Ezra Klein thinks the exchanges will make the US healthcare market work like the system of private health insurance in the Netherlands:
Insurers seem evil because of the marketplace in which they operate. The healthy don't buy as much insurance as the sick. The sick aren't as profitable as the healthy. Insurers, like all private firms, are very simple: They pursue profit like a pig sniffing after truffles. It is up to society to train them, and we do that by setting rules.
Health-care reform will establish many, if not all, of those rules. The individual mandate will mean the healthy cannot hang back until they become the sick. Insurers, for their part, will not be able to discard the sick in favor of the healthy. Perhaps more importantly, risk adjustment -- which compensates insurers with sicker customers by taxing insurers who have cherrypicked healthier people -- will end the days when it is profitable to do so. As the exchanges open up -- if they open up, more to the point -- all of this will work better and more smoothly. This is how the Netherlands' health-care system looks, and few would accuse their insurers of being evil.
But he's missing the reason why private health insurance works in a non-evil fashion in the Netherlands. It's because the government there compensates the insurance companies directly to remove risk adjustment on the basis of age, gender, preexisting conditions, etc., and lets them actually compete just on the efficiency of their providing health care insurance. It does this by organizing a regulatory system for pooling risk adjustment and subsidizing resultant inequalities for all the competing insurance companies, thus leaving them to just concentrate on provision of the service that's actually socially useful. They then compete on the basis of how efficiently they can do that instead of on how ruthlessly they can eliminate risk for themselves, as in the current US model. The European health insurance systems, especially the Dutch, have been refining for years which factors need to be compensated for to prevent adverse selection, because that works against the goal, which is the universal provision of health care.
So this is how the Dutch system works:
As of 1 January 2006, the new Health Insurance Act (HIA) has been put into effect in the Netherlands....Insurers are legally obliged to accept everybody applying for the mandatory package, regardless of age, gender, or health status. A refined risk adjustment system is in place to compensate insurance companies for cost differences induced by socio-economic factors such as age, gender, income, location, and prior healthcare consumption.
Such a system levels the playing field for health insurers by enabling price competition on the premium rate....
Under the new HIA all residents of the Netherlands are obliged to take out health insurance. The HIA consists of a basic and mandatory package of services defined by law, and of an additional insurance that is taken out on a free basis...
[T]he insurers are obliged to accept every resident in their area of activity and must guarantee that their enrolees will get the necessary medical treatments within a certain time and geographic area....[A] system of risk equalisation that contains parameters correcting for health status differences related to age, gender, and other objectively measurable client health characteristics enables the acceptance obligation and thus prevents direct or indirect risk selection....
The premium for the new insurance consists of two components: a community-rated nominal premium of around Euro 1,000 paid by insured as from the age of 18. The size of this premium varies among insurers and is unrelated to age, gender, income, or health status. However, everyone with the same policy will pay the same insurance premium. The second premium component is an income-related contribution that equals 6.5% of the income and will be payable up to the income ceiling of Euro 30,015 [6]. The income-related premiums are collected through payroll and income taxes and are redistributed through the risk-adjustment system.
A healthcare allowance has been introduced in order to keep insurance premiums affordable. This allowance is paid via the tax authorities and has been designed to make the system financially accessible to all income groups, so that a tax credit is given to people before they have to pay the insurance premium....
If the Democrats' health care reform mess of a bill bears the faintest resemblance to that, I sure as hell missed it.