Obama faces huge challenge in setting up health insurance exchanges

By Elise Viebeck
The Hill, November 25, 2012

The Obama administration faces major logistical and financial challenges in creating health insurance exchanges for states that have declined to set up their own systems.

Since different states have different insurance markets and different eligibility requirements for Medicaid, Obama’s Health and Human Services Department can’t simply take a system off the shelf as a one-size-fits-all fail-safe.

“You can’t simply deploy one federal exchange across the board,” said Jennifer Tolbert, director of state health reform at the Kaiser Family Foundation.

“Each state is different — their eligibility systems are different, their insurance markets are different. [HHS is] going to have to build these exchanges to fit into the context of each state.”

Experts have predicted that the department will soon have to tap budgets from its other programs to cover exchange costs. Other have said it might charge fees on the insurance purchased in its exchanges once they are launched.

The idea behind the exchanges is to match the uninsured with plans that meet their needs and reflect their eligibility (or lack thereof) for government help.

In practice, the process will require websites that can process massive amounts of personal information from users and yield search results for everyone.

Each portal will require a front end — the interface consumers will use to submit their information and shop for plans — and a specialized back end that is customized based on the state.

HHS will also construct a range of other systems: a federal data hub for verifying user identity; programs for user assistance; a way to certify that health plans meet federal standards; a way to navigate the exchanges via phone or apply for coverage by mail; and so on.

Experts expressed one main concern across the board — that people eligible for Medicaid but not for the exchanges might fall through the cracks in federally run systems, since enrollment in the program is run by states.


One unique feature of health care financing in the United States is our shameful administrative excesses. The new state insurance exchanges required by the Affordable Care Act (ACA) add to that waste, whether run by the states or by the federal government by default.

To begin with, since the plans offered by the exchanges will be in the individual and small group markets, under ACA they will be allowed to keep 20 percent of the insurance premiums for their own administration and profits.

Next, the exchanges will be much more complex than a mere website from which to compare and choose plans. These portals (exchanges) will require a complex front end to determine eligibility or lack thereof for Medicaid or for the premium subsidies which vary based on the actuarial values of the plans and the incomes of the applicants. Also the managers of the exchanges will have considerable work on the back end in establishing plan eligibility to participate in the exchanges, evaluating the essential health benefits of each plan, confirming that each metal level (bronze, silver, gold, platinum) meets actuarial standards, meeting regulatory requirements that vary from state to state, and providing a mechanism for the purchaser to intelligently navigate the maze established by the exchanges.

Obviously there will be considerable administrative costs associated with these exchanges – costs that are beyond the 20 percent retained by the insurers. ACA requires that the exchanges be self-sustaining, meaning that these administrative costs must be paid by the insurers (beyond the 20 percent) or by the purchases of the plans. Either way, those enrolling in plans through the exchanges will ultimately bear the costs of these administrative excesses.

Finally, physicians, hospitals and other providers of care will continue to bear the costs of the excessive administrative burden placed on them by this fragmented, complex financing system. Instead of providing administrative relief, the exchanges further increase the administrative burden and excess costs of allocating our health care dollars.

Readers already know how over 99 percent of this portion of our administrative waste could be eliminated. Enroll each individual once, at birth, in a single national health program – an improved Medicare that includes everyone. So why aren’t we doing it?