Conservatives: The Utah Health Exchange is Not a Model

The Utah Health Exchange has gone from being a marginally interesting sideshow to a serious cognitive obstacle to conservatives’ wholesale rejection of Obamacare.  Witness the Wall Street Journal’s editorial of July 16, which soundly rejected the recently released regulatory guidance on what the Administration is now calling “Affordable Insurance Exchanges,” but nevertheless encouraged governors to get on the exchange bandwagon, in the vain hope that they can build free-market exchanges that will blunt ObamaCare’s worst effects.  The evidence? “Utah built a pilot exchange on this model in 2009, though the results so far are mixed and the rules are still being fine-tuned”.

Mixed? Fine tuned?  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 100,000 of Utah’s uninsured are employed by small businesses, according to the Utah Small Business Coalition.  According the Utah Health Exchange’s report, 16 percent of the businesses enrolled in the exchange did not previously offer coverage (or, in other words, the incidence of crowding out of traditional small-group coverage was 84 percent).  Of the 4,059 covered lives in the exchange, 1,424 are employees and 2,635 dependents.  We can reasonably conclude that 228 (0.16 * 1,424) of the previously uninsured 100,000 employees of small businesses have received coverage through the exchange.  In other words, the exchange has had effectively zero impact on the uninsured employees of Utah’s small businesses.

Yet 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.

So, contra the Wall Street Journal’s editorial board’s assertions, the Utah Health Exchange’s results so far are not “mixed”.  They are basically non-existent.  If a venture capitalist was funding the Utah Health Exchange, it would certainly be shuttered on its first anniversary.  So, conservatives, please stop citing the Utah exchange as a successful example of a non-Obamacare exchange.

In a future post, I will explain why I think it is impossible for such an exchange to add value to small businesses’ decisions about how to provide health benefits to their employees.

Comments (8)

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  1. Ken says:

    Good analysis. Thanks, John.

  2. Devon Herrick says:

    The model for a good health insurance exchange is In fact, it will probably contract with states to run the back office operations for the state exchanges.

    Besides software, what makes good is the lack of regulations limiting the types of policies it can offer and prices it can charge. That is something that will not be true of the state exchanges that will be created under the Affordable Care Act.

  3. Greg says:

    Thanks for clearing this up. A lot of conservatives point to Utah as a model.

  4. Virginia says:

    I like your metric about whether or not the concept will work: would someone else (with their own money at stake) invest in the idea?

    Good stuff.

  5. Underwriterguy says:

    Re: Devon’s comment above. eHealthInsurance can be a model for administering quotes and policy issue, but any policies offered for sale are still subject to the insurance regulations of the state of issue. That is, eHI cannot sell a policy approved in one state in another state, unless that policy has been approved in the second state as well. Approval usually governs benefit design and rating rules. Some states require prior approval and some allow for “file and use.”

  6. Beverly Gossage says:

    Thanks for the post, John. Utah’s attempt at an exchange has not met any of its goals to cover the uninsured and offer lower rates in Utah. Has anyone asked why Utah didn’t apply for the early innovator grant?

  7. joeedh says:

    Yet another bigoted leftist incapable of believing any red state could ever reform their healthcare.

    Your argument is utterly fallacious. Utah’s exchange has a low enrollment size because of funding constraints (which is why it has no PR to speak off). If it were owned by a venture capital fund it would do better, simply from having more money.

    Besides, if you talk to any serious health reformer, especially progressive ones, they will tell you that health reform takes time–years. You cannot flip a switch and make it all magically happen.

    And finally, idiot, Utah has a functional risk adjuster. This greatly lessens adverse selection, especially once all the kinks are worked out.

  8. joeedh says:

    Well. I’ve read one too many of these little examples of journalistic laziness, clearly. No need for name calling.

    Still. If you aren’t willing to listen to the fifty hours or so of meetings of the Health Systems Reform Task Force and the Defined Contribution Risk Adjuster Board, don’t comment on whether Utah’s reforms are working or not.

    So the state of Utah lacks funds for PR. That doesn’t mean you can report hearsay and pretend to be an expert.