Health Exchange 1.0: Winners And Losers, So Far...

OK, so it's over...

I've been hunkered down in my little foxhole for the past several weeks as the first Obamacare open enrollment period wound down. The propaganda flack was flying so thick and heavy between partisans on both sides of the debate that A Humble Seeker After Truth like yours truly was at significant risk of getting fragged.

But finally, we've had our first face-full of Health Exchange 1.0. And now that we've lived through it and The World As We Know It has not ended, it's time to look at some results, see what we might learn from them, and look ahead to Health Exchange 2.0, which (I hope) will build on those learnings and improve the process.

Robert Pear wrote in The New York Times wrote that, with the end of open enrollment, Obamacare looks less like a monolithic national program and more like a patchwork of experiments in the policy laboratories which are the states. Some have succeeded. Some have not, and for a great many people, the future remains quite uncertain.

Let's take a look at the box scores thus far:

Winners

Millions and Millions Of Americans: The numbers are still squishy, but we've come a long way, very quickly, from insurers' initial belief that nobody would ever shop for health insurance on-line. By White House accounts, about eight million Americans withstood the rolling disaster of the Healthcare.gov roll-out, and persisted through a wonky process on the still-glitchy public exchange platform, to enroll in health coverage through the federal exchange.

An additional three million Americans benefited from Medicaid expansion in states which adopted the Obama Administration's Medicaid expansion program.

And a bonus: research by The Rand Corporation suggested that almost as many Americans (somewhere between six and eight million) signed up for private health coverage directly with insurers or through their employers..

So...Do the numbers suggest a pent-up demand for health coverage? Maybe. About a third of the folks signing up for coverage via Healthcare.gov were apparently uninsured previously. But the majority had coverage elsewhere before they went shopping.

Certainly, enrollment suggested the effectiveness of subsidies as an incentive to enroll. Medicaid expansion enabled millions of poor people to obtain coverage. And about three-quarters of Healthcare.gov enrollees received at least some level of federal subsidy. We don't yet know the total cost of those subsidies, but there's no doubt that many folks came to the state and federal marketplaces in search of a better deal. The number of "off-exchange" individuals with non-group coverage dropped from 9.4 million to 7.8 million people, the majority of whom found coverage elsewhere.

But the number of individuals who enrolled in private, employer-sponsored plans off the exchanges is a pleasant surprise. In general, these folks did not receive subsidies. And during the open enrollment period, more than three times as many people went from zero coverage to employer-sponsored coverage than those who may have lost their coverage, either because their employers discontinued their plans or because the plans didn't meet Obamacare standards for plan design.

There is certainly reason to take these numbers with a grain of salt. It's estimated that as many as a third of Healthcare.gov enrollees had not yet paid their premiums by enrollment deadline. The Rand research was based on a wide-ranging survey of a representative sample of Americans. And many skeptics believe that many of the folks who withstood The Trials Of The Wonky Website did so because their health conditions were so serious that the prospect of subsidized coverage would enable them to exploit the health care system at taxpayer expense.

But that final thought discounts the notion that, prior to enactment of the insurance reforms enacted in PPACA, insurers' medical underwriting standards were so restrictive that a little hypertension or a little high cholesterol could result either in "rate-ups" which made the cost of obtaining coverage prohibitive, or even in denial of coverage.

Inescapable conclusion: The rate of uninsured Americans has reportedly dropped from 20.5 percent of the population to 15.8 percent. So, at least for now, close to twenty million Americans have demonstrated that significant demand exists out there, and both public and private health plans have seen a significant increase in enrollment. For those folks and those families, this is a big win. And it happened in six months; that is an amazing achievement.

Wellpoint/Anthem: This company is one of a very small number of insurers which decided that the exchange business represented a significant business opportunity, and enthusiastically participated in Healthcare.gov and state exchanges in every state in which the company has a presence. They were rewarded  with over a million new customers. It's very unusual for an insurer to take that sort of risk as a leader; in most cases, as in this one, the race is usually to be second, once the leader has taken the initial hits. I suspect that Anthem's early success in building enrollment via the exchanges will encourage other insurers which have been hanging back to increase their commitment to this potentially powerful marketing channel.

