Monday, June 7, 2010

A Primer On Insurance Exchanges, Courtesy of the New England Journal (plus, what about the brokers?)

Thanks to an article (here too) in the published June 10 New England Journal, the Disease Management Care Blog got to bone up on the issue of on-line health insurance exchanges. Written by Massachusetts Commonwealth Connector's Jon Kingsdale, it gives readers a well written if enthusiastic snapshot of what a lot of of us can look forward to on January 1, 2014 when we start buying insurance on-line.

You can also look forward to this handy DMCB summary, suitable for a few minutes of your precious time.

By the way, two State exchanges have been set up: Massachusetts (which Dr. Kingsdale says was the model for the Patient Protection and Affordable Care Act) and Utah. Both are available for on-line test drives.

According to the article, exchanges will generally have to be run by the States (including the option of outsourcing it to a not-for-profit entity). They'll be funded by a transaction tax that is anticipated to amount to about 3% of premiums. Mathematically, this is a great deal for individuals and small groups, whose premiums often include higher administrative costs compared to the large "bulk" purchasers. The job of the Exchanges is to present transparent and easy to read on-screen summaries of the various health insurance options so that consumers can comparison shop. This means not overloading users with too much information; rather, the Exchanges will give users standardized information so that they can balance the premiums, deductibles, co-pays, pharmacy benefits and other information to make truly informed choices that fit their personal preferences. The Exchanges will also set up the various tax credits and the subsidies that kick in below the 400% Federal Poverty Level (FPL) threshold. Established health insurers will need to compete and the market barriers to new insurers should become lower. As a result, hopes Dr. Kingsdale, health insurers that 1) achieve consumer-friendly levels of efficiency and 2) don't have to resort to wide-open networks will win the Exchange-mediated race in the long run.

For a slightly different point of view on how things are being done in the era before Exchanges, check out this 2002 Center for Studying Health System Change Issue Brief On the Role of Insurance Brokers. Brokers - the folks that are paid by commissions by insurers to refer potential customers to them - have generally commanded from 2%-10% of the premium. Their job is present customers with a tailored spreadsheet of the insurance options that they represent, so that individuals and employers can presumably chose what's best. What's more, after the sale, brokers often act as trouble shooting intermediaries between the health plans and consumers.

The DMCB recently relied on a broker for its health insurance. There were four dominant insurers and the broker provided a packet with pages of easy to understand options. They answered the DMCB calls, responded to the DMCB emails, took my faxes and called the DMCB after one year at renewal time. They were not at all like the government.

What can the DMCB conclude?

1. Brokers' with a majority of their business in health insurance are in trouble.

2. Yet, brokers' fees don't seem to be that much higher than the Exchange costs described by Dr. Kingsdale. It may be that the DMCB and other health care consumers will confirm the adage that you get what you pay for.

3. The article points out that Exchanges are one area of agreement from both sides of the health reform debate. What better example of that than Utah and Massachusetts?

4. Dr. Kingsdale's speculative closing plug that Exchanges will usher in an age of highly efficient competing closed networks (much like Accountable Care Organizations) seems a little far-fetched. If that were true, the health insurance brokers would have done that long ago. It seems the conceit of everyone in health care policy with a good idea is that their idea can fix everything.

5. Last but not least, the DMCB hopes the on-line Exchanges will eventually list the health insurers' coverage options for wellness, prevention and chronic disease care management. Stay tuned.


Bradley Dean Stephan said...

Thank you for bringing this excellent article to your readers' attention. As a "managed care enthusiast" (which methinks, at heart, DMCB is, as well), I've long blamed employers for the erosion of the basic managed-care principle of limited provider networks, which ironically led to the return of premium escalation (as in 'shooting their own feet'), following the brief respite brought on by both the managed care boomlet of the late 80's-early 90's and the 'Hillary effect.' Managed care health plans could no longer negotiate competitive provider fees without the carrot of provider exclusivity. (BTW, the exchange concept was originally introduced by the Clinton "Health Security Act". Cynically, its detractors used the 'choice card' in helping to kill the plan when, in fact, the proposed "Health Alliances" would have dramatically increased choice for most employees who, here-to-fore were forced into the "one-plan model," as described in this NEJM article.) The retail aspect of exchanges allow limited provider networks to operate, thus creating a true provider marketplace. In sum, for ACOs to achieve their full potential, they must be provider-driven – and what better way to drive providers than by having skin in the game, i.e., inter-provider competition, along with risk sharing. Regarding health insurance brokers, they are a 20th century anachronism that 21 century healthcare can ill-afford. They are the quintessential 'middleman' that merely add cost without requisite value.

Phil 314 said...

Is this not another example of
who can do it better: A public/government enterprise or a private/market solution?

Jaan Sidorov said...

bradleydean raises a good point but I was led to a different conclusion: that heavy regulation will lead to vanilla options on the exchange, with all insurer options basically being the same.

c3: good point, but I wonder if the mantra of "choice" is another reason we've shot ourselves in the foot? The options are so complex that consumers can't really compare plans - they're all apples to organges. Maybe this is one place where (I grit my teeth as I type this) gov't forcing health plans to boil things down into a one (web) page format with relatively limited choices is not such a bad thing?

Anonymous said...

Exchanges are the "wave of the future" for individual and small group health coverage. However, after some initial generally interest,they will primarily serve the "low-end" of the market, subsidized buyers.

Under PPACA, exchanges are designated as the only place where subsidies will be available. Since it's estimated that 66% of Americans will eligible for subsidies, exchanges will have huge market share. The implosion of the small group market will facilitate their rise to dominance.

However, the lack of choice and the challenge of providing affordable health coverage could prove to be the exchanges' undoing. PPACA dictates that only the Platinum, Gold, Silver and Bronze plan designs may be made available through the publicly sponsored exchanges. This gives government ultimate power over benefit design. If Massachusetts provides our example, government designed plans will be far too benefit rich and therefore unaffordable. This will attract only subsidized buyers.

As part of the new the brokers may sell through the exchanges. However, given the market segment that they would serve, it may not be worth participating in the public exchanges unless brokers concentrate on employer based exchange activity (list-billed individual plans).

Development of high tech, flexible, online "Private Exchanges" to provide greater choice and to compete with public options could prove to be the brokerage community's best strategy. I believe that this option exists under the new law and should be pursued.

Colorado Health Insurance said...

I enjoyed reading this article and I am one of those brokers that could be in trouble. The majority of my business is in individual health insurance and I'm weighing how to diversify. Since this article is a little old now, let's spin ahead a bit. One thing that is kind of crazy so far with PCIP plan that HHS has designed for states that did not plan to put a high risk pool of their own together. They are now relying on agents/brokers to help sign uninsured residents up because they have not hit their numbers projected so far. We get a fee of $100 for per an application completed and processed. The application is pretty simple. So now let’s spin ahead a couple years now. Will they still be relying on us to do the same thing? So far it looks like they're having problems without an agent/broker being involved in the application process.