NCPA - National Center for Policy Analysis


October 10, 2006

The best to enable individuals and families to buy, own and keep health insurance from job to job -- without losing the tax advantages of the employment-based coverage -- is to transform the balkanized and dysfunctional state health insurance market into a single health insurance market.  This new market would function well for all sorts of individuals and small businesses, not just workers employed by large companies, says Robert E. Moffit, Director of the Center for Health Policy Studies at the Heritage Foundation.

A properly designed health insurance exchange would function as a single market for all kinds of health insurance plans, including traditional insurance plans, health maintenance organizations, health savings accounts, and other new coverage options that might emerge in response to consumer demand.

  • In principle, it would function like a stock exchange, which is a single market for all varieties of stocks and reduces the costs of buying, selling, and trading stocks.
  • For the same reasons, other types of market transactions are also centralized, such as farmers' markets, single locations where shoppers can purchase a variety of fresh fruits and vegetables, and Carmax, where consumers can choose from among all kinds of makes and models of automobiles.

In the case of a statewide health insurance exchange, employers would designate the health insurance exchange itself as their "plan" for the purpose of the federal and state tax codes; thus all defined contributions would be tax free, just as they would be for conventional employer-based health insurance.

The major benefits of this arrangement for employers, particularly small employers, are a reduction in administrative costs and paperwork and the ability to make defined contributions to their employees' preferred plans, says Moffit.

Source: Robert E. Moffit, "The Rationale for a Statewide Health Insurance Exchange," Heritage Foundation, WebMemo #1230, October 5, 2006.


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