Health Insurance Exchanges: The Participation Paradox

As state and federal agencies work to create operational health exchanges, one critical question remains unanswered: How will the key stakeholders participate in the new health exchanges?

Health insurance exchanges are intended to be the vehicle through which millions of Americans will obtain health insurance as mandated by the Affordable Care Act (“ACA”).  The success of the health exchanges will largely rest on an equilibrium of participation by consumers, insurers and health care providers.  A lack of involvement by any one group could have a dramatic effect on the other stakeholders, and ultimately, the success of the health exchange.

For example, hundreds of thousands of Michigan residents are expected to utilize the exchange to obtain insurance.  However, an individual who does not maintain health insurance must make an additional payment to the IRS.  The difference between the IRS payment and the cost of a qualifying insurance policy is significant.  In its decision upholding the constitutionality of the ACA, the Supreme Court noted that, in 2016, the expected amount owed to the IRS is 50% to 85% less than the projected expense to purchase a qualifying insurance policy.  Therefore, it is possible that healthy, low-risk individuals will choose to pay the IRS rather than buying insurance.  This is especially true in light of the ACA’s elimination of pre-existing conditions from the coverage equation.

It is likely that such departure of the low-risk demographic from the market will have an impact on insurers.  Without a healthy population to equalize the risk on the exchange, insurers may attempt to increase insurance premiums for the remaining population.  However, given the regulatory environment, insurers will not be able to rely solely on premiums.  Instead, insurers may also seek to reduce reimbursements to providers who deliver care under plans offered on the exchange.  Ultimately, some insurers may simply choose not to participate in the exchange after evaluating the perceived risks associated with its population.  Less competition amongst insurers could also lead to increased insurance premiums.

Although the health exchange will increase the number of insured potential patients, not all health care providers will be interested in participating in the exchange.  Decreasing reimbursements may eliminate any incentive a provider has to increase the scope of health insurance plans he is willing to accept.  This is especially true if the new plans are associated with a higher-risk population.  In addition, the administrative costs associated with collecting patient contributions under these plans may be prohibitive.  Providers have historically opted in and out of various governmental programs for similar reasons.

Ultimately, the question remains how will consumers, insurers and health care providers participate in the health exchanges, and whether it will be in a way that creates a sustainable equilibrium.

To find out more about the impact that the Affordable Care Act has on health care and your business, contact Health Care Department Chair Jonathan Raven at or 517.377.0816, or our Employee Benefits Department Co-Chair Elizabeth H. Latchana at or 517.377.0826.

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