The Utah Health Insurance Exchange launched last week for small employers in the state of Utah. The purpose of the exchange is to provide consumers with important information so that they can make informed decisions about their health insurance options. From an employers view, the exchange allows them to set up a defined contribution health plan and allow employees to choose different policies from the exchange.
How does the exchange work (my interpretation in simplest form)? Within the exchange, an employer can set a defined contribution towards the health benefits of their employees. Employees use the exchange to purchase from a limited number of personal policies. All costs are tax free.
With the exchange, there are some restrictions that are placed on the companies that are typically not in place with an ordinary HRA or section 125 plan for individual policies. Within the exchange, employees are restricted on which policies they can buy. Although not all details are available yet, I believe there will be limits on consumerism because of these restrictions.
There is also the restriction of how many people need to participate in the plan. This will limit the small business that typically doesn't offer health insurance because of cost. They will not be able to contribute as a company, and rallying enough of the employees to participate in a system that will be more expensive than the private market will make it difficult to amass the numbers to participate.
A third restriction I see has to do with the portability of the insurance purchased through the exchange. The insurance, although advertised as individual, is only transferable if the company you switch to is also using the exchange. This could result in employees still losing their coverage when they no longer work for the company or when a company decides to no longer participate in the exchange. On the other hand, HRAs that use the private market for insurance allow the employee to purchase insurance that is guarantee renewable until the age of 65.
One exciting thing about the exchange is that it offers guarantee-issue insurance for employees of companies that participate. This is similar to the current small group insurance regulations in the state, but the exchange offers some additional choice for the employees. The problem that could occur is that healthy companies might still go to the private market, while sick companies might flock to the exchange. This could cause some problems in the future with rising costs of the exchange.
I like the idea that Utah is moving closer to what my colleagues and I believe is the step toward correct reform. Look for more posts and my comments to come in the future.
To learn more about the flexibility of HRAs and section 125, and how any sized company can do this in Utah or any other state read more about it in this blog.