The State of Utah recently launched a new program that lets employees of small businesses shop for a health insurance plan that best suits them and their families and purchase a policy at affordable rates. Called the Utah Health Insurance Exchange, it demonstrates why state-level policy innovation–not top-down, federal planning–is the key to improving America's health sector.
Run by just two Utah officials with almost no new taxpayer money, the Exchange provides an online portal where employees of small businesses can combine contributions from their employers with their own pre-tax dollars to purchase the policy of their choice. Because participating employers don't have to take on the administrative burden of setting up an insurance plan, this service promises to substantially cut down on the cost of offering health coverage.
The Exchange allows employers to simplify benefits management. Instead of the headache of administering their own health plan, they can offer employees a "defined contribution," or a specified amount of pre-tax dollars that is set aside for employees to apply toward premium costs. Then employees, rather than employers, compare options and select the health plan that works best for their needs and circumstances.
As more employers choose to offer health benefits on a defined contribution basis via the Exchange, more workers will be able to take their coverage with them from job to job. This will substantially improve the state's insured rate. Right now, 60% of Utah's workers are employed by a small business. In the past, these firms have had difficulty offering insurance to their employees since insurance tends to cost more for small firms than it does for larger ones. The Exchange will help these employers offer insurance and allow their employees to choose from a menu of different plans and prices.
In just the first two weeks since the Exchange was launched in August, it enrolled 136 employer groups with a total of 2,333 employees. And while officials have capped total enrollment at 150 businesses for now, they plan to open the Exchange up to many more employers as soon as possible.
There are many benefits for employees, as well. The Exchange allows employees of the same firm to have different plans; some may choose an HMO and others a Health Savings Account instead of getting stuck with whatever health care plan their employer chooses.
The Exchange is also expected to drive prices down. There are currently 72 plans offered by five private insurance companies, with individual premiums as low as $35 a month (and family premiums as low as $135). As the number of plans grows, competition should force prices down.
The Utah Exchange also helps make insurance portable. Because of the historic link between health insurance and employment, individuals often lose their coverage when they change or lose jobs. Since Exchange plans aren't linked to any particular job, participants can keep their insurance even when their employment situation changes, avoiding a break in coverage.
Because it's working so well, one might argue that the Utah Exchange should be replicated at the national level. But the Exchange has been successful because Utah lawmakers, led by House Speaker David Clark, were able to create a market-based program tailored to the unique needs of their residents.
The Exchange being contemplated in Washington is very different: It would put Congress in charge of determining what constitutes acceptable insurance coverage with limited options of costly, impersonal, one-size-fits-all programs dominated by benefit mandates and pushed by lobbyists and special interest groups, not consumers.
Right now, intrusive federal regulations threaten to stifle the kind of innovation responsible for the success of this program. Federal lawmakers should scrap the top-down reforms championed by President Obama and Democratic leaders in Congress and encourage state policymakers to create programs tailored to the specific challenges of their states–just as Utah has done.
Grace-Marie Turner is president of the Galen Institute, a nonprofit research organization focusing on patient-centered solutions to health reform. She can be reached at P.O. Box 320010, Alexandria, VA, or at email@example.com.
Published in Forbes.com, September 18, 2009