Exchanges "Launch" On Tuesday...Are YOU Ready For The Sh*tshow?...

The Revolution starts tomorrow.

It's been a long time coming.

Waaaaaay back in the mid-90's, some of COSE's leaders (before we were so rudely interrupted) began thinking about how to use good deals on small group health plans as an organizing factor based on which to create a branded, national small business association. Such a plan would have demanded the development of an automated platform and process for buying and selling small group health plans. I even got the opportunity to pitch the idea to a few investors.The consensus of those investors was that it wasn't terribly likely that people would ever buy insurance on-line.

This was about a year before Progressive launched an on-line revolution in car insurance, and more broadly, on the p&c industry. Because it turned out that, if you give people a good deal, and make the experience easy, they'll sidestep the middleman and buy on-line.

In the mid-2000's, I did a consulting gig for a big regional insurance broker which had just purchased a bunch of agencies in a bunch of different markets, and was looking for an organized small group market entry strategy. After a lot of trial and error, we built a software-enabled platform and process that would let small business owners and their employees shop for, compare, and apply for health plans.

The health insurers we shared our prototype with ignored us out of the room. Operations people LOVED it, because of the obvious paperwork and marketing efficiencies. Sales people HATED the idea, because they feared a health insurance version of what happened in the travel business: disintermediation of their third-party sales forces, which was they only vehicle they had for selling small group health coverage. We thought creating an alternative marketing channel would increase carriers' opportunities to lower costs and increase their leverage with their agents and brokers. Insurers (and most agents) could not envision a world that might not have them in it.

The purpose of those two little stories on the day before PPACA's health exchanges open for business is that, for nearly 20 years, insurers have had both the knowledge and the tools to "fix" many of the problems with the marketing and sales of health plans voluntarily. But chose, for their own reasons, not to employ them. And that the unveiling of health exchanges, based on a federal mandate, was maybe the only possible way to FORCE innovation into the insurance industry.

Health and life insurers have been the last holdouts against the inherent efficiencies built into web-based marketing, out of fear of transparency, standardization, and disintermediation of their brokers and agents. As a practical matter, exchanges represent an opportunity to strip away many of the strategies which insurers employ as business development retention tools: administrative complexity, paperwork, byzantine underwriting schemes, and convoluted language.

Insurers and brokers (and their surrogates among the Republican Party) have resolutely resisted the implementation of exchanges since their introduction in PPACA legislation. They've used every tool available to them to impede the development of exchanges, from withholding funding to Supreme Court challenges to refusing to implement state health exchanges in two-thirds of the states (thereby defaulting to the federal exchange, which represents an ironic decision by Republican governors to undermine their own states' ability to regulate exchange activity, while at the same time turning even MORE power over to the federal government).

By the time PPACA ran the Supreme Court gauntlet, only a little more than a year remained for the government to launch a dizzyingly complex logistical challenge. The rules and policies surrounding exchanges continued to change right up till last week, when the Administration announced that the small business exchanges known as SHOP exchanges wouldn't be open for business for at least another thirty days. Even as I write this, House Republicans are in the midst of a last-ditch effort to delay exchange implementation for a year, at the very least, if not repeal the law altogether and replace it with....what? A return to the status quo ante (as if those were "the good old days").

And yet, despite all that, effective October 1st, the virtual doors will open on public exchanges throughout the country.

What's going to happen?

As noted above, it's going to be a sh*tshow.

NOBODY is ready. And NOBODY knows what's really going to happen.

Insurers which, today, will still be processing and underwriting paper applications, suddenly will go paperless tomorrow. They have no idea what sort of volume to expect, how their interfaces with state and federal exchanges will operate, how the calculations of subsidies for applicants will actually work (when they work at all; in development, the government data base gets it right only about 2/3 of the time), who will apply, who will pay premiums, who will renew a year from now...Nobody knows.

Brokers will, at the very least, be relying on largely untested insurer-developed "exchange" platforms to assist both their traditional clients, and a hoped-for stampede of new clients. Every insurer of any size has developed its own "exchange" platform, which means agents will need to be trained on a variety of competitive exchange tools. Some will work better than others, but NONE have been terribly thououghly tested.

