The Target Nobody's Aiming At: Why PPACA SHOP's Are Sucking Wind (And What To Do About It), Part 1

It's kind of a disgrace, is what it is,,,

It seems that whenever Our Friends In Government are flogging new legislation, they are fast to play the small business card. Certainly as President Obama was flogging PPACA, he had kind and compassionate words for the many, many small business owners who struggle with skyrocketing health insurance costs in their efforts to keep their employees and their families covered, and equal emphasis to those entrepreneurs who simply can't afford the burden of their employees' health insurance costs. In The Brave New World, Obamacare, and the new health insurance exchanges to be created out of whole cloth as a result of the law, would create easier access to a range of competitive plans, and at better prices, than existed in the marketplace status quo ante.

Well, it's been two years, and Healthcare.gov, state-run exchanges, and even private marketplaces, are straining at the bit to ring up new sales as part of the 2105-16 open enrollment which kicks off November 1st. And how are these exchanges doing at providing small business owners and their employees with access to more affordable health coverage?


Like I said, it's kind of a disgrace...And it shows just about zero signs of improving...

As of this summer, about 9.5 million people have obtained coverage via public exchanges and kept their premium payments up to date. Of those insureds, the Kaiser Family Foundation estimates that about 80,000 small business employees, from about 10,000 small businesses, have purchased plans through the public marketplaces.

You don't need to be an actuary to do the math. That's a small business batting average of .008...eight-tenths of one percent of public exchange enrollees are employees of companies employing fewer than 50 people: the population PPACA's Small Employers Health Options Plans (SHOP) was meant to serve.

Things are scarcely better on the private-sector side: Accenture estimates that about ten million employees have enrolled for health coverage via private exchanges. I'd have to guess that the vast majority of those enrollees are employees and retirees of the large self-insured companies which have signed up (though not in overwhelming numbers) for the exchange applications being sold by the big guys: Towers, Mercer, and Aon, and by companies like Bloom Health and Liazon, who in general are also shooting for larger groups, be they self-insured or fully-insured.

I say I have to guess because, unlike public exchanges, the private entities are not obligated at all to do any public reporting of their enrollment results.

But I know insurance guys well enough to know that, whether public or private, if anybody was doing a stellar job of enrolling small groups, they'd be trumpeting their success from the rooftops in an effort to sell even more.

But...zippo...

Well, I say to myself, it's only been two years. With individual enrollments sort of hitting a wall, this will be the year the public exchanges will recognize that hitting their enrollment numbers depends on their success in marketing to the small business marketplace.

Then HHS Secretary Burwell announces that Healthcare.gov's enrollment goal for the 2015-16 open enrollment is a net increase of...one million sign-ups..

So instead of working hard to cultivate a truly overpriced and under-served segment of the marketplace, HHS has reduced its expectations, I imagine largely because they recognize that their enrollment projections have far exceeded their actual performance over the past two years, so there's some political hay to be made from setting expectations lower, then celebrating their big success in exceeding them.

Which, of course, has everything to do with politics, and almost nothing to do with actually helping people. The fact that HHS has chosen several key local markets on which to concentrate their enrollment efforts (Dallas, Houston, Northern New Jersey, Chicago and Miami) further stokes suspicions that election-year politics might be playing a role in their targeting.

There is, to be straightforward, no way for HHS to reach its long-term enrollment goals, even modified downward, without engaging the small business market in a meaningful way.

Which, if you're an Obamacare fan (or even just a small business fan) makes it maddening that HHS has no apparent plans even to try.

It's not as if there's no demand. There are over 7.5 million businesses in the U.S. which have at least one employee. Only 500,000 of those companies employ more than 100 people. Just over 5 million of them employ fewer than 20 people, and eighty percent of those companies employ fewer than ten people. Yet those small groups, those with fewer than 100 workers, provide jobs to over 40 million Americans. So we're talking about over 40 million customers in the small group market, including an easy ten million who do not have employer-sponsored health coverage.

Despite the presence of an individual mandate requiring employees of small companies which don't offer group health coverage to obtain it on their own. Despite the fact that fewer that half of small businesses with ten or fewer employees are able to offer health coverage to their workers, and that that number is decreasing every year. Despite the fact that PPACA insurance reforms have significantly increased premiums in the small group market, even above the 15-25% annual increases they've grown used to.

Not even an acknowledgment that they could be doing a better job.

Nothing. Not a peep.

But there's more to it than politics. There are plenty of other reasons why small businesses are getting the fuzzy end of the lollipop. Here are just a few:

In the technical triage process, small businesses got the shaft...Everyone remembers the chaos which surrounded the initial PPACA open enrollment period. In the rush to fix the many difficult problems which plagued the public exchange platforms at kick-off, some ballast had to get tossed overboard. The (largely) political decision was to place initial emphasis on individual coverage, since that's where the most obvious "pain" was, and since insurers had a little more experience at quoting individual plans on-line. The idea, I'm sure, was to get the SHOP platform up "later"...and as is the case with many organizations which run on annual cycles, "later" never comes.

Initial small business response to the roll-out was pretty good: a reported 50,000 small businesses visited the public exchange sites soon after launch. But the technology was so bad, they got scared off...and told their friends...

