Active Vs Passive Health Insurance Exchanges and Their Common Challenges

As is common knowledge, ACA proposed health insurance exchanges will be web based market places where consumers can compare and purchase health insurance plans and can avail of various federal subsidies. While the exchanges may be fundamentally similar, the manner in which the exchanges allow participating plans to sell plans through them, will establish whether an exchange is an active buyer or a passive buyer.

The White House has granted states the flexibility to design their own exchanges. While there is a lot of data and explanations available detailing how these health insurance exchanges will be valuable for U.S. healthcare landscape, there is very little data available on setting up these exchanges. As no clear guidelines are available on HIX design principles, all the 50 states can come up with widely dissimilar insurance exchanges which may be glaringly different in their structure, plan offerings, functionalities, services offered, ease of use etc.

The established state exchanges will also need to be designed in such a way that they can communicate and interact with the other exchanges and any other healthcare units/networks to facilitate real time transfer and updating of data.

The designed insurance exchanges may operate as an active buyer or a passive buyer.

Active Exchanges

In exchanges that work on the active mode of buying plans, states enjoy negotiating power and can bargain with the participating insurers on the quality of health plans, premium rates, coverage packages, wellness programs etc. The currently operative health insurance exchange in Massachusetts, Massachusetts Health Connector is an example of an active exchange.

Active exchanges offer a limited number of affordable, high value plans and offer their consumers the best value health plans. States preference for only high quality medical plans, drives the competition among the health plans to offer competitive rates.

While the exchanges based on active buying principles seem like ideal solutions for reducing costs and improving quality of coverage, they have several challenges.

For states to be in the position of negotiating rates and benefits, the states need to have a multitude of plans to choose from, which may not be the case in several states. Also, the exchanges need to have a considerable number of enrollees to attract insurers' to participate in the exchanges. Thirdly, quite a few U.S. states are already struggling against escalating state budgets, so it may be difficult for some states to make available funds and staff to negotiate with the insurers.

Passive Exchanges

Passive exchanges primarily act as a centralized resource pool of large number of health plans. Passive exchanges feature plans from all insurers who qualify the health insurance exchange participation criteria. The passive exchanges do not offer any special deals to the consumers. Consumers have a large number of health plans to compare and choose from.

Some proponents prefer passive exchanges over active exchanges as passive exchanges allow consumers to pick their preferred plan from a large number of plans and the plan selection choices are relatively lesser with active exchanges.

It is still not clear how many states will be able to meet the health insurance exchange plan submission date of January 1, 2013, but whenever these exchanges come into effect, the states or the federal government will need to decide early on the type of exchange they aim to set up.

Author is a well known authority on health insurance in the US. He is currently looking to expand his expertise in State health exchanges and Health insurance exchange available.