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...

When Is A Mandate NOT A Mandate?...When It Was Designed Never To Be Enforced...

I wrote to President Obama a couple weeks ago, advising him to consider trading a budget resolution and a debt-ceiling increase for a one-year delay in the individual mandate. I suggested there were both solid political reasons and substantive reasons for doing so.

He never got back to me. I mean, I understand; he's been a little busy...

Then last week, without acknowledging that the roll-out of new federal health exchange has been a multi-dimensional disaster, The White House released the news that there will be a six-week delay in the enforcement of the individual mandate. People will have until March 31, 2014, to apply for qualified health coverage before facing a potential penalty.

What penalty?...

I have to say, it has been three years since I read (parts of...well, the personally-relevant parts of) the legislation itself. So I was rather surprised to catch a rant by Lawrence O'Donnell, former Senate staffer, TV consultant (he helped make The West Wing seem like it could really happen), and now host of The Last Word on MSNBC, in which he shattered all the silliness surrounding the "delay Obamacare" shenanigans of the Tea Party and the feckless, follow-any-shiny-object fixation of the media on the roll-out, by pointing out that there really isn't a mandate in the law, except on paper...because the mandate was designed never to be enforced.

First, O'Donnell showed a portion of a White House press conference, in which an intrepid correspondent asked Press Secretary Jay Carney if the recent roll-out snafu would be severe enough to warrant a one-year delay in PPACA's individual mandate, which requires that all individuals either sign up for a health plan or pay a penalty.

Carney gave an answer that would make a Jesuit proud . In short words and simple sentences, Carney said essentially this: "The law is very clear. Individuals will not be subject to a penalty if they live in a state which has refused to participate in Medicaid expansion, as many states with republican governors have done, or if they live in an area which does not provide them with access to affordable health coverage."

The reporter asked for clarification: Might this be taken to mean that someone who can't buy health coverage because the marketplace website doesn't work be considered to live in a place which doesn't have access to affordable health coverage?

Carney repeated his answer.

In other words, yes: if the exchange website isn't working, nobody will be penalized.

But here is the real gem. The law takes great pains to enumerate the fines that might be levied over time upon individuals or employer groups who do not take the steps required by law. Much has been written and reported on that subject.

But the agency tasked with collecting those fines is the Internal Revenue Service. And here's the guidance the law gives to the IRS, from page 131 of PPACA:

"Section 5000 A Title 26- IRS Code Chapter 48- Maintenance of minimum essential coverage:
(A) Waiver of criminal penalties-
     In the case of any failure by a taxpayer to timely pay any penalty imposed by this section, such taxpayer shall not be subject to any criminal prosecution or penalty with respect to such failure.
B) Limitation on liens and levies-
     The Secretary shall not-
          ( i) file notice of lien with respect to any property of a taxpayer by reason of any failure to pay the penalty imposed by this section , or (ii) levy on any such property with respect to such failure."

Okay, so, I'm not a lawyer, but I know how to read, and it sure seems to me that, written into the law, there is a "get out of jail free" card for anybody who might, for whatever reason, fail to comply with PPACA's mandate. And given that "taxpayer" is a term which can apply equally to an individual or a corporation (which, as I understand it, is now a person, too), it seems to me that the law pretty explicitly says that no one will ever be required to pay a fine for non-compliance with the PPACA mandate...ever.

So, when is a mandate not a mandate? When the law it's written into clearly and explicitly forbids the enforcement agency from ever collecting any fine, ot taking any other adverse action, against anyone who doesn't comply with the mandate. Ever.

I'm not sure how aware of this provision Our Friends In Government might want people to be of this little magic trick. I'm sure supporters of the law would rather not know that people can freely avoid signing up for a health plan, since there's no penalty for not doing so: that might affect enrollment.

And chances are opponents of the law won't want people to know about it. either. That would mean that some Republican lawmaker would have to take to the ramparts and insist that the law be changed to require the IRS to levy and collect those fines, liens and judgments...which, of course, would be tantamount to a Republican insisting that the government raise taxes.

But for now, I know. And if you've read this, you know. And we have friends. Let's educate them, shall we?...

Dear President Obama...Give Your Opponents A Delay Of The Individual Mandate...And Watch 'Em Choke On it...

Dear President Obama:

We haven't met. For several years, as your PPACA was being formulated, I tried to share some advice with you about elements having to do with small business, health exchanges, and how to handle the issue of a mandate. You didn't take me up on any of it, but that's okay; I'm a consultant, so I'm used to giving folks advice that they're free to ignore.

I'm not a big fan of the law. I think it's an object lesson in political overreach, and too much of it depends for its effectiveness on organizations, advisory panels, and technical capabilities which don't exist yet.

