Now that the Supreme Court has upheld the constitutionality of the Patient Protection and Affordable Care Act, the next big challenge is the creation of Health Benefit Exchanges in each of the 50 states.  These exchanges are supposed to provide uninsured individuals and small businesses with affordable health insurance by pooling their risks and fostering competition among insurance companies for their business.

Beginning in January 2014, states are required to establish American Health Benefits Exchanges for individuals and Small Business Health Options (SHOP) Exchanges for employers with fewer than 100 employees.  In the future, states will also have the option of establishing exchanges for larger employers.

The theory is that individuals and small businesses will be able to shop for insurance on these exchanges with the same type of bargaining power and spreading of risks that were formerly available only through large group health insurance plans at major corporations, government agencies, and labor unions.

States may create the exchanges as government agencies or as non-profit organizations.  Multiple exchanges may be established within a state for different geographic areas.  States may also work together to form regional exchanges.  In states that fail to establish their own exchanges, the federal government will step in and establish exchanges for them.

The exchanges have the potential to promote competition among insurance companies for the business of more than 12 million new health insurance consumers.  PricewaterhouseCoopers estimates that total premiums paid for policies purchased through the exchanges could reach $60 billion.  In some states, enrollment through exchanges may exceed the number of people currently covered by the state’s Medicaid program.

The exchanges also have the potential to lower costs by spreading the risks of insuring individuals with pre-existing conditions and other risk factors over a much larger – and, on average, healthier – pool of insured individuals.

Establishing successful health insurance exchanges in every state, and attracting insurers to participate in exchanges in all 50 states, will not be simple or easy.  The exchanges will be responsible for certifying insurers that may participate, providing information to help consumers understand their options, and ensuring transparency to allow for realistic assessments of financial risks.

All this must be accomplished in the midst of partisan politics. One can imagine the extent of behind the scenes lobbying that will occur in state capitals throughout the country to influence the complex rules and regulations governing the allocation of risks in the various exchanges.  One can also imagine how insufficient transparency could lead to misallocations of risks, much as the lack of transparency in derivatives markets left even supposedly sophisticated investors holding investments they did not understand.

Stay tuned.  The hard part has not yet begun.

John Howley, Esq.
New York, New York



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