D.C. nears decision on health insurance exchange Exchanges are a key feature of the federal health overhaul enacted in 2010, under which states were required to create their own centralized electronic marketplaces or participate in a federally designed exchange. The District has been aggressive in developing and testing its own exchange, even though the city is relatively small and boasts a relatively high rate of insurance coverage. Those facts have officials involved in setting up the exchange fearful that it could fail unless lawmakers move to require the use of the exchange for individuals and businesses with 50 or fewer employees. At a hearing Monday at the John A. Wilson Building, dozens of witnesses debated whether the "closed" or "unified" small-business market is necessary to ensure the D.C. exchange's success. Several representatives from insurance groups and other business concerns urged the council to extend the transition period from an open market to a closed exchange from one year to as many as three. They also asked the council to require an independent study of the District's health insurance market under the new exchange before requiring insurance buyers to use it. "You can't guess at the outset how it's going to work out," said Wayne McOwen, executive director of the D.C. Insurance Federation, who said the one-year transition currently proposed by the exchange authority and supported by Mayor Vincent C. Gray (D) is too short to determine whether the exchange will be effective. But Alice M. Rivlin, a former presidential budget director who is now a Brookings Institution fellow, testified that the city's "small and highly concentrated" insurance market would not be viable without mandatory participation from small employers, citing an Urban Institute figure that a successful exchange needs at least 100,000 participants. Without the mandate, she said, "you just have less competition, less choices and the risk it doesn't work very well. . . . I think we would be in trouble if we allowed the market to exist outside the exchange. Council member David Grosso (D-At Large) - a former executive for CareFirst BlueCross BlueShield - questioned Rivlin on why it made sense to require exchange participation if it offered so many advantages. "If you do a good job of it, people are going to be coming" to the exchange, he said. Robert Brandon, a D.C. resident who owns a small public affairs business, testified that CareFirst's dominance in the District's insurance market made it crucial to require the use of an exchange. Besides CareFirst, which is among those calling for an extended transition and independent evaluation, the District has won commitments from Aetna, UnitedHealthcare and Kaiser Permanente to offer individual and small-group plans on its exchange. "The key is really having the one big market," Brandon said. The only winner in a bifurcated market is going to be CareFirst, because they will continue to dominate the market. Mila Kofman, the executive director of the D.C. exchange authority, testified that she believed requiring exchange participation would be the most reliable way to keep prices down with the federal overhaul expected to lead to significant price spikes when it goes into full effect in 2014. "If you force insurance companies to compete for your business by requiring them to put all of their prices and all of their products in one place, then you are going to know they are going to price their products in a reasonable way," Kofman said. "This is not theory," she added, noting that in Oregon, some insurers moved to lower their rates after the exchange there publicly released some preliminary rate data. The city's efforts so far won a key endorsement from the federal government earlier this month when it became the first jurisdiction to gain federal approval for an advanced round of technology testing - a prerequisite for rolling out the exchange under the new health-care law.