This item today from the California HealthCare Foundation’s California Healthline reports on the effort by some members of Congress to call out two small jurisdictions – Vermont and the District of Columbia – for mandating participation in their health benefit exchange marketplaces. In so doing, the lawmakers have spotlighted a point of tension between the letter of the Affordable Care Act and its policy intent in requiring states to set up exchanges. In asking the federal government to crack down on the two jurisdictions, they correctly note that the ACA does not compel participation in the exchange marketplaces for neither health plans nor individuals and small businesses.
On the other hand, the exchanges are intended to aggregate the market – particularly on the buyer side – in order to restore functionality to the distressed individual and small group health insurance market segments. In small jurisdictions like Vermont and the District of Columbia, attracting the market into their exchanges is harder because there are fewer residents to draw from. And with fewer residents, statistically speaking there are smaller numbers of individuals and small employers to potentially participate in the exchange marketplaces. Which makes them less attractive to health plans since with fewer insureds, they can less easily spread the risk of high cost “covered lives.” That in turn increases the risk of adverse selection, which can leave the individual and small group markets at least as dysfunctional and unaffordable as they were before the exchanges opened for business.
To some degree or another, smaller state exchanges are likely to face the challenge of attracting and retaining sufficient numbers of individuals and small employers – particularly the latter. The problem is particularly acute in the least populous states, a point made in this previous blog post where I discuss ACA provisions that allow smaller states to create bigger risk pools to help ward off the specter of adverse selection.
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