Could a Minnesota Health Insurance Exchange Lower Costs?

7. The extent to which the operation of the exchange will lower the cost of health care insurance coverage

By itself, the operation of the exchange would likely have only a minimal impact on the cost of health insurance coverage. To the degree that it increases competition among health carriers and reduces the costs of marketing, it could reduce health insurance premiums. This effect would likely be small because most (over 90%) of the cost of health insurance is due to medical expenses; in addition, a large share of administrative expense (such as claims processing) is unlikely to be affected much by greater competition among health plans for market share.

In combination with other reforms, however, there could be significant impacts on the cost of coverage. For example, greater use of Section 125 plans would substantially improve the affordability of coverage for individuals (although it would not necessarily affect the total premium, individuals could realize a 30 to 50% savings by paying for insurance with pre-tax dollars).

To significantly lower the overall cost of coverage, however, other changes that more directly affect the prices and utilization of health care services are necessary. The Health Care Transformation Task Force has recently proposed a number of strategies aimed at reducing health care costs and reducing future cost growth. These include aggressive health improvement strategies to reduce rates of preventable chronic disease, increased focus on improving health care quality and system efficiency, and fundamental reforms to the health care payment system that create incentives to reduce cost and improve quality.