A new scheme for buying health insurance

If there’s one regulatory trend that may define 2009, it could be the creation of exchanges. The U.S. Treasury wants to start a type of exchange, or clearinghouse, for the buying and selling of over-the-counter derivatives, those obscure asset-backed contracts that helped bring the financial system to its knees.

Now, Congress is dabbling with the idea of creating a health insurance exchange.

Legislation with more details isn’t likely to become available until later this summer. But the House Committee on Ways and Means introduced an outline this week. The Senate Committee on Health, Education, Labor & Pensions, led by Sen. Ted Kennedy (D-Mass.), has also put forward a bill, (though at the moment the bill does not come up online, only the press release). At any rate, the Senate’s proposal also calls for a “gateway” through which individuals can shop for insurance.

What’s the point of an exchange? Well, it would set some ground rules for how insurance is bought and sold, just as there are rules for how stocks are traded in the market. For example, insurers wouldn’t be allowed to sell policies that exclude pre-existing conditions. Individuals could choose between a newly formed public health insurance option and private plans, encouraging competition among insurers. Furthermore, the exchange would make it easier for consumers to comparison-shop policies.

In other words, the exchange would help create a more equitable, controlled health insurance market. At least that’s the theory–but one perhaps worth gambling on. Because we’ve seen what happens when an opaque market, such as OTC derivatives, is allowed to run wild. I certainly don’t want to take as much risk with my, your and future generations’ health. (Click here to see the White House report, “The Economic Case for Health Care Reform.”)

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