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A healthcare exchange is a great idea as it relates to reducing administrative costs for health insurance. Rather than create a new set of regulations and mandates, we should consider letting the free market create health care exchanges.

Today broker commissions for small groups (companies with under 50 employees) average between 6-10% of the premium. The practice of reducing commissions is called rebating and is prohibited in almost every state. It theoretically prohibited to protect the consumer from low-quality broker service. This obsolete regulation has offered raises to brokers equal to healthcare inflation.

If we eliminated the laws, brokers would compete on both quality of service and on commissions. We would quickly find exchanges that were characterized by high-quality, high-service and very low commissions. I estimate commissions would get as low on group policies as 2% instead of the current 6-10%. The free market is not perfect as it relates to health insurance. But it can bring huge efficiencies if we let it work in the right ways.

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