The effect of having more people in an exchange is that an insurer that offers a better value policy would win more new customers than they would if far fewer people were allowed into the exchange (as currently proposed.) Having more people in an exchange would drive down costs for health care across the spectrum compared to the outcome without enough people in an exchange, and help decrease health care cost inflation.
But previous to these proposed reforms Paul Krugman pointed out, for good reasons, that health care can't operate well as a simple free market. For instance, if one insurance company avoids insuring an individual more likely to have expensive claims, then its competitor that takes on people with less discrimination has higher costs, and thus must charge higher premiums, driving its own customers away except for the sickest. Because of this effect, adverse selection, no private company wants to insure anyone that really needs insurance badly. Thus the market fails to provide meaningful insurance -- insurance that works.
Here's the reason Paul Krugman's previous generalization that health insurance can't work well in a simple free market would not apply to these new exchanges as proposed: First, according to the proposed reform, acceptance (policy issue to all that apply) is required, preexisting exclusions are eliminated, the dropping of sick policy holders is eliminated, and provisions would be made for risk pool sharing (when one insurer has proportionally more sick people, it gets help from a risk pool all insurers pay into.) Thus adverse selection disappears. Second, and just as important, this proposed reform would result in a market with a special kind of disclosure. As proposed, in the exchanges, health care policies would be offered with defined packages of benefits -- "bronze," "silver," etc. This would actually allow insurance buyers to compare policies much easier than before. Insurers would have to compete on a more clear playing field -- price, service, and networks, all of which are far easier to evaluate (internet sites already are available that compare doctors and hospitals for instance.)
This is a very good idea, and if combined with other good ideas such as these, many but not all of which are now in proposed legislation, we'd have very beneficial structural reform, much better than most people imagine possible.
The NYTimes mentions Wyden tries to sympathize with a seeming political problem Obama might face:
I understand the president’s fear of overreaching. Past reform efforts have failed in part because of the public’s distaste for government-imposed change. But walling off most of the health care system from choice and competition could create greater problems — enough to doom health care reform.
Democrats may miss an easy point here. Allowing anyone to purchase health insurance (private, public, co-op, all types) on the coming exchanges would be less government imposition on the market. Restricting who can buy, and excluding many people, constitutes more imposition, more control.
Wyden is proposing a liberalization -- less control, more personal choice and freedom -- in a way that would pay off quite well.
There is no reason any Senator should oppose this idea, except if they are truly in the pocket of lobbyists.
This opening of the exchange needn't be sold as anything other than what it is -- a market with disclosure and a shared risk pool (or reinsurance) added.
The exchanges themselves are exactly like a modern American food marketplace with required food labeling and safety laws -- the ingredients being sold must be disclosed fully on the package labeling, poison can't be sold as food, the nutritional values must be disclosed, etc. In general, this is a very American market proposal.