"No Mandate" doesn't mean "no need in the marketplace"...Companies with fewer than 50 employees are exempt from PPACA's employer mandate. Exchange operators, public and largely private, have put their resources behind supporting those larger groups which face a federal requirement to fund their employees' health coverage at least partially.

What this overlooks is the difficulty which the smallest of small companies face in just trying to find coverage for their workers. The small group market is highly concentrated at the local market level, which means limited competition. Prices are high, largely the result of higher administrative costs. There's a lot of churn in the small group market. And despite the fact that fewer than half of companies with fewer than ten employees offer employer-sponsored coverage to their workers, literally millions of small business owners are still struggling with rising costs and fewer choices (the effect of concentration on the insurer side) in their efforts to cover their workers...and themselves.

A whopping "Congratulations! You don't HAVE to do anything!" completely overlooks the fact that millions of smaller employers are getting killed in the voluntary (as opposed to the "mandatory") marketplace.

In general, non-group products (to use a technical term) suck...In comparison with group plans,  non-group products, even those which are "qualified" under PPACA, cost more, cover less, and mean higher deductibles and co-pays. Few small business owners (who purchase coverage not just for their workers, but also for themselves and their families) find much which is attractive about the "metal" plans which are available via the public exchanges, compared with the group plans they're struggling to keep in place. And most public exchanges have very little to offer to small groups; the public marketplaces' initial emphasis was on recruiting insurers for the non-group market. So again, small business owners are stuck with limited choices, limited employee choices (since the ability of employees to shop among various group insurance plans is constrained by limited options and substandard technical functionality), and lots of headaches.

Marketing vs. transaction processing...Much of the technical horsepower behind both public and private exchanges comes from the large group world. Those who run exchanges tend to come from one of three places: broker utilities, insurance company back-office operations, and third-party administrators. In general, they are transaction processors. They don't sell products; they provide "functionality." That's why the public marketplaces look for all the world like neutral facilitators rather than sales organizations...because they are, and are meant to be. They're set up so customers must find them, and then mostly during specific time frames such as during annual open enrollment periods. There's virtually zero marketing outreach to the small group market, despite the fact that marketing to small groups can go on year-round, and is not constrained by open enrollments.

Distribution is a pain in the a**...Insurers generally do a crummy job of selling their own products, especially in the group market. They are almost completely reliant on third parties like brokers and agents to sell their products for them.

This creates a few big problems: First, most public exchanges were set up intentionally to "disintermediate" agents. This is a decision which has created some political tension between the public exchanges and the agent community. And it's true that in states like California, Colorado and Massachusetts, which have found ways to work with agents, exchanges have had a little more success in recruiting small groups than other states. But just a little more; there's scant evidence that the involvement of agents alone will move the needle on small group sales, because;

Secondly, reductions in administrative costs, specifically mandated as part of PPACA's "medical loss ratio" requirements, have put a lot of pressure on small group third-party distribution. Small group sales are inefficient and expensive. It takes almost as much effort to sell a ten-life group as a hundred-life group, so with compensation being squeezed, agents are going where the money is, and will sell small groups when they're forced to, if at all. And insurers will often not consider underwriting groups with fewer than 25 employees.

Third, there's a lot of conflicting pressure regarding small groups even within insurance companies. Operations people will tend to embrace exchange-type marketing, because they can see the potential for efficiencies and cost reductions. Sales managers hate the exchange environment, since they tend to see technology-based solutions both as threats to "their guys"...the agents they work so hard to keep happy...and as competitive threats from other insurers. In the old sales paradigm, if you control distribution (on which insurers spend millions and millions of dollars), you control the market. In the 21st century, technology and transparency can be great equalizers. So sales managers with market-dominant insurers see no benefit to them in transparency, or in the "level playing field" the exchanges can imply. They are in no hurry to disrupt their market positions by (Heaven forbid!) encouraging competition and transparency.

Who's your ideal customer? Not small groups...Think again about where health exchange expertise comes from. Companies which have developed broker utilities see brokers and agents as their customers. Agents and brokers are using these utilities primarily as defensive tools; they can be very useful in protecting existing business, but aren't so hot at creating new businesses.

The insurance company back-office support companies are primarily post-sale transaction processors. Their customers are (obviously) insurance carriers seeking to outsource administrative headaches on the back end of their transactions.

Third-party administrators serve primarily large, self-insured companies with enrollment, renewal, and claims-processing support.

None of these groups have any great experience at selling small group coverage. And because the bureaucrats running our public exchanges also have no small group sales experience, they are tragically dependent on the expertise out there to help them succeed. So if there's no expertise out there in the industry, they don't even know how to find it, or even what to ask for.

So:
The technology stinks.

The existing public exchange processes are geared to individuals, not groups, and group functionality is not a priority.

Because there's no mandate to drive small groups into the exchange marketplace, and very little incentive to enter it voluntarily, private and public exchanges are overlooking the small group market in search of lower-hanging fruit.

Small group products are scarce, and non-group products are substandard.

Exchanges are generally set up as transaction processors, not marketers.

Insurers and agents generally view small group exchanges as threats.

And nobody...nobody...sees small groups as a marketing priority.

Quite the value proposition, huh?...

There are solutions to all these problems, assuming there's anybody out there interested in a solution that could open the exchange market up to about 40 million customers.

Want to know what they are?

That's next week...