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?...
Showing posts with label Massachusetts Connector. Show all posts
Showing posts with label Massachusetts Connector. Show all posts
Monday, April 15, 2013
Friday, January 4, 2013
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?...
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?...
Saturday, February 26, 2011
Health Insurance Exchanges...How Will/Can The Private Sector Compete?
Much of the large-scale implementation of Obamacare's insurance reform plan rests with organizations which, by and large, are the stuff of myth: state health insurance exchanges. This should give us pause.
Any health care nerd you know can tell you what a health insurance exchange is supposed to do: exchanges are statewide electronic marketplaces which will enable small businesses and individuals to shop for, purchase, and manage health plans in a secure on-line environment. The exchange will handle marketing, at least some sales, and presumably renewals, as well as administer whatever tax credits or subsidies each eligible exchange customer will receive. And it will perform other administrative duties as may be required.
Tall order. Good thing the exchange model is based on a solid foundation of experience and good results produced by "role model" organizations.
Except that's not true, either. While there are a few large Chamber or association health plans which have done a good job for their members, these plans (which have problems of their own) generally offer a variety of plans from a single health insurer, not a...tasteful buffet...of plans from multiple carriers.
The only real working example is the Massachusetts Connector, the exchange established by state government leaders in that state (proposed, you may recall, by Republican Governor Mitt Romney). So I thought I'd take a quick look at The Connector, to see how such mythical beasts might affect the small group market in the world post-2014.
The Massachusetts Connector was established in 2007, and its start-up subsidized at the level of over $40 million, according to independent sources. Its operation is financed by a "fee" charged to insurers that look for all the world like commissions.
A key to the establishment of the Connector was an individual mandate; individuals have to purchase insurance or pay a modest fine. Subsidies are available to underwrite premium costs for the working poor.
By the end of 2010, the Connector had enrolled just shy of 200,000 Massachusetts residents. An estimated 150,000 of them are individuals whose coverage is subsidized in some way. The remainder...the unsubsidized participants, are employees of small businesses, or are self-employed. The state estimates that the Connector currently covers less than five percent of the small group and individual market in Massachusetts.
From a systems standpoint, the Connector seems pretty transparent and easy to use. Individuals and/or small business owners are guided through a pretty easy process of shopping for and comparing among plans, which are organized simply as "bronze," "silver," and "gold" plans. Because Massachusetts is a community-rating state, premiums are higher for young people, and still pretty high for the 50+ age group. But with no significant health underwriting, application and enrollment look pretty easy
So far, so good.
But what the wonks generally don't talk about is that the cost of operating the Connector, and of maintaining the current level of subsidies, at a consistent level of coverage for everyone, is very expensive . There have already been attempts to reduce or eliminate Connector coverage for certain groups (like illegal immigrants). And because 4 out of 5 Connector participants are receiving come level of subsidy for their premiums, their coverage is highly dependent on the willingness of their fellow citizens to tax themselves to maintain those subsidies for a growing population of exchange participants.
So...flash forward to 2018...Health exchanges will be in operation in every state, and will have three years of track record. Four out of five participants in those exchanges are receiving subsidized care, but the federal subsidies, which are assured for the first three years, are set to expire, leaving a big unfunded mandate on state governments. We can have those discussions, right along with the ones about freedom and liberty.
But my point is to think about market penetration, and its implications. Because it is a relatively compact, relatively homogeneous state with a liberal political tradition, one can assume that the "take-up rate" there might be higher than average. But let's assume that they're right on target, and after three years of operation, exchanges cover about five percent of the small group and individual markets.
It's still a huge number. Collectively, it could represent $120 billion in premiums; the administrative cost portion, even if it's half the federally-mandated loss ratio (because there are supposed to be some efficiencies in operating exchanges on a large scale) could run $12 billion or more per year.
But it's still five percent of the market. And not a particularly attractive piece of it.
So who's going to be taking care of the other ninety-five percent?...