Losers

Hawaii, Maryland, Massachusetts, Minnesota, and Oregon: Actually, in addition to this five-way tie, throw in American taxpayers as losers, as well. These five states, having pocketed over a billion dollars in development grants, built state exchange platforms which didn't work. In Hawaii, recipient of $205 million to build their state exchange, managed to sign up a whopping 7600 people. Now, math is not my strong suit, but I think that boils down to about $27,000 per enrollment. The remainder of the states continued to be so dysfunctional that the vast majority of their enrollments were on paper...the old fashioned way.

Maryland has already agreed to scrap its own exchange platform and adopt the technology platform developed by The State Of Connecticut. And last week the Oregon legislature, having determined that fixing their monstrosity would cost at least an additional $30-40 million, opted to shut down their exchange and join Healthcare.gov.

This is just the first round of shake-out from the chaos of development which ran parallel to the government's rush to create the regulations outlining how exchanges should operate. States like California, Colorado, Connecticut, Kentucky and California, which have had far greater success with their exchange platforms, could become licensors of their technology.

CGI:  Hey!...Anybody thinking of building or re-modeling their exchange platforms and processes, DO NOT HIRE THIS COMPANY!...At least in America, CGI has a reputation for being far more highly-skilled at navigating the government procurement process than at actually doing the work, either on time or on-budget. That attribute became all too clear as the exchange open enrollment date loomed, and everybody watching (except, apparently, then HHS Secretary Kathleen Sibelius and the entire White House staff) could see that Healthcare.gov was not going to be ready for prime time.

Under normal circumstances, the combination of CGI's "expertise" and the lax and highly-politicized oversight of their government "clients" passes unnoticed by the public...But in those cases, there's rarely a deadline, and the technology they develop doesn't touch the lives of millions of people directly. But in this case, CGI Federal could not, no matter how they spun, avoid the fall-out from their botched attempt to build the Healthcare.gov website and supporting processes. Between what it cost taxpayers to let CGI Federal  do...whatever it was they were doing...and the cost of bringing Accenture in to fix it, and the cost of building out the "back end" applications required to manage the exchange (still nowhere near ready), the project will easily exceed another billion dollars. So I guess, as in the previous category, the taxpayers are also losers...and Accenture is a winner by default.

(Oh, and in case you think the CGI choke-a-thon was restricted to wild and wacky D.C., consider that CGI also built the non-performing platform in Massachusetts).

Red State Residents; Just as whether one sees Obamacare as a success or a disaster largely depends on one's party affiliation and where you get your news, exchange enrollment by state currently seems to be highly dependent on the political leadership in each state. In general, exchange enrollment has been highest in states with Democrat leaders, and lower in states with Republican leaders. Much of the disparity comes from those states' refusal to co-operate with the federal government's Medicaid expansion. But political leadership (or lack of it) also contributes to how vigorously the public exchange is promoted.

Next time around, I'll talk a little about some of the big remaining exchange questions, about the upcoming 2014 open enrollment (which is hard upon us), and what's in all this for small businesses (Hint: not much).

The Coming Small Business S**tstorm...That NOBODY'S Ready For...Least Of All, Small Businesses

As PPACA was being concocted, one of my greatest concerns was that I saw very little in the legislation itself which would provide much of a benefit for a segment of the market most in need of constructive reform: the small group market, especially companies with fewer than 25 employees, and especially groups with 10 or fewer workers. This has traditionally been a market segment which is both overpriced and under-served.

And with pressure on insurers to reduce administrative costs, it seemed that small businesses, which are relatively expensive to sell to and service, would readily be abandoned by insurers and brokers in search of bigger fish. My fear was that small businesses would take it in the proverbial teeth, saddled with additional costs due to the broad-based insurance reforms, but with few benefits to offset the aggravation. And it seemed to me that insurers would readily abandon the small group marketplace, making their "big bets" that small business owners would be quick to dump their plans and push their employees onto the public exchanges, with the subsidies they would provide.

