Underinsured

State exchange failure

After Utah launched a health insurance exchange to help small businesses buy medical coverage for their employees in August 2009, 136 companies signed up. By the end of the year, only 13 remained.

John Graham, director of health care studies at the pro-market Pacific Research Institute, argued in a 2010 paper that the exchange's collapse was due to its underwriting restrictions, which restricted the ways in which insurers could price employee health history. Those rules made the exchange especially attractive to businesses with large numbers of relatively sick employees. Such "adverse selection" drove prices up, which pushed firms with healthier employees out.

The state legislature moved quickly to update the rules. But rather than relax the underwriting restrictions, it extended them to all insurers. Business inside the exchange picked up again: By August 2011, the state had enrolled 157 employers and 1,424 employees, plus an additional 2,635 employee dependents.

Still, the exchange has barely made a dent in the state's coverage rates. Just 16 percent of the businesses enrolled in the exchange did not previously offer health coverage, which means the exchange has facilitated new coverage for less than 230 of the roughly 100,000 uninsured individuals employed by small businesses in the state.