Utah's Health Insurance Exchange Is No Great Success

ObamaCare's state-based health insurance exchanges have proven a bit of a challenge for some conservative critics because many on the right argued for years that states should be setting up exchanges of their own. The Heritage Foundation's support for state-based insurance exchanges, for example, helped give us RomneyCare, which relies on an individual insurance exchange. And RomneyCare, in turn, helped give us ObamaCare, which relies on a network of state-based exchanges created under federal guidance—the first draft of which was released last week. 

These days, you can still find critics of ObamaCare who think exchanges might not be such a bad idea. The problem with ObamaCare's exchanges, the argument goes, is that they're too tightly regulated, and that under ObamaCare, federal authorities exert too much control. As evidence, they sometimes point to the barebones, lightly regulated health exchange run by Utah. 

Now, as I've noted previously, ObamaCare's rules and regulations will force Utah's state officials to abandon an exchange they like in favor of a far-bulkier federal model. That cuts against the federal government's frequent insistence that its rules and regulations somehow give states "flexibility" in implementing ObamaCare. 

But it doesn't mean that Utah's exchange is a success in its own right. As John Graham of the Pacific Research Institute explains, its impact has been minimal at best:

 As I wrote last October, the Utah Health Exchange launched in August 2009, with 136 businesses enrolling their employees.  However, only 13 groups remained enrolled by December 2009.   The reason for the initial failure was a classic death spiral of anti-selection.  Because carriers had greater underwriting latitude outside the exchange than inside it, firms with sicker employees gravitated to the exchange and those with healthier employees stayed out. 

Legislative amendments passed in March 2010 forced carriers to use the same underwriting both inside and outside the exchange.  The new rules took effect in September 2010 and the new exchange began coverage last January, having enrolled groups for a quarter of a year before the re-launch.   In January 2011, the new Utah Health Exchange covered 41 businesses including 1,042 employees and dependents.  At the end of June, according to a recently published update, the count was 112 businesses including 2,793 employees and dependents.  By August, the exchange forecasts covering 157 employers including 4,059 lives.  Well, I suppose that one way to look at this is that enrolment grew by 289 percent in a year.

…Another way to look at it is that Utah has a population of 2.8 million, of which 1.1 million have full-time jobs. Of those, about 200,000 work in firms of less than twenty employees and 540,000 are in firms of less than 500 employees.  The Utah Health Exchange defines small businesses as those with up to 50 employees.  So, let's say about 300,000 Utahans work for such businesses.  The exchange covers 1,424 of them.  Once again, that is an utterly trivial proportion of the exchange's target market.

There's little question that the federal rules governing ObamaCare's exchanges are onerous. If states are going to set up exchanges, they ought to have the flexibility to do so on their own terms. Yet at the same time, there's little reason to believe that state-designed exchanges will be dramatically more successful than their federally regulated counterparts.