Failure of Utah Health Insurance Exchange Is Good News for Consumers
The recent high profile failure of Utah's health insurance exchange may actually be good news for health insurance buyers nationwide. This public rejection of the unattractive features of health insurance sales may finally put an end to unrealistic expectations about the government's ability to manage commercial insurance transactions. Referring to the lessons learned in his state, The Salt Lake Tribune quoted Utah's House Speaker Dave Clark as saying, "I've spent the better part of two years trying to find a better alternative and [Interfering with the free market] is not the answer."
Initially, the concept of forming purchasing cooperatives centered around a common insurance exchange had much appeal. A 2000 report funded by the Robert Wood Foundation said, "The idea of having small employers collectively purchase health insurance has intuitive appeal, and it has been supported by thoughtful health analysts and politicians with widely different philosophical perspectives."
About 20 health insurance purchasing cooperatives have been formed over the past two decades, but none have met initial expectations. Only the two most successful exceeded 5% market share in their target markets. Most health insurance exchange projects closed within a year or two. Yet in 2009 Utah tried the concept anyway--with results that seem even more dismal than earlier efforts.
Utah contracted with eHealth, the nation's leading commercial provider of online health insurance services to offer products under an insurance exchange envisioned by the state's lawmakers. The online purchase project initially launched last August. The state widely publicized that 136 small businesses signed up in advance to use the exchange to buy health insurance at its inception--only 13 of these companies actually enrolled.
NPR reported that some of these businesses dropped out of the program before year-end. By December 2009, it was clear that the insurance exchange had failed on all fronts. Utah House Speaker Dave Clark announced that the government had no choice but to change the program.
Failures, reported by users of the Utah plan, likely be cited in the future include:
- Impersonal Service. To use the Utah exchange, participants were required to answer an extensive questionnaire. This sales interview is traditionally handled by a personal representative. The traditional sales process is likely to remain a better approach
- Burdensome paperwork. The forms normally handled by a trained insurance agent were thrust on the business owner or plan participant. Without experience in the administration of health insurance, the users became frustrated by the experience. Although no specific examples were cited, it seems likely that exchange participants may have increased their legal liability exposure that was not covered under a typical business owners' liability insurance coverage. In contrast, insurance professionals and administrators carry errors and omission insurance (E&O) specifically designed to protect consumers from potential paperwork problems
- Government requirements increased insurance prices. It seems clear that government always increases costs and that the lowest insurance prices are offered under the least restrictive legal environments. The Utah experience is likely to increase public opposition to the expansion of insurance mandates. Lawmakers in many states have already revoked their support for expansion of insurance mandates based on the relatively high cumulative cost of these laws in return for minimal social benefits
- High marketing costs. Utah bureaucrats spent far more marketing its insurance exchange than commercial insurance companies would have spent to achieve the same sales results. The underlying validity of using public funds to advertise and market health insurance is questioned by many
- No reduction in the overall number of uninsured. This confirms other independent sources that found that the method of insurance sales does not affect the purchasing decisions of consumers. The non-profit lobby group called Cover the Uninsured emphasizes that government money and efforts are better utilized to reduce the cost of insurance through direct subsidies
- Failure to deliver defined contribution health plans. Employer-provided health plans in the US have shifted sharply from a defined benefit to a defined contribution approach over the past decade. Yet small business health plans were less likely to make the same transition, and more likely to simply cancel health plans altogether. The Utah exchange promised to make it easier for small companies to make a transition to a defined contribution plan. The brochure for the Utah Health insurance exchange says, "The goal of the Utah Health Exchange is to provide employers and employees with the many benefits associated with a defined contribution health insurance market." There seems to be no indication that the exchange delivered on that promise. Small businesses still face a shortage of defined contribution health plan insurance and administration services in Utah and throughout the nation