The insurance exchanges that states must create by 2014 are one of the key components of health reform, and have the potential to help drive down the cost of health premiums. Health reform has a few policies designed to ensure that the exchanges do not fall prey to the forces of adverse selection, such as allowing lower-income people to get subsidies to help pay for their coverage only if they buy their policies through the exchanges. But these alone are not enough to prevent the exchanges from potentially collapsing on themselves. States will have to step up to implement policies to ensure the success of the exchanges, according to a report by the Center on Budget and Policy Priorities.

Without additional safeguards, according to the report, policies outside the exchanges will cater to healthy, low cost individuals to make money while the exchanges are deluged with sicker, higher-premium individuals, which would lead the exchanges to collapse on themselves. The report says states should implement the following rules, among others, to make sure the exchanges don't suffer from adverse selection:

• making the market outside the exchanges behave in the same way as inside the exchanges
• requiring the same insurance products to be offered inside and outside the exchanges

If exchanges behave as the backers of health reform intend, they can provide a transparent marketplace for insurance products that does not currently exist, giving consumers the power to navigate what has been a frustrating maze of conflicting information. Dr. Ray Scheppach, in an interview posted on this blog in May, said the exchanges had the potential to empower consumers in a way they haven't been before.

This is why it's so important that the exchanges function properly. Educating the states -- who have a huge role to play in making sure the new law is a success -- about best practices in implementing the exchanges is a necessity.

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