I've been giving some thought to what tools and capabilities will be necessary for brokers, insurers, small business owners, and self-employed individuals to compete with these mythical beasts. I'll share some in an upcoming post.
Meantime, we've had some...lively conversation...in the past on the politics of health insurance reform. How about a conversation about business strategy? Instead of being afraid of how insurance reform, and especially health exchanges, might threaten your business, let's think about what stakeholders are going to need to do for their piece of the other 90-95% of the market...
Any health care nerd you know can tell you what a health insurance exchange is supposed to do: exchanges are statewide electronic marketplaces which will enable small businesses and individuals to shop for, purchase, and manage health plans in a secure on-line environment. The exchange will handle marketing, at least some sales, and presumably renewals, as well as administer whatever tax credits or subsidies each eligible exchange customer will receive. And it will perform other administrative duties as may be required.
Tall order. Good thing the exchange model is based on a solid foundation of experience and good results produced by "role model" organizations.
Except that's not true, either. While there are a few large Chamber or association health plans which have done a good job for their members, these plans (which have problems of their own) generally offer a variety of plans from a single health insurer, not a...tasteful buffet...of plans from multiple carriers.
The only real working example is the Massachusetts Connector, the exchange established by state government leaders in that state (proposed, you may recall, by Republican Governor Mitt Romney). So I thought I'd take a quick look at The Connector, to see how such mythical beasts might affect the small group market in the world post-2014.
The Massachusetts Connector was established in 2007, and its start-up subsidized at the level of over $40 million, according to independent sources. Its operation is financed by a "fee" charged to insurers that look for all the world like commissions.
A key to the establishment of the Connector was an individual mandate; individuals have to purchase insurance or pay a modest fine. Subsidies are available to underwrite premium costs for the working poor.
By the end of 2010, the Connector had enrolled just shy of 200,000 Massachusetts residents. An estimated 150,000 of them are individuals whose coverage is subsidized in some way. The remainder...the unsubsidized participants, are employees of small businesses, or are self-employed. The state estimates that the Connector currently covers less than five percent of the small group and individual market in Massachusetts.
From a systems standpoint, the Connector seems pretty transparent and easy to use. Individuals and/or small business owners are guided through a pretty easy process of shopping for and comparing among plans, which are organized simply as "bronze," "silver," and "gold" plans. Because Massachusetts is a community-rating state, premiums are higher for young people, and still pretty high for the 50+ age group. But with no significant health underwriting, application and enrollment look pretty easy
So far, so good.
But what the wonks generally don't talk about is that the cost of operating the Connector, and of maintaining the current level of subsidies, at a consistent level of coverage for everyone, is very expensive . There have already been attempts to reduce or eliminate Connector coverage for certain groups (like illegal immigrants). And because 4 out of 5 Connector participants are receiving come level of subsidy for their premiums, their coverage is highly dependent on the willingness of their fellow citizens to tax themselves to maintain those subsidies for a growing population of exchange participants.
So...flash forward to 2018...Health exchanges will be in operation in every state, and will have three years of track record. Four out of five participants in those exchanges are receiving subsidized care, but the federal subsidies, which are assured for the first three years, are set to expire, leaving a big unfunded mandate on state governments. We can have those discussions, right along with the ones about freedom and liberty.
But my point is to think about market penetration, and its implications. Because it is a relatively compact, relatively homogeneous state with a liberal political tradition, one can assume that the "take-up rate" there might be higher than average. But let's assume that they're right on target, and after three years of operation, exchanges cover about five percent of the small group and individual markets.
It's still a huge number. Collectively, it could represent $120 billion in premiums; the administrative cost portion, even if it's half the federally-mandated loss ratio (because there are supposed to be some efficiencies in operating exchanges on a large scale) could run $12 billion or more per year.
But it's still five percent of the market. And not a particularly attractive piece of it.
So who's going to be taking care of the other ninety-five percent?...
