LOTSA Work To Do On Health Exchanges...And Some BIG Roadblocks To Doing It

Thus far, the Mayans have been proven wrong...and so (thus far) have Republicans. Both their professed fears of doom and universal collapse have failed to come to pass. December 21st came and went, and the sun came up the next day (which DID cause me to rush my Christmas shopping, since I'd put it off, just in case), and Barack Obama was re-elected serve a second term, and the sun came up after Election Day.

Those who had been living in political denial for the past couple years woke up after the election to find that The Affordable Care Act, which they'd been hoping Mitt Romney would make go away, was going to have to be implemented, after all. And among the biggest challenges entailed in implementing the law is developing and rolling out the electronic marketplaces called health exchanges in time to meet a federally-imposed deadline of January 1st, 2014...which, you might notice, is now less than a year away.

Doing that, it would seem, will be a tad more difficult than the experts might have expected.

First, as of December, 2012, only 19 states have introduced or passed legislation authorizing the formation of state-run exchanges. Only seven of these states have elected to develop an "active purchaser" model, whereby the exchange will negotiate with insurers to develop and market plans through the exchange itself (this type of exchange is modeled after the Connector in Massachusetts,which was the model for the exchange language built into PPACA). Six will serve as a clearinghouse, merely providing information and referrals on plans available to consumers, and another half dozen don't know WHAT they're going to do.

Seven states have elected to go with an as-yet-undefined "partnership exchange" with the federal government, whereby the feds will be doing...some things...and the states will be doing...some other things.

The remaining states have essentially punted to the feds, declining to develop their own exchanges and defaulting to whatever exchange the federal government eventually develops.

(A complete listing of which state is doing what is available from the Kaiser Family Foundation here:http://statehealthfacts.kff.org/comparemaptable.jsp?ind=962&cat=17)

It's no surprise that the majority of states which have chosen not to go forward with health exchanges of their own are headed by Republican governors. And many observers have noted the irony of "small government, state's rights" Republicans opting to default their right to operate and control health insurance regulation in their states (traditionally the states' purview) to the federal government.

But there might be a few good reasons a smart politician might drag his/her feet in setting up an exchange.

First, exchanges would seem to be quite costly to build and maintain. The fed has distributed tens of millions of dollars in grants to states wishing to establish their own exchanges, but has essentially left the cost of operating and maintaining exchanges to the states. In Massachusetts,the annual operating costs for operating the connector would appear to be about $30 million.

Beyond the operating costs, states have a legitimate fear of being stuck with some pretty hefty costs related to subsidizing the extension of coverage for the working poor. PPACA'a proposed subsidies for low-wage participants, and its small business tax credits, are scheduled to expire by 2017. The legislation is silent on what happens after that.

This is a big deal. Consider that the Massachusetts Connector, the only operating prototype, covers about 225,000 people after six years of operation....in a state with a total population of 6.6 million people. Of that number, over 190,000 participants are receiving subsidized coverage. Only 40,000 plan participants are purchasing non-subsidized health plans...and only about 2,500 of those participants are employees of small businesses...in a state with about 139,000 small businesses, which employ 2.7 million people.

(This means that the Connector, after 6 years of operation, has gained a whopping 3.4% total market share, and a market share of about 1/10th of one percent of small business employees...in a state in which purchasing health coverage has been mandatory since 2006...Just sayin'...)

The strong implication is that,when subsidies go away, states will be required either to pick up a gigantic tab, or may be forced to move people off the exchange's rolls and put them...where?

In that light, it might make practical political sense for state leaders to leave the potential downsides to the federal government...even if doing so results in laying the groundwork for a federal "takeover" of the nation's health insurance system, as some fear.

The Massachusetts experience also suggests that an exchange does not solve a lot of problems for small businesses. Absent a meaningful subsidy of some sort, there has been little sign that small businesses can get a better deal on small group coverage through the exchange than they can get in the general marketplace. That is unalloyed bad news, since exchanges will need a LOT of small group participation to grow and maintain any sort of rating integrity.

It'll arguably take a little more than 1/10th of one percent market share to enable that to happen. And of course, the inference is that 99.9% of Massachusetts small businesses are getting a better deal somewhere else.

I think there are a couple other, very important reasons for the difficulty facing the development of working health exchanges. One is that, to be frank, nobody's built a really good one yet. Massachusetts has made enormous (subsidized) investments in technology, infrastructure, and management bureaucracy, which has amounted to hundreds of millions of dollars, AND has had the benefit of national publicity for its efforts...and after all that, has acquired a 3.4% market share. The Connector's annual report is loaded with process metrics, but doesn't even mention that small fact.

And consider that, despite its fairly anemic showing, Massachusetts' experience is a thunderous success compared to the other operating public exchange, in Utah, where the exchange has been utilized by about 2,200 people.

It's hard to be a pathfinder. And for those who follow, it's nice to be able to look to a successful case study to illustrate what you'd like to be when you grow up.

Nonetheless, the feds have committed hundreds of millions of dollars into exchange development. What does success look like? I guess beyond adherence to federal regulations, the feds will know success when they see it.

But the BIG reason we haven't seen more focus on health exchanges is not strictly political: the big health insurers HATE the idea...

Market-leading health insurers are hard at work developing "private exchanges," which are essentially exercises in co-opting the language of health exchanges as they struggle to create software-based platforms and processes for "private label" exchange-type marketing channels.

This is why three big Blue Cross & Blue Shield plans bought a majority stake in Minneapolis-based Bloom Health. It was their intent 1) to keep anybody ELSE fro utilizing the Bloom platform, and 2)to use the Bloom platform/process as their own private fishin' holes....selling their products in their markets, so they could SAY that they were in the exchange business without actually becoming more efficient or transparent, or without risking that their products might be shown in comparison with other health plans.

The fact that Wellpoint/Anthem, which unveiled its Bloom Health portfolio to great fanfare in the fall, only to find that they weren't ready for prime time, ought to give entrepreneurs in the exchange business some comfort. The fact that Anthem struck a deal with the other high-profile "exchange operator," Liazon, creates opportunities for some outside-the-box innovation.

The market leaders won't play a real exchange game until they're forced into it. They have no incentive to do so.

One ought to ask: Who would benefit from a genuine health exchange? Consumers, for one. Health insurers which are not market leaders, for another. And health systems which might benefit from enhanced insurer competition (and a key differentiator against their own health system competition) would be a third.

Let's build a health exchange, okay?...