Why Health Exchanges Don’t Work

The failure of the Utah Health Exchange is not idiosyncratic. It is the destiny of any unsubsidized and voluntary exchange. The reason is pretty straightforward: The administrative costs of operating an exchange plus the administrative costs to a small business of migrating to the exchange are almost certainly greater than the administrative costs of participating in the traditional small-group market (or taking a chance on other “work arounds” promoted by some insurance producers, as described below). Therefore, unless an exchange is subsidized from non-exchange sources (as per Obamacare), it will not attract many participants.

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