I've been giving some thought to what tools and capabilities will be necessary for brokers, insurers, small business owners, and self-employed individuals to compete with these mythical beasts. I'll share some in an upcoming post.
Meantime, we've had some...lively conversation...in the past on the politics of health insurance reform. How about a conversation about business strategy? Instead of being afraid of how insurance reform, and especially health exchanges, might threaten your business, let's think about what stakeholders are going to need to do for their piece of the other 90-95% of the market...
Wednesday, August 11, 2010
What The Politicians AREN'T Saying About The Massachusetts Connector: A Cautionary Tale
Throughout the Washington debate over health insurance reform, advocates lionized the experiment enacted in 2006 by the State of Massachusetts. The "Massachusetts Connector" is a key model for the Obama Administration's notion of "health insurance exchanges:" electronic marketplaces which would enable small businesspeople and individuals to shop on-line among a variety of health plans.
The Connector is credited with increasing access to health insurance coverage for Massachusetts residents; compared with 89.5 percent of the non-elderly population in 2006, over 95% of the population was covered by private insurance in 2009. That increase in coverage was largely due to generous subsidies provided to families whose income was less than three times the federal poverty level (about $66,000 for a family of four).
I've looked closely at the Connector from a user perspective, and it IS easy to use. That's partially due to Massachusetts' being a state which community rates both individual and small group coverage, and which guarantees that coverage will be available to anyone who applies, irrespective of health condition.
So far, so good, except...
Robert J. Samuelson, who writes on economics for both Newsweek and The Washington Post, recently published a column called "As Massachusetts 'Reform' Goes, So Should Obamacare" (http://www.washingtonpost.com/wp-dyn/content/article/2010/07/18/AR2010071802733.html), which highlights several issues political leaders in Massachusetts have ignored, at their increasing peril, and which should serve as cautionary tales for states moving forward with implementation of their own exchanges.
The article illustrates the inevitable outcome of a strategy which places a higher priority on access to coverage than on cost control. It also points out how difficult it is...and will be...for politicians to take concrete steps to curb runaway health insurance costs once a new entitlement has been enacted.
First, while The Connector is credited with an incremental increase in the number of people with insurance, the offsetting benefits have been slow to come by. "Emergency rooms are as crowded as ever; about a third of the non-elderly go at least once a year, and half those visits are for 'non-emergency' conditions."
The expected gains in health status trumpeted under the program are seen as mostly long-term, since the evidence suggests that the majority of the newly-insured are younger, and therefore healthier, than the general population. This should be good for participating insurance companies, since they're selling more plans to young people who won't use them, but the effect on public health has been negligible.
But not the effect on health costs; they're spiraling out of control. As recently as 2009, the Massachusetts legislature was investigating ways to limit benefits under the State's plan by denying coverage to certain groups, such as illegal aliens. But that didn't happen.
But health care costs have exploded. There is additional burden on small employers, who are required to pay at least 70% of premiums for their workers. But the burden on State finances has been even more drastic. "In 1990, health spending represented about 16 percent of expenditures," Samuelson writes. "By 2000, health's share of the budget was 22 percent. In 2010, it's 35 percent. And ninety percent of the State's health spending is on Medicaid."
How have political leaders responded? By beating up on insurance companies. Massachusetts' insurance commissioner began denying "unreasonable" premium increases. A State commission ruled those denials were illegal; negotiations with insurers continue.
A blue-ribbon commission concluded that the villain was fee-for-service medicine, and recommended the enactment of "global payment systems" to force providers to be more efficient. But the commission offered no clue as to how to implement such payment systems, and since hospitals, doctors, and other providers objected to the recommendation,the political process stalled.
Concludes Samuelson: "The lesson from Massachusetts is that genuine cost control will be avoided because it's so politically difficult. It requires limiting the incomes of hospitals, doctors, and other providers. They object. To encourage "
'accountable care organizations' would limit consumer choice of doctors and hospitals. That's unpopular."