But I will give you credit: the insurance reforms you put in place are generally helpful to real people. And the exchanges, though you're having some problems, are going to change forever (hopefully for the better) the way health coverage is bought and sold; I'm a big fan of that.

But now you're sorta stuck. The "Loyal Opposition" has closed down the Government, and we're nearing a debt ceiling crisis, and the parties are pretty dug in on their respective positions. Not cool...

I'm not in your shoes, but I HAVE had some experience in political negotiations with recalcitrant adversaries. And I've found that, in some circumstances, a good tactic is to give my opponents what they want, and watch them choke on it.. This might be one of those times.

If I WERE in your shoes, here's what I'd consider: I'd trade away a one-year suspension of the individual mandate in exchange for a clean Budget Resolution AND a long-term fix of the debt-ceiling. It would either break the impasse, or show your opponents up as complete dopes (as if more evidence were necessary).
And it would be a good deal for you. Here's why:

1) The big reason, of course, is that it would enable you and yours to get the country on a better long-term financial footing. That, I think, is the desired result. I hope you have the long-term interests of the country at stake, and this isn't just a penis-measuring contest. I'll take your word that it's not;

2) You've already pretty much unilaterally granted temporary exemptions to certain key constituencies...and big ones. Big Labor. Big Business. Even employers with more than 50 employees. So you've set a precedent; you WILL compromise PPACA when you deem it to be in your interests to do so. Right now, it's the little guys, individuals and small businesses...who are set up to take it in the teeth because of the mandate. These are the folks who most need the help that PPACA purports to provide. Why not give the little guys that same break you've already given most of the Big Guys?;

3) You already know that the Government is not currently in a position to administer the effects of the mandate effectively. You're relying on "self-reporting" income to the IRS as it relates to calculating taxpayer subsidies. And the means you wish to use to enforce the mandate...specifically, fines on those who don't purchase coverage...are hard to understand and currently impossible to administer. Seems to me a good time to give in on a point...when you don't know how you're going to follow through on it anyway;

4) Granting an exemption from the mandate will not keep anybody who WANTS to buy health care coverage from shopping for and obtaining coverage via the exchanges, be they public or private. I have argued (unsuccessfully, so far) that the vast majority of Americans WANT to have health coverage, and will buy it (especially with the help of subsidies) if it's available. My advice years ago was that, before you drop the hammer of a mandate, it would be wise to make sure the voluntary marketplace is working as well as it can, THEN drop the hammer on the relatively small number of folks who could buy coverage, and have it available, but choose not to purchase it. Judging by the early volume of folks rushing to check out the exchanges, there are PLENTY of folks who are looking to purchase coverage, and are willing to pay for it;

5) Your experts keep telling you that the mandate is necessary to get everyone "into the pool," that the young and healthy MUST buy into the system in great numbers in order to subsidize those who are not so young and not so healthy. The demographics of the "young invincibles" suggest that, even if they all signed up tomorrow, you'd still be short of break-even by about fifty percent, if your goal is six healthy people for every one of the one percent of big utilizers, and three healthy people for the top five percent of utilizers. The numbers never HAVE worked. And if you buy Item #4, and you let everybody who wants to buy coverage in the voluntary marketplace to do so, the sting of the mandate might not hurt so much, and;

6) A year from now, the exchanges will be operating a lot better, you'll have at least a few million folks signed up, we'll know better who they are, what rates they're paying, and have a few insights into their utilization of services. You'll simply have a much better story to tell...and maybe you'll have figured out how actually to administer the mandate.

To me, this looks like a pretty good deal for you. You right the country. Everybody who wants to buy health coverage can do so. You have time to get systems operating properly. An additional few million people get covered. You "cave" on one matter of "principle" which might be based on faulty assumptions anyway...But it seems to me that principle has sorta flown out the window a ling time ago.

I recognize that this argument might be entirely too sensible to succeed in Washington. But if you think about it for about 60 seconds, I think you'll see the value.

And imagine the looks on your adversaries' faces when they figure out you've gotten everything you wanted in exchange for bargaining away something which is of relatively little value, and might even make your signature legislative achievement better.

Don't thank me, JJP

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

The Revolution starts tomorrow.

It's been a long time coming.

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

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

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

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

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

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

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

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

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

What's going to happen?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In other words, expect the politics to continue.

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

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

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

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

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

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




 

Why "Rate Shock" Is A Bullshit Term...

I've been perversely amused at the writing and speculation which has appeared in both popular and industry publications about the potential changes in health premium rates which will occur come January 1, 2014, when the bulk of PPACA-mandated market changes are scheduled to take place. Most of what appears is, of course, propaganda generated by partisans.

The rates for California's exchange will be lower than expected, the California experts say. Nonsense! Apples and oranges and cantaloupes, industry partisans say. There will be "rate shock" for younger insureds.

