchange or thought of putting in place more restrictive abortion language for just the individual exchange.


• It is also possible that the two exchanges were done at the request of some small business group. There could be some fear that the previously uninsured people on the new individual exchange would have higher medical costs for the first few years. Some small business group may not have wanted these sicker people in their risk pool.


• There might have been hope that states would start the relatively cheap SHOP exchanges right away, and then create the individual exchange in 2014. This would not cost the government much money because their would be no need to provide affordability tax credits to anyone on the SHOP exchange. Of course, if this were the plan, it could have easily been accomplished in a much better manner.

I honestly don't know why the Senate Democrats are planning to create two separate exchanges with two separate risk pools. It is a bad policy idea, and I have heard no justification for it. It could simply be a poorly thought out design decision. There might be some great reason that I've completely missed, but nine times out of ten, when a strange, bad policy decision makes it into a bill, it was at the request of some lobby. Just one of the dozens of things in the bill I need to watch as this legislation progresses.