Few elements of reform are more critical to its overall success than the success of the new insurance exchanges, through which small businesses and individuals without access to affordable company health plans will buy coverage. And although the issue hasn't gotten much attention, there's a pretty stark difference of opinion over how to design them. 

The model for a successful exchange is the Massachusetts "Connector" and its management of what's known as the "Commonwealth Care" program. But, as readers may recall from a few weeks ago, not all of the bills in Congress used that model:

In the bills that passed three House committees and the Senate Health, Education, Labor, and Pensions (HELP) Committee, the exchange would be a "prudent purchaser." In other words, it would have a staff that bargained with insurers to bring down premiums--and that made sure all plans lived up to strict guidelines for coverage and customer service. In effect, any insurer that wants to offer coverage through the exchanges has to get the equivalent of a "Good Housekeeping Seal of Approval" from the administrators. This is precisely how it works in Massachusetts.

By contrast, the Senate Finance bill envisions much weaker exchanges. Instead of choosing which plans to make available, the exchange administrators would, by law, have to accept any plan that meets a relatively minimal set of standards.

Jon Kingsdale, who runs the Massachusetts exchange, calls that a recipe for "policy disaster," as consumers faced a dizzying array of more expensive, less regulated choices. "It would be like telling your grocery store they have to offer every single kind of bread baked by every single bakery. ... The exchanges would be nothing more than an automated Yellow Pages."

During the Finance Committee's markup hearings, Senator John Kerry had tried to modify the exchange proposal, so that it would more closely resemble the HELP and House models. And while he didn't succeed then, it appears that he--and his allies--have made some progress since.

The leadership bill that Majority Leader Harry Reid introduced on Wednesday includes several provisions that would seem to give exchange administrators more authority. One clause, on page 134, instructs exchanges to establish, and then publish, a system that rates all plans on price and quality. A potentially more important passage, one that spans pages 138 through 144, seems to give the exchanges wide latitude over selection plans based on quality and price criteria.

The language is a bit fuzzy. The experts and staffers I consulted on this weren't entirely in agreement over how much power these provisions actually gave the exchanges--and whether it's enough. (That's why you see so many "seems" and "apparently"s in the above description. I don't want to pull a Betsy McCaughey here.)

But it seems clear enough that Reid and his allies have made improvements on what they got from the Finance Committee. Between the floor debate and conference committee, perhaps they can make some more--although I wonder what the insurance industry thinks about all of this. (Back to you soon on that.)