One way to set up a really good health insurance exchange is to take a look at how people actually behave currently in a similar situation. With that in mind, let’s take a look at some of the research that has been conducted on the Massachusetts Connector, the health insurance exchange in Massachusetts, and one of the models that many states are considering replicating.
Research on the Massachusetts Connector (it was created by the 2006 health care reform act in Massachusetts that served as the basis for Obamacare) demonstrates that a majority of enrollees (60%) chose the lowest level of coverage to satisfy the mandate. This may be in part due to the fact that, while Massachusetts has been very successful in enrolling low income residents, it has had a lower take-up rate for the non-group and small group markets. These markets are likely to produce fewer subsidized plans and perhaps higher enrollment in more expensive plans.
Additionally, researchers at the University of Pennsylvania found that price sensitivity varied significantly by age. In fact, they note that the youngest person in their model (age 27) is twice as sensitive as the oldest (age 64). They conclude that, because the ACA allows that premiums can vary by age by a factor of three, insurance companies may charge higher premiums to older consumers because they are less sensitive to price, look for more generous coverage, or some combination of the two.
This has significant implications for how states determine the minimum acceptable amount of coverage. The reality is that most people who enroll simply default to the cheapest plan. This means that in choosing their minimum benefits, the government needs to keep in mind that that is likely what a majority of people using their exchange will end up with.
Bearing this in mind, the federal government has set a floor by issuing minimum standards that all health plans must meet. These are called “Essential Health Benefits.” For example, in states opting to create their own exchanges, they have the option to defaulting to the largest small-group plan, which is offered by Blue Cross Blue Shield, as its benchmark for Essential Health Benefits. After selecting this benchmark, the state must still supplement to make sure the plan meets the federal standards and then can adjust the benefits. Throughout this process, the state must be mindful that what it sets as the minimum is likely to have a huge effect on its citizens’ coverage.