Prepare for 80% increases in premiums in Ohio, political hack (and technical dim-bulb...and proud of it) Mary Taylor, Ohio's Lieutenant Governor and Insurance Commissioner, warns Ohioans. Beware Obamacare-induced "rate shock." Nonsense! says the Kaiser Foundation, in this article in The Cleveland Plain Dealer (which, unfortunately for the public, gave up on "plain dealing" long ago)...http://www.cleveland.com/open/index.ssf/2013/06/obamacare_to_make_rates_soar_s.html#incart_river.

Clearly, the industry and its apologists have decided to use the term "rate shock" to inflame and confuse the public. Their p.r. people are certain that if they just go around shouting "Rate shock! Rate shock! RATE SHOCK! RATE SHOCK!!! often enough and loudly enough, it'll scare people and make headlines. And also, they hope, divert the public's attention that the "rate shock" they'd like to blame on PPACA is actually the un-doing of practices in which the health industry generally has been engaged in for decades which have not only been unsuccessful in keeping premium rates and health costs under control, but also kept millions of people out of the health insurance system...to the benefit of insurers' bottom lines.

It also shows the importance of, and the slipperiness of, language in the debate over health insurance reform.

Insurers scream "rate shock" to re-inforce the perception of PPACA as a boogeyman. If insurers were engaged in the same practice, some bland-looking p.r. people would be describing the phenomenon as "re-calibration of our rating formulas."

Because that's what the phenomenon really is: a process to re-align premium rates in response not just to new federal regulations, but also to re-inforce the policy objective of turning health insurance coverage from an exclusive thing available to some, to an inclusive process available to everybody.

Let's look at a few of the phenomena that this "re-calibration" seeks to un-do:

-The erosion of health insurance as a "community" good and responsibility: When group health plans were initially established, their rating processes were based on "community rating," the idea that everybody in the pool would pay the same amount for the same coverage. In the 1970's, the rise of self-insurance took a big chunk of the working population...those who worked for big companies...out of the community pool. And as commercial insurers began to encroach upon then-mostly-not-for-profit Blue Cross & Blue Shield plans to compete for group business, they introduced the concept of medical underwriting; that is, using the health of group members to set rates and rules for participation in their plans.

When it became clear that this tactic was robbing community pools of groups which were younger and healthier, and leaving behind groups which didn't qualify (setting up a cycle of "adverse selection" against those community insurers), BCBS plans were forced to utilize health underwriting to defend themselves. This led to:

-The exclusion of groups and individuals which represented potential health risks: The health underwriting "arms race," when carried to its extreme, meant that some groups, even those with relatively good risk profiles, could be excluded from coverage. In a continuing effort to keep prices under some control, and keep group coverage profitable, insurers further undermined the notion of "community rating" by applying their risk-avoidance strategies more and more stringently to smaller and smaller groups, thus creating an increasingly large pool of "uninsureds:" people, and groups, whose health status in insurers' eyes rendered them too risky to cover.

And with the "community" being diluted further and further by perceived health risk, there were fewer large purchasing entities which had the market presence and technical know-how to call "bullshit" on these practices and push back on insurers. This led to accelerated risk segmentation, especially among small groups and individuals. And all this led to:

-HIPAA and the "ghettoization" of small groups and individuals: After the failure of the Clinton Administration's own health care reform strategy, the Democrat President and a Republican Congress moved to "fix" problems in the small group and individual insurance markets by enacting the Health Insurance Portability and Accountability Act (HIPAA), which established a complex web of "rating corridors" and other rules for small group health coverage. It also famously forbade insurers from excluding any small groups which applied for coverage based on the group's health condition. Insurers were required to provide coverage to any group which applied.

An "unintended consequence" of those "guaranteed issue" rules (largely crafted by the insurance industry's lobby
itself) was that, while the "guaranteed issue" rules wouldn't let insurers refuse coverage to any group for health reasons, the rules didn't stop health underwriting. So health underwriting became not a gateway for coverage but a factor in pricing. So the differences in costs for similarly-sized groups could differ by as much as 80%, based on the health of the groups' applicants. So, indirectly, health underwriting led to group exclusion based on price. So the owner of a 10-employee business wanting to cover his/her employees could face a cost ranging from $100,000-180,000 for doing so, based solely on the ages and health conditions of the group's members...something over which the business owner has little control, and which it's illegal for him/her to do anything about, since discriminating in employment based on an employee's health is against the law...