"Obama dodged the tough issues in favor of grandstanding....What's occurring in Massachusetts is the plausible future"
Policymakers and groups working to implement federal insurance reforms can develop an exchange approach which combines administrative efficiencies, large-scale purchasing power, network management, and regulatory flexibility to effect real pro-consumer change in the health insurance marketplace. The tools are generally available, as is the knowledge of what works...and what doesn't...to achieve the laudable goal of expanding access to affordable health coverage for small businesses, their employees, and their families.
But where's the debate?...As long as it's confined to the halls of politics, the interests of those who pay will be overwhelmed by the interests of those who get paid.
The Connector is credited with increasing access to health insurance coverage for Massachusetts residents; compared with 89.5 percent of the non-elderly population in 2006, over 95% of the population was covered by private insurance in 2009. That increase in coverage was largely due to generous subsidies provided to families whose income was less than three times the federal poverty level (about $66,000 for a family of four).
I've looked closely at the Connector from a user perspective, and it IS easy to use. That's partially due to Massachusetts' being a state which community rates both individual and small group coverage, and which guarantees that coverage will be available to anyone who applies, irrespective of health condition.
So far, so good, except...
Robert J. Samuelson, who writes on economics for both Newsweek and The Washington Post, recently published a column called "As Massachusetts 'Reform' Goes, So Should Obamacare" (http://www.washingtonpost.com/wp-dyn/content/article/2010/07/18/AR2010071802733.html), which highlights several issues political leaders in Massachusetts have ignored, at their increasing peril, and which should serve as cautionary tales for states moving forward with implementation of their own exchanges.
The article illustrates the inevitable outcome of a strategy which places a higher priority on access to coverage than on cost control. It also points out how difficult it is...and will be...for politicians to take concrete steps to curb runaway health insurance costs once a new entitlement has been enacted.
First, while The Connector is credited with an incremental increase in the number of people with insurance, the offsetting benefits have been slow to come by. "Emergency rooms are as crowded as ever; about a third of the non-elderly go at least once a year, and half those visits are for 'non-emergency' conditions."
The expected gains in health status trumpeted under the program are seen as mostly long-term, since the evidence suggests that the majority of the newly-insured are younger, and therefore healthier, than the general population. This should be good for participating insurance companies, since they're selling more plans to young people who won't use them, but the effect on public health has been negligible.
But not the effect on health costs; they're spiraling out of control. As recently as 2009, the Massachusetts legislature was investigating ways to limit benefits under the State's plan by denying coverage to certain groups, such as illegal aliens. But that didn't happen.
But health care costs have exploded. There is additional burden on small employers, who are required to pay at least 70% of premiums for their workers. But the burden on State finances has been even more drastic. "In 1990, health spending represented about 16 percent of expenditures," Samuelson writes. "By 2000, health's share of the budget was 22 percent. In 2010, it's 35 percent. And ninety percent of the State's health spending is on Medicaid."
How have political leaders responded? By beating up on insurance companies. Massachusetts' insurance commissioner began denying "unreasonable" premium increases. A State commission ruled those denials were illegal; negotiations with insurers continue.
A blue-ribbon commission concluded that the villain was fee-for-service medicine, and recommended the enactment of "global payment systems" to force providers to be more efficient. But the commission offered no clue as to how to implement such payment systems, and since hospitals, doctors, and other providers objected to the recommendation,the political process stalled.
Concludes Samuelson: "The lesson from Massachusetts is that genuine cost control will be avoided because it's so politically difficult. It requires limiting the incomes of hospitals, doctors, and other providers. They object. To encourage "
'accountable care organizations' would limit consumer choice of doctors and hospitals. That's unpopular."
"Obama dodged the tough issues in favor of grandstanding....What's occurring in Massachusetts is the plausible future"
Policymakers and groups working to implement federal insurance reforms can develop an exchange approach which combines administrative efficiencies, large-scale purchasing power, network management, and regulatory flexibility to effect real pro-consumer change in the health insurance marketplace. The tools are generally available, as is the knowledge of what works...and what doesn't...to achieve the laudable goal of expanding access to affordable health coverage for small businesses, their employees, and their families.
