Active Purchasing for Health Insurance Exchanges: An Analysis of the Options

Summary:  State-based health insurance exchanges are a critical component of the Patient Protection and Affordable Care Act’s (ACA) provisions to expand access to coverage to millions of Americans. The central function of exchanges are to help organize insurance markets and promote more effective competition among health plans. States are struggling with the issue of whether and how active a role exchanges should take on to shape market rules to incent insurers to offer higher-quality products at prices that are easier to compare. Some policymakers believe that the exchanges must be “active purchasers,” empowered to selectively contract with carriers, set tougher participation criteria than the federal standards and/or negotiate price discounts in order to effectively serve consumers. Others believe the best way to serve consumers is to have the exchange provide the broadest possible array of plans, but do little to structure the market beyond what is required in the ACA (this is sometimes called the “Travelocity” approach).

This white paper finds that the decision to have an Exchange be an active purchasing is not just a matter of adopting one model or taking on one regulatory function. Rather, it can encompass a wide range of activities that can be adapted for that particular market but are designed to leverage higher-quality, more affordable insurance for individuals and small businesses. The authors also assess environmental factors in the states that would support – or undermine – the range of active purchasing activities in which an exchange may wish to engage.

This paper is part of a larger project funded by the Robert Wood Johnson Foundation to provide technical assistance to states implementing health insurance exchanges. Other products include a toolkit offering legislative language for policymakers implementing their exchanges and an issue brief on exchange governance.