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Regulatory Oversight

Building a National Insurance Exchange: Lessons from California

Elliot K. Wicks, Health Management Associates

July 2009

With the nation's lawmakers pursuing an ambitious timeline for overhauling the U.S. health care system, California's experience could shed light on how best to craft a crucial element of the leading legislative proposals.

Virtually all of the bills now taking shape on Capitol Hill incorporate the idea of an insurance exchange where consumers can select a health plan from a range of offerings. Over the past 15 years, California gained extensive experience in designing and operating just such an exchange, an effort that ultimately proved unsustainable.

This issue brief draws on interviews with eight individuals who played key roles in the California exchange. Among its main findings:

• Any exchange that actively enters the market for health insurance will have a very difficult time achieving its objectives if it is not the exclusive source of coverage for some populations, such as small employers or individual purchasers.
• If there is competition for the same customers inside and outside the exchange, the exchange will be unable to offer lower prices on a sustained basis.
• Without sufficient numbers of health plans, the exchange cannot offer meaningful choice or enhance the portability of coverage.

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