Yesterday, Scott Gottlieb and Tom Miller of the conservative American Enterprise Institute wrote a piece for the Wall Street Journal in which they conceded that even if Republicans can’t repeal the Affordable Care Act, they can at least undermine its key feature: the state-based health insurance Exchanges that are designed to serve as new marketplaces for comprehensive insurance coverage beginning in 2014. Under the legislation, states are encouraged to act as prudent purchasers, only allowing plans that can deliver quality care efficiently into the Exchanges. In fact, California just recently passed a law that would allow the California Health Benefits Exchange to “bargain with insurance companies on behalf of consumers and create a relatively easy method for insurance customers to compare the benefits, costs and exclusions in policies offered by competing firms.” State lawmakers hope that by negotiating prices “for a large volume of individuals – getting group discounts the same way that large employers do” beneficiaries will see a “downward pressure on prices.”

Gottlieb and Miller are proposing something very different. They’re urging the states to adopt the Utah Exchanges:

The more promising option is for governors to perform as much radical surgery as possible on the exchanges until a new Congress working with a different president can do something better. By offering their own market-friendly versions of exchanges, they will establish an alternative to ObamaCare and its one-size-fits-all health plans….ObamaCare intends health-care exchanges to be a regulatory dragnet to trap insurers into offering a single government-prescribed set of health benefits. State-designed exchanges could, and should, do the opposite. [...]

Any willing insurers already licensed to operate in a state should be able to offer plans. Their operating rules would focus on providing better information to consumers, rather than limiting the types of plans available. Exchanges should also enable easier allocation of private payments and public subsidies, simplify enrollment, and reduce transaction costs. [...]

But other states, particularly Utah, are moving in the opposite direction with their own version of market-based exchanges before ObamaCare’s regulations can catch up. The Utah Health Exchange is an Internet-based information portal that connects consumers to the information they need to make informed choices. In many cases, it allows them to buy insurance electronically.

It’s unclear that this kind of structure — in which any insurer can join and offer almost any policy it wants — will meet the new minimum benefit requirements, but what’s fairly certain is that this model has been tried before and failed.

In Utah, where lawmakers recently re-launched a pilot program which had recently closed down due to limited participation and very high prices — Judi Hilman, director of the Utah Health Policy Project, tells me that the exchange operates “more like a flee market.” The plans have to meet a minimum acceptable deductible, but pay little regard to “affordability or benefit standards.” “What they’ve done is they’re only looking out for the employer’s concern, not thinking very carefully about what consumers or empoyees can accept from the coverage they obtain,” Hilman said. “The one advantage that might be there for some employees is to be able to have a choice of plans.” But the governor is holding “Utah as a model on Exchanges when they are far from that.”

Jon Kingsdale, the former director of the Massachusetts Connector Authority also points out that Exchanges that merely offer customers many different options are virtually useless. It “would be like telling your grocery store they have to offer every single kind of bread baked by every single bakery. … The Exchanges would be nothing more than an automated Yellow Pages,” he’s said. And Massachusetts residents agree. For instance, focus groups conducted by the Massachusetts Connector revealed that consumers felt that too much choice was “confusing” and “overwhelming.” “Participants expressed a desire for a manageable numbers of plans (e.g. three to four) offered by four to six carriers. In addition, consumers expressed difficulty making plan comparisons under the existing model.” “Instead, consumers preferred for information to be presented in a simple and standardized format that clearly distinguished between different benefit design options,” the Connector’s Fiscal Year 2009 report concluded.

The bottom line is that the Exchanges are one of the only ways states can protect consumers from plans that do not offer good value and cost-effectiveness and states should take that obligation seriously. As Kingsdale explained to me during our interview in October of 2009, “We estimate that we’ve done about 6 percent reduction in premiums and saved about $140 million a year on subsidized care for about 180,000 people. Because we’ve been able to a) be aggressive in selecting and setting rules for health plans and b) set up an Exchange that translates the various costliness of their networks into a price that the consumer understands,” Kingsdale said. “The consumer doesn’t understand the price of a visit or the price of a procedure, or the price of an x-ray and can’t shop on that basis, but can shop annually for a premium, or monthly. And the trick with the Exchange is to translate the generators of cost and value and quality into a package called a health plan from which consumers have a choice and they have both funding but they are the price differences. And so with that program, we’ve been able to do it and have substantial impact.”

The National Association of Insurance Commissioners is inching closer towards defining the regulations that would require insurers to spend 80 to 85% of their premium dollars on health care. As The Hill reports, NAIC “approved model medical loss ratio regulations on Thursday” and sent Health and Human Services Secretary Kathleen Sebelius “a letter outlining several factors that need to be addressed as the guidelines are implemented.” Throughout the process, the key concerns have revolved around how to define medical services, which federal taxes can be excluded from the calculations, and whether or not companies can aggregate the ratios across different plans.

Insurers have waged a strong campaign to loosen the reporting requirements, leading Sen. Jay Rockefeller (D-WV) — who has led the charge in pressuring the NAIC to live up to the letter of the law and hold insurance companies accountable to its spirit — to write a letter to the NAIC urging the panel to “reject the health care industry’s eleventh-hour lobbying campaign to erode key consumer protections—protections that will help Americans finally get the care they pay for and deserve“:

In particular, the large for-profit insurers are asking you to ignore the plain-language definition of “health insurance issuer” in the ACA and other federal statutes, and allow insurers to aggregate their large group medical loss ratio data across state lines and business entities. As I discussed in my May 7 letter, allowing insurers to aggregate their medical loss ratio at a national level deprives the consumers of individual states of the new medical loss ratio law’s most important protections. Under the health insurance companies’ proposal, consumers in a state with medical loss ratios falling below the law’s new requirements would have no right to rebates, as long as the health insurance company’s overall national average remained above the law’s new requirements.

As regulators charged with implementing the ACA’s medical loss ratio provision, you have proceeded in good faith and through a transparent process to make sure that consumers and businesses get a better value for their health insurance premium dollars. Medical loss ratios aggregated at the state and entity level reflect the actual market conditions consumers and businesses in your state face when they are trying to buy health insurance. Insurance companies should not have the carte blanche to avoid paying rebates to consumers in states where they sell low-value plans.

The draft guidelines require issuers to break them down and account for the MLRs separately at every business unit in every state preventing them from obscuring some low MLR plans. The NAIC is preparing to vote and send their final recommendations to Sebelius sometime next week.