Will Insurance Exchange Help Cut Health Costs?

One of the key issues in the health care debate is how to make health insurance more affordable. Front and center in the Democrats' plans is something that has gotten little attention but could be central to cutting costs: an insurance exchange.

The insurance exchange would operate much like a stock exchange, but instead of stocks, shoppers can purchase different health insurance plans.

The idea is that those who don't like their insurance, or don't have any at all, can go to the exchange and choose from a variety of different health insurance providers, big and small. For those Americans who like the insurance they have, President Obama has said they can keep their plan.

In the exchange, the lowest premium presumably would come from the federal government, or what has become better known as the "public plan." Because the government wouldn't have to make a profit, or do all the marketing that private plans now do, it would likely be the cheapest around.

In theory, this would prompt companies to trim costs and lower their premium costs in order to compete with other providers and the government plan. Supporters say it's a way to make insurance companies more competitive and keep health benefits tax free.

Companies selling on the exchange would be required to provide coverage to those with a pre-existing condition. People could keep the policy if they change jobs or move. Those who can't afford insurance, but make too much money for programs like Medicaid, would benefit from subsidies paid directly to the exchange. And, small businesses would be able to buy into the exchange in order to provide coverage for their employees.

The system has drawbacks that have yet to be hammered out. Some proposals are for state — not national — exchanges, meaning that people would not be able to keep their policy if they moved out-of-state.

Another risk is that the number of individuals and small businesses that qualify for the exchange may be too small, and there might not be enough volume to create competition. Or, conversely, if it turns out that too many people sign up only when they get sick, or sign up for a few months at a time then drop their policy, companies won't be able to break even. In that case, the exchange won't save anyone any money at all.

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