The Center on Budget and Policy Priorities released a brief outlining steps states can take to implement health insurance exchanges that do not encourage "adverse selection," whereby healthier individuals and less healthy individuals end up in different health plans.  The brief cautions that adverse selection could prevent the exchanges from operating efficiently, and offers suggestions for state-level policies to prevent adverse selection from occurring.

From the report: Adverse selection — the separation of healthier and less-healthy people into different insurance arrangements — will occur if a disproportionate number of people who are in poorer health and have high health expenses enroll in coverage through the insurance exchanges, while healthier, lower-cost people disproportionately enroll in plans offered through the individual and small business markets outside the exchanges. If that occurs, the cost of exchange coverage will be higher than the cost of plans offered in outside markets. That would drive up costs not only for consumers and small firms purchasing coverage through the exchanges, but also for the federal government, which must provide premium subsidies to enable low- and moderate-income people to afford coverage in the exchanges.

Full report: States Should Structure Insurance Exchanges to Minimize Adverse Selection (PDF | 202KB) 

Center on Budget and Policy Priorities.  (2010).  States should structure insurance exchanges to minimize adverse selection.  Lueck, S.