Maryland should go slow on establishing a health insurance exchange

Gov. Martin O'Malley has said he wants Maryland to be a "national leader" in health care reform. Sometimes it's good to be a leader, but sometimes being a leader means you are the first to make costly mistakes. Following the lead of other states in implementing the new federal health care law would be better for both taxpayers and health care consumers in Maryland.

Governor O'Malley made his "national leader" remarks when he appointed officials to the board of the Maryland Health Benefit Exchange. This entity is a health insurance exchange, something the Affordable Care Act (aka Obamacare) directs each state to set up. A health insurance exchange will provide a one-stop location for health insurance to be sold and is supposed to lower the cost of insurance through more choice and greater purchasing power for consumers.

Every state faces the question of whether to establish an exchange. Maryland is one of only a handful that have decided to implement one. Some states, such as Florida and Louisiana, have flatly refused. Others are still mulling their options. These holdout states have made a much wiser choice than Maryland.

A health insurance exchange is a new type of government program. The oldest one in the U.S. is only four years old. With little prior experience, policymakers around the nation are breaking new ground in setting up these exchanges. There will inevitably be costly mistakes and poorly designed exchanges.

By waiting, Maryland can learn from other states' experiences and lessons in how in how they create and operate their exchanges. If we are in the forefront, however, we will be providing the lessons in what not to do. Exchanges cost millions of dollars to establish and run. Any mistakes by Maryland officials could prove very costly to taxpayers.

Some advocates will certainly argue that we can't wait and that Maryland consumers need a health insurance exchange now. However, the exchange is unlikely to do much, if anything, to help health insurance consumers. One has only to consider the experience of Massachusetts. Under then-Gov. Mitt Romney, the state passed a health care overhaul in 2006 with a health insurance exchange (called the Connector) as its centerpiece. This law was touted as a way to increase health insurance coverage and decrease health insurance prices. While the Connector has helped increase health insurance coverage in Massachusetts, it has also increased the cost of health insurance premiums.

A 2010 study by economists at Stanford and Columbia University found that the Massachusetts health care plan caused health insurance premiums to increase by 6 percent in aggregate. For businesses with fewer than 50 employees, the increase was 7 percent. A March 2011 report from the Pioneer Institute concluded that "… small employers continue to feel the burden of rising premiums while the Connector has not provided a good alternative for them."

Perhaps Maryland's exchange will work differently from the Massachusetts Connector. Probably not. Currently, those wishing to buy health insurance in Maryland have few choices. This lack of options isn't an accident but is mandated by law. Health insurance policies available to Maryland's individuals and businesses must comply with a variety of state government mandates and cannot be tailored to consumers' needs. Deductibles and cost-sharing are limited, and every policy must cover a variety of procedures — such as in vitro fertilization — that may not be desired by those seeking coverage.

It's unlikely the same policymakers that force us to buy health insurance policies that meet their desires (instead of our needs) will allow much consumer freedom in a health insurance exchange.

If Maryland policymakers are truly interested in lowering health insurance prices, they will wait to establish an exchange. Observing other states and learning from their mistakes is one benefit of waiting. Another benefit would come if the governor and legislators used this time to address the overregulation that has caused so many problems in our state's dysfunctional health insurance marketplace. Until they do this, health insurance prices in Maryland will continue to rise, something that won't be solved by the Maryland Health Benefits Exchange.

Marc Kilmer is a senior fellow at the Maryland Public Policy Institute. His email is

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