But where's the debate?...As long as it's confined to the halls of politics, the interests of those who pay will be overwhelmed by the interests of those who get paid.
Monday, March 29, 2010
The Massachusetts Connector: Public And Private Lessons About Insurance Exchanges
The Massachusetts Connector, the state's 4-year-old health insurance exchange, is the conceptual model for the kind of electronic marketplace incorporated into the new health insurance reform law.
Through the Connector, individuals and small businesses have the opportunity to shop for, compare, and purchase health coverage from among a number of health insurers. So if you want to see what a public health insurance exchange might look like, go to http://www.mahealth connector.org/portal/site/connector.
I thought I'd take a little tour of the site myself, and here are a few things I found:
1) As is the case with many quoting sites, the Connector's portal contains a few "front doors:"one for individuals and families, one for employers, and one for brokers. There's even a neat little electronic process enabling small business owners to compare plans and enroll without the need for paper forms;
2) State government has clearly established the criteria for the content of plans available through the Connector. They fall into Bronze, Silver, and Gold categories based on plan features. Each category has low, medium, and high options, featuring lower deductibles and co-pays as one moves from low to high option. The plans are standardized, which makes apples-to-apples comparisons easy;
3) For the ZIP code I entered as my business' location, I was able to receive quotes from three health insurers. Don't know how many insurers overall participate in the Connector, but comparisons of standardized plans from among three insurers seemed to give me enough variety without being confusing;
4) With Massachusetts' emphasis on community rating and guaranteed issue coverage, underwriting issues are dramatically simplified, which must have a significant effect on insurer administrative costs through the Connector. And it would appear that individuals and small businesses who apply directly via the connector pay somewhat lower rates, since there are no brokers involved in the transaction;
5) The downside of community rating and guaranteed issue is that the rates available through the Connector seem high relative to other markets. I'd estimate the premiums are 20-25% higher than is the case in Ohio, for example. On the other hand, these rates probably reflect the absorption of previously-uninsured (and uninsurable) individuals into the Massachusetts risk pool. There's no easy way to compare rates within the Connector against rates available outside the Connector, but I'd guess state law keeps the rates comparable.
So on the one hand, the Connector seems pretty easy to use. There seems to be a decent selection of standardized plans at standardized rates, and the presentation is simple enough for a non-insurance guy to understand. So at least publicly, the Connector seems to be a good model for how to use technology to achieve greater transparency in plan design and rating, and in reducing other barriers to access. And state subsidies help to offset some premium costs for lower-income people.
On the other hand, as the politicians touting the Connector have been less willing to discuss, the Connector is hemorrhaging money...
After my little self-guided tour on Friday, I was intrigued to see this article in Saturday's New York Times
http://www.nytimes.com/2010/03/27/health/policy/27massgov.html?emc=tnt&tntemail1=y. The article summarized Massachusetts' dilemma this way:
"...Four years ago, when Massachusetts enacted a health insurance plan that became a national template, state leaders deferred any serious discussion about controlling health care costs, with predictable results. While the law succeeded in covering nearly all residents, the State had to raise taxes and trim benefits to preserve its essential contours." Sound familiar?...
The Connector's future has become a bellwether issue in the Massachusetts governor's race. The Democrat incumbent, Deval Patrick, has taken on the extraordinary power of directing his insurance commissioner to deny any premium increases which the State deems "excessive" starting April 1st. This has the insurance, hospital, and physicians' industries in an uproar...and has been a fundraising boon to Mr. Patrick's chief Republican rival, who happens to have spent the last ten years as CEO of Massachusetts' Harvard Pilgrim Health Plan.
The current governor maintains that price controls are a temporary measure, until a state commission's recommendations regarding how to reduce and control health care costs can be implemented...over a five-year period.