It struck me then that the "reformers" had very little knowledge of the issues besetting small business owners in the "micro-group" niche, about half of whom are struggling to provide some sort of health coverage for their workers and their families. The prevailing wisdom in political circles is that small businesses are either greedy, denying their employees access to health coverage, or ignorant, and needing to be "encouraged" by government to "do the right thing."

So I asked very early on...who is speaking for small business?

With the announcement yesterday that the Obama Administration had decided to push the employer mandate for companies in the 50-99 market out past the 2014 elections, it's clear that small business owners must not have very good lobbyists; since they're sort of out in the cold...The Little Cheese That Stands Alone.

Because, while companies with fewer than 25 employees will not be required to purchase and pay for coverage for their employees, those that wish to are going to face an administrative nightmare in about six short months...and nobody...insurers, brokers, and especially small business owners...is prepared to deal with the shitstorm which will engulf the small business market beginning in October.

And it's not clear to me that either our political "leaders," nor those in the industry, are terribly concerned.

What's gonna happen?...

Thousands upon thousands of small businesses have had their plans "grandfathered" by their insurers, even though the plans didn't adhere to PPACA requirements.

Thousands upon thousands more have accepted two-year rate renewals, with an eye toward postponing "rate shock" till 2015.

Starting in the fourth quarter of 2014, all  these groups will need to be re-sold.

If these small businesses wish to continue to provide health coverage to their workers, the plans they offer will have to comply with ACA regulations. That means new plan designs, which will be expensive.

They'll probably be looking at their workforces in light of the requirement that "full-time employment" be re-defined at 30 hours per week. (This may not be as catastrophic as some critics have suggested. In the past, when managing a very large small business health plan, our groups audits found that the most commonly-broken rule was enrolling less-than-full-time employees on the company's health plan. We tried to accommodate this by modifying our carrier contracts to provide some flexibility in defining "full-time employment" down to 30 hours per week. As long as companies provided coverage to all their qualified employees working 30 hours per more per week, they were okay with us. Same with 35 or 40 hours per week. All we asked was that the companies be consistent in their treatment of workers).

And thousands upon thousands of small businesses, whose rates had been set based on health underwriting, will have to be re-rated using community-rating criteria. In general this will make coverage more expensive for younger, healthier workers and slightly less expensive for older workers, and those with health conditions.

Unless the White House gets smart very quickly, this is going to mean a huge amount of chaos in the small group market.

Want to be whether Healthcare.gov will be ready? Because it's not right now. Even with the "front end" vastly improved over launch, the "back end" functions...billing, enrollment, defined contribution or other premium-sharing functionality...are very likely just a glimmer (maybe a glaze) in some programmers' eyes.

Insurers certainly aren't ready. Having snapped out of their Obamacare-denial reverie in early 2013, their first effort involved getting (sort of) ready for the onrush of individuals hitting the exchange market. The widely-decried outrage over Healthcare.gov's launch provided a lot of cover for private insurers whose "exchange" technology was not ready for prime time, either. Most of them are still processing applications on paper and/or over the phone.

Where are the "private exchanges?" In general, most of the "big name" exchange operators...Mercer, Towers Watson, Aon Hewitt...are chasing low-hanging fruit...Their "exchanges" are largely amped-up third party administration platforms with a new label. And they're chasing large, self-insured  groups with a lot of retirees first. They won't be in the 50-99-employee group space for at least another year, if ever, and they've never really had an interest in the fewer-than-25-employee small group market.

The biggest exchange e-brokers, like eHealth and GoHealth, started their lives as brokers in the individual market. That's where their expertise is, and where they've made their money. They might be thinking about the small group market, but they're very busy sticking to their knitting. Hard to see them ready to jump in six months from now.

The limited number of players with small group functionality are mostly broker utilities, developed to assist brokers in managing their own books of business. Will they have the ability, or the willpower, to leap over the hordes of middlemen and go directly to the small business owner/operator in an exchange-type direct-to-consumer environment?

Again, wanna bet?...

It'd be a real shame if PPACA, which, at least rhetorically, was supposed to make health coverage easier to access and more affordable for small businesses and their workers, instead undermined and destroyed the small group health insurance market.

But unless I'm very wrong, the coming shitstorm is gathering which could do just that.

So, if I'm wrong, for Gawd's sake, enlighten me...