Shortchanging the Insurance Exchange - Prescriptions Blog - NYTimes.com

Shortchanging the Insurance Exchange - Prescriptions Blog - NYTimes.com
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Maybe not. Within six years, the Texas exchange folded. Mr. McGarr cites different factors — like the fact that eligibility was limited to small businesses with 50 or fewer employees, which proved unpopular. And the purchasing alliance had been promoted by Governor Ann Richards, but was not a priority of the man who replaced her in the Texas statehouse in 1995, George W. Bush.

Most important, though, our exchange failed not because it wasn’t needed, and not because the concept wasn’t sound, but because it never attained a large enough market share to exert significant clout in the Texas insurance market. Private insurance companies, which could offer small-business policies both inside and outside the exchange, cherry-picked relentlessly, signing up all the small businesses with generally healthy employees and offloading the bad risks — companies with older or sicker employees — onto the exchange. For the insurance companies, this made business sense. But as a result, our exchange was overwhelmed with people who had high health care costs, and too few healthy people to share the risk. The premiums we offered rose significantly. Insurance on the exchange was no longer a bargain, and employers began backing away. Insurance companies, too, began leaving the alliance.

In short, the Texas experiment failed for many of the reasons warned about by the policy experts Ms. Abelson interviewed for her article.