The federal government SURE isn't ready, despite the air of confidence the Administration is trying to portray. Were it not for the explosive nature of the politics surrounding Obamacare, the Administration would certainly have postponed the exchange launches for at least a couple of months, and maybe up to a year, to make sure its systems were ready for prime time. They didn't have that luxury, because a failure to launch by the always-arbitrary October 1st deadline would have set the wolves baying even more loudly. Our friends In Government know that the exchanges are being held together with spit and bailing wire, and powered by an army of chipmunks in cages, and that it will take at least a year to work the bugs out. Despite their public optimism, they have to be praying that early response to the exchanges will be slow, because if they face an avalanche of applicants, the whole system could crash.

And hapless consumers CERTAINLY aren't ready. While political objections to Obamacare run high, the vast majority of Americans still know very little about the law and how it will affect them. Their ignorance will be compounded by stories of early problems with application, enrollment, and subsidy calculations, as well as by a truly mean-spirited and destructive misinformation campaign being waged in the media, both by "conservative" pundits and by the Koch brothers, who seem to be paying many of those pundits' salaries.

So, sure, it's going to be messy, noisy, and chaotic.

But that's not so bad, given the circumstances. Most revolutionary ideas begin their lives as very unpopular ideas. Most big projects experience problems at launch. And most of us learn by trial and error.

What's going to happen? Probably, in the first few weeks, not much. And that could be good.

Some of the bad news is, I think, that those who will flock to the exchanges, and who will battle through the errors and glitches to get enrolled as soon as possible, will be folks with health conditions. They'll probably find that, even with the promise of subsidies, the best plans with the best benefits will be very expensive. The subsidies are tied to the second-least-expensive "silver" health plans, many of which are built around very restrictive provider networks. Will they become discouraged?

The next wave will be individuals seeking subsidized coverage. Keep in mind that on the only public exchange extant, The Massachusetts Connector, about 90 percent of those enrolled are receiving some sort of subsidy.

The last groups to shop will be individuals who already have some sort of coverage. They could be stampeded toward the exchanges if they receive letters from their insurers telling them that their current health plans haven't been "grandfathered," and no longer comply with the government's criteria for "qualified health plans." But MOST folks with coverage participate in plans which have been "grandfathered" through 2014, so insurers can assure themselves that they'll be able to keep that business in place for at least another year, till things are working better.

There WILL be a stampede to some private exchanges, driven by large, self-insured employers who are already rapidly transitioning their employee and retiree health plans to the big guys' (Aon, Willis, Towers Watson) defined contribution exchanges. But this is sort of a non-event; the "exchanges" these companies are jumping to are really juiced-up Third-Party Administrators (TPA's), which already manage health plans for large companies. These providers have just added a defined contribution component to their systems, painted them a different virtual color, and named themselves "exchanges."

MOST people will come to the exchange gradually, the way most people adapt to new technologies: by messing around till they figure it out. It's important to keep in mind that this first open enrollment period is six months long, and that significant changes and upgrades will be made in the next six months to fix glitches and improve the customer's experience. Most folks will "walk through" the exchanges a few times before doing any serious shopping.

So, despite the noise, any stories about Day One of the exchanges will be very, very premature. The real issue isn't how things work on Day One, or Week One, or even Month One, but how many people have signed up by the end of March. My guess is the number will be lower than the Administration's forecast of seven million people; maybe half that number will have signed up by then.

The next big test will be how many of those who have enrolled in the early stages renew their coverage at the end of Year One. Satisfied customers will return; unhappy ones may find that the rapidly-evolving private exchanges will be better places to shop.

In the meantime, expect to continue to hear both sides in this "debate" rage on. Expect continued shenanigans in Congress, including continuing efforts by influential constituencies such as medical device manufacturers to gain advantages (or mitigate disadvantages) for themselves, at taxpayer expense.

In other words, expect the politics to continue.

That's how revolutions work. They're chaotic. They're messy. They are strongly resisted by those whose power comes from the status quo.

But the change is coming, starting tomorrow. The world is going to change, irrevocably. It's by no means a sure thing that all exchanges will work effectively, especially at the outset. Or that consumers will ultimately benefit (it is politics, after all). There will be winners and losers. We'll talk about those in subsequent months.

We won't REALLY know how well the exchanges work till probably the end of 2017.

The major lesson to come from this is that the political forum is the worst place to develop meaningful reforms.

But when the marketplace fails, it's the only other alternative.

So keep calm. Carry on. And enjoy the show...