Worse, HIPAA specifically excluded individuals (including self-employed professionals) from participating in group coverage. This led to a non-group insurance industry which made a lot of money by selling coverage primarily to young, healthy individuals who would be less likely to use it than their older, less healthy counterparts. Insurers were free to apply any sort uf medical underwriting screens to individual insureds, which meant that they could engage in a conscious strategy to develop rates and rules which would favor young, healthy insureds and exclude individuals with a wide range of health conditions of even modest severity, such as high blood pressure or cholesterol. In addition, there were no limits set on rates for these individuals, so the difference in rates between those charged to young, healthy people and older, less-healthy folks , if they qualified for coverage at all were virtually unchecked...again, using price to screen out undesirable risks. This created the "crisis" in individyal coverage which was a major impetus for PPACA, and to still greater numbers of those for whom coverage was not available. As insurers rushed to make a lot of money in this segment, there was a "race to the bottom" in the ratings wars, which led to:

-Tithing on the altar of the health insurance industrial complex: One of the "geniuses" behind HIPAA was a guy named Patrick Rooney, who was Chairman and CEO of Golden Rule Insurance Company, and a big contributor to the Republican Party. He was also one of the nation's foremost advocates for "Consumer-Directed Health Plans (now more popularly...and accurately...known as "High-Deductible Health Plans (HDHP's)." The purpose of these plans (which are insanely profitable) is to reduce premiums by shifting an increasing amount of financial risk to the insured. A HDHP with a $10,000 family deductible is relatively inexpensive to buy, but a an Ohio family with a median $42,000 annual income could be exposed to a deductible which is the equivalent of nearly 25 percent of its annual income...a "double tithe" to the health insurance system.

Lieutenant Governor/Insurance Commissioner Taylor in Ohio approved an HDHP design which incorporated a $25,000 family deductible. And it was against such plans that she compared the new rating structures to be established for use after 1/1/2014. Of course premiums for PPACA mandated health plans will be more expensive than a $25,000-deductible HDHP...They'll actually cover something...

So let's sum up, shall we? The rates for new PPACA-based health plans must accommodate:
-a return to something more closely resembling community rating (my 25-year-old son will pay more for his health coverage, and I'll pay a little less, but over time he'll benefit from this "subsidy" at his own son's "expense");

-a guarantee that any individual or group will be able to purchase coverage at a cost comparable to any other individual's or group's cost;

-a restoration of sanity to the cost of individual health coverage, and;

-a re-design of HDHP's to include no more than a $4,000 annual family deductible.

And that's to overlook the premium subsidy program designed to make coverage more affordable for young people, and lower-paid individuals and families.

One can certainly expect a short-term spike in total "community" costs, as those who've been excluded from health insurance coverage because of often-minor health conditions seek treatment they've been forced to put off. But over time, utilization will even out.

But it would be helpful to the continuing health insurance reform debate to recognize that nearly forty years of insurance industry practices have contributed to the mess which exists in our health insurance system, that virtually every "cost containment" strategy employed by the industry has been employed not to control premiums (which, even if it were true, would have to be acknowledged as utter failures), but to enable insurers to retain profits through increasingly egregious risk-avoidance practices, and that any "shock" to the health insurance system relates directly to the correction of insurers' behavior.

This makes it...disingenuous...on the part of insurers, and their political enablers...suddenly to act as if they were victims...or as if their carefully-rehearsed outrage has anything to do with their concern for consumers.

I've said many times that I'm no fan of Obamacare. The insurance reforms necessary to move the market back to inclusiveness and some sense of community could have been enacted without a lot of the other nonsense contained in the law. And an unfortunately critical component of its eventual success is dependent on the effective operation of these mythical creatures called exchanges/marketplaces, which still exist mostly in the imagination of their architects and the code of a bunch of very-highly-paid consultants.

But if the President were really the socialist many of his detractors would like to characterize him as, he'd have said to the insurance industry, "All this effort is necessary to correct forty years' worth of highjinks which you've foisted on the marketplace to boost your profitability. You've made lots of money doing it. Now. you're going to fix those problems, and you're going to eat the cost."

Then, insurers' wailing and gnashing of teeth would, at least, have been genuine...

Call 'Em Exchanges, Call 'Em Marketplaces, Whatever...Just Don't Call 'Em Ready For Prime Time...Is This a Bad Thing?...

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?...

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?...

What If The Health Care Cost Curve Doesn't (You Should Pardon The Expression) Get Bent?...And A Couple Other Questions

If I were a health care policymaker, I'd probably spend a whole lot more time than most of them do talking with real people who have real, "micro-world" questions which can illuminate the "macro-world" questions which the deep thinkers...well, think about.

Last week I spent a few hours over beers with a few friends who are pretty knowledgeable small business owners. Practical guys, with practical questions. The biggest one was this: Irrespective of the politics of Obamacare, what is the likelihood that some kind of regulatory or market force will actually bend the cost curve down?

Keep in mind that for most small business owners, annual premium increases of 15-25 percent per year have been the norm, not the exception. Even for fairly large small companies, premiums are doubling every five to six years.

I had to tell them the bad news: there