October 7, 2008, The New York Times
Insurance Exchange Is a Good Idea
By Ezekiel Emanuel

Ezekiel Emanuel, an oncologist, is the chairman of the department of bioethics at the National Institutes of Health.

Americans loathe health insurance companies. We all have our stories. When my family moved to Chicago, our new insurer sent back all doctor’s bills the first year marking them: “pre-existing condition.” This for my children’s strep throat and ear infections — acute infections that could hardly be “pre-existing” conditions.

This dread of insurance companies makes it worthwhile to examine how John McCain and Barack Obama handle them.

If you don’t like health insurance companies, Mr. McCain’s plan is not for you. It is likely to lead to higher costs, less protections and more paperwork. Mr. McCain wants to move people out of employer-based insurance by: eliminating the tax exclusion for employer-based coverage (making insurance provided by employers taxed as income, which it is not today); providing a tax credit to all Americans for purchasing health insurance; and allowing health insurers to sell nationwide, so a person living in New Jersey could buy insurance from a company in Nevada not subject to New Jersey laws. Why? Because like the banking industry, Mr. McCain wants to open up the health insurance market to “more vigorous nationwide competition.”

This approach suffers from three major defects: 1.) insurers charge in relation to a person’s health, so those who are sick could pay $20,000 or $30,000 a year; 2.) these policies typically cover less than employer-based insurance and usually have higher deductibles and co-pays; and 3) the insurer’s administrative costs in the individual market are substantially higher because, when the sales are to each individual separately, there is more underwriting and no economies of scale.

One way to solve these problems is to have “insurance exchange” in which a variety of insurers would offer the same benefits at a fixed price and have to take all comers, while being paid more if they enrolled sicker patients (risk adjustment). This keeps prices down by reducing administrative costs. Doubtless, Mr. McCain’s savvy policy advisers understand this option. It seems they rejected it because it conflicts with their ideology of less government oversight and regulation.

Barack Obama’s plan adopts this insurance exchange idea; creates a public national health plan open to all Americans with benefits based on what members of Congress get; protects people by requiring insurance companies to enroll anyone and charge the same premium for all people and gives subsidies to poor people to buy health insurance.

Most health policy makers think this exchange is a good idea. According to consultants with McKinsey and Company, if used for everyone, exchanges could save $70 billion or more. The guaranteed enrollment and community rating also protect people, especially sick people.

One problem is what will be covered in the national health plan. History suggests special interests — whether patient advocacy groups for particular diseases, physicians offering a particular intervention or manufacturers of drugs, devices and tests — can lobby for that particular issue. This pressure often ignores whether the medical intervention actually improves health, but it can drive up costs tremendously making the standard benefit a Rolls Royce offering.

One of the key ways the insurance exchanges can work to reduce costs is to have a basic package, and, if people want more services, they could decide whether to buy them. Former Sen. Tom Daschle, a health adviser to Mr. Obama, has suggested that decisions about what services are covered should be made by a national board insulated from political pressure much like the Federal Reserve Board.

If you are like most Americans and think health insurance companies behave badly and you want more protections, lower premiums and less paperwork, don’t wear a John McCain button. Barack Obama’s approach should be more to your liking.