It's going to be a challenge for health insurance reform proponents to continue to point to the Massachusetts Connector as a national model without also acknowledging that the sword cuts both ways: administrative standardization and simplicity on one hand, and rapidly-escalating costs on the other hand. But interested observers should stay tuned. Because as Massachusetts goes, so will the nation.
Through the Connector, individuals and small businesses have the opportunity to shop for, compare, and purchase health coverage from among a number of health insurers. So if you want to see what a public health insurance exchange might look like, go to http://www.mahealth connector.org/portal/site/connector.
I thought I'd take a little tour of the site myself, and here are a few things I found:
1) As is the case with many quoting sites, the Connector's portal contains a few "front doors:"one for individuals and families, one for employers, and one for brokers. There's even a neat little electronic process enabling small business owners to compare plans and enroll without the need for paper forms;
2) State government has clearly established the criteria for the content of plans available through the Connector. They fall into Bronze, Silver, and Gold categories based on plan features. Each category has low, medium, and high options, featuring lower deductibles and co-pays as one moves from low to high option. The plans are standardized, which makes apples-to-apples comparisons easy;
3) For the ZIP code I entered as my business' location, I was able to receive quotes from three health insurers. Don't know how many insurers overall participate in the Connector, but comparisons of standardized plans from among three insurers seemed to give me enough variety without being confusing;
4) With Massachusetts' emphasis on community rating and guaranteed issue coverage, underwriting issues are dramatically simplified, which must have a significant effect on insurer administrative costs through the Connector. And it would appear that individuals and small businesses who apply directly via the connector pay somewhat lower rates, since there are no brokers involved in the transaction;
5) The downside of community rating and guaranteed issue is that the rates available through the Connector seem high relative to other markets. I'd estimate the premiums are 20-25% higher than is the case in Ohio, for example. On the other hand, these rates probably reflect the absorption of previously-uninsured (and uninsurable) individuals into the Massachusetts risk pool. There's no easy way to compare rates within the Connector against rates available outside the Connector, but I'd guess state law keeps the rates comparable.
So on the one hand, the Connector seems pretty easy to use. There seems to be a decent selection of standardized plans at standardized rates, and the presentation is simple enough for a non-insurance guy to understand. So at least publicly, the Connector seems to be a good model for how to use technology to achieve greater transparency in plan design and rating, and in reducing other barriers to access. And state subsidies help to offset some premium costs for lower-income people.
On the other hand, as the politicians touting the Connector have been less willing to discuss, the Connector is hemorrhaging money...
After my little self-guided tour on Friday, I was intrigued to see this article in Saturday's New York Times
http://www.nytimes.com/2010/03/27/health/policy/27massgov.html?emc=tnt&tntemail1=y. The article summarized Massachusetts' dilemma this way:
"...Four years ago, when Massachusetts enacted a health insurance plan that became a national template, state leaders deferred any serious discussion about controlling health care costs, with predictable results. While the law succeeded in covering nearly all residents, the State had to raise taxes and trim benefits to preserve its essential contours." Sound familiar?...
The Connector's future has become a bellwether issue in the Massachusetts governor's race. The Democrat incumbent, Deval Patrick, has taken on the extraordinary power of directing his insurance commissioner to deny any premium increases which the State deems "excessive" starting April 1st. This has the insurance, hospital, and physicians' industries in an uproar...and has been a fundraising boon to Mr. Patrick's chief Republican rival, who happens to have spent the last ten years as CEO of Massachusetts' Harvard Pilgrim Health Plan.
The current governor maintains that price controls are a temporary measure, until a state commission's recommendations regarding how to reduce and control health care costs can be implemented...over a five-year period.
It's going to be a challenge for health insurance reform proponents to continue to point to the Massachusetts Connector as a national model without also acknowledging that the sword cuts both ways: administrative standardization and simplicity on one hand, and rapidly-escalating costs on the other hand. But interested observers should stay tuned. Because as Massachusetts goes, so will the nation.
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