Call 'Em Exchanges, Call 'Em Marketplaces, Whatever...Just Don't Call 'Em Ready For Prime Time...Is This a Bad Thing?...

One of the central elements of PPACA...the electronic platforms and processes which began imaginary life as "health exchanges," morphed recently by the Obama Administration into "marketplaces" (though largely still imaginary), have been the objects of a steady drip-drip-drip of bad news coming from Washington.

Finally, last week, The Administration made public what most folks following the unfolding exchange strategy had come to expect: the massive Federal "exchange/marketplace" which the Administration needs to build to support the 33 states which have chosen not to build their own, will offer only very limited functionality to customers by the time it's rolled out on October 1st, for January, 2014, coverage effective dates.

Administration spokespeople say that, while the marketplace will be on-line in October, it will offer small employer groups the chance to purchase only one health plan per group, rather than the broad employee choice the law anticipated. The "choice" elements won't be in place till 2015, at least.

The response to the news has been predictable. Congressional Republicans, who have fought the new law, joined with the U.S. Chamber of Commerce and the National Federation of Independent Businesses, which was a major party in the anti-Obamacare lawsuit decided by the U.S. Supreme Court last June, to express their deep disappointment that the Administration won't meet its self-imposed deadline, and that small businesses will be denied the benefits of these as-yet-mythical constructs. The irony of their positions is apparently lost on them.

The health insurance industry, along with the agents' and brokers' associations which have waged a major passive-aggressive attack on the exchanges (not because they won't work, but because they might, have been similarly (and predictably) jubilant about the setback.

Now comes news that The President's budget predicts that the cost of building exchanges could reach $5.7 billion by 2014...nearly twice what the Administration had projected back in 2010.

The reason? As stated so succinctly by former Congressional Budget Office Douglas Holtz-Eakin, is, "when you get behind, the way you solve problems is to write checks."

This delay should come as no surprise to anyone who looks at a calendar (in fact, I predicted this would happen back last August in a post here: http://www.blogger.com/blogger.g?blogID=5437368107821218921#editor/target=post;postID=3869781356730550188;onPublishedMenu=audiencestats;onClosedMenu=audiencestats;postNum=3;src=postname).

The fact is that, as enacted, the law requires exchanges to be up and running by October 1, 2013, for a coverage effective date of January 1, 2014. That's less than six months from now. And with new regulations regarding exchange-based health plans still being promulgated, and with fairly widespread opposition to state-based public exchanges among Republican governors, the current development environment in a mess.

But the OTHER salient fact is that it's not just the Federal government which is not exchange-ready; almost NOBODY in at least 33 of the 50 states, is ready.

In the 17 states which have begun progress on exchange development, tens of millions of dollars are being spent with big consulting houses to build exchange platforms. Frankly, no one knows whether they'll work or not. All that IS certain is that, in those states, exchange development has been a cash cow for consulting firms. My favorite example of programmatic excess is the State of California, which will spend nearly a half-billion dollars to build a statewide exchange, and expects to spend nearly ANOTHER half-billion dollars operating one for the first two years...on an application that we're not sure will even work.

The insurance industry isn't ready, either. Most of their efforts have focused on creating exchange-type platforms for marketing their own products on-line. Insurers strongly oppose the notion of "community exchanges," which would enable consumers fairly conveniently to shop for coverage and compare offerings among insurers.

Even the big guys in the health field are stumbling out of the gates: Wellpoint/Anthem, which ponied up an undisclosed amount to buy a majority interest in Bloom Health (together with two other big BC/BS plans), attempted to launch an exchange-type initiative for employers with 50 or more workers...and had to pull it back when it didn't work as miraculously as Bloom's propaganda had suggested.

And that's just the big guys. I'm aware of a couple regional health insurers which, having spent six months deciding upon vendors for their exchange-type applications, have been praying to finalize agreements with their vendors so that they'd have six months build and launch something. And with the ability to substitute big checks for time and brainpower, they'll very likely to be able to launch SOMETHING.

Those few "private exchanges" which ARE operating at scale have focused their efforts on providing administrative services to large self-insured employers and retiree groups. Essentially, they've gussied up their existing enrollment programs, added a "defined contribution" functionality, and are busy selling old wine in new bottles.

What does all this chaos mean for small businesses?

Well, for the next year and a half or so, not too much. Those small companies which offer health coverage to their workers generally offer only one plan to all their employees. It will mean another year of shopping via traditional distribution and sales channels.

In general, however hopeful they might be that exchanges might possibly make shopping for coverage more convenient, less painful, and less costly, most small business owners I know expected very little short-term benefit from exchanges. Most will continue to struggle to find ways to continue to offer coverage to their workers (and their own families). Some won't be able to. So nothing much will change.

At least one benefit of waiting an additional year to launch more fully-developed exchanges is that the Big Brains might actually have some time to figure out how to SELL something on-line to small businesses and individuals. Thus far, there is almost NO evidence that the folks developing these marketplaces have any idea how small businesses behave in the health insurance marketplace.

I continue to point to the Massachusetts Connector as a model of marketing inefficiency. After more than six years of operation, in a state where these IS a mandate upon individuals and businesses to purchase health coverage, and with operating expenses averaging about $30 million per year, the Connector reported that, out of the 2.7 million employees of Massachusetts businesses with fewer that 500 employees, and over 300,000 self-employed individuals, The Connector currently covers about 2,500 small business workers.

Here's what's gonna happen in 2014: public exchanges will roll out with much sound and fury, and will dramatically under-perform in the marketplace. Health insurers will roll out their own exchange-type applications, and won't see any significant increase in sales...mostly because insurers' exchange-type applications really aren't INTENDED to sell more; they are being developed as defensive strategies, to protect their existing books of business and make it harder for small groups to shop around. At THAT, they'll succeed.

And hopefully, a couple entrepreneurial sorts will sit around a table over a couple beers, and start drawing on a napkin the basic architecture of a marketplace that can really work. And it won't start with a multi-million dollar contract; it'll start with the question: "How would we use the Web to make it easier for just one small business, with, say 25 employees, to sort through all the white noise out there and buy health coverage more efficiently?"

Because that appears to be the ONE question that NOBODY's asked...

"And if we can sell one group, how do we scale up to sell to 100 groups? Then 1,000?"

If there's one thought most small business owners hold regardless of partisan affiliation, it is that government policy almost ALWAYS screws the small business owner. This is just the latest chapter.

There will be an answer, somewhere out there in the private sector. It won't come form big consulting houses. It won't come from insurers or brokers. It certainly won't come from government. It'll come from an entrepreneur who thinks like an entrepreneur, and starts with the practical challenge of solving a problem for his/her peers.

Perhaps it's just entrepreneurial naivete', but if such a solution could bubble up from the marketplace, with a relentless focus on THE CUSTOMER, waiting for another year for a truly successful exchange to launch would be worth the wait.

Anybody want to have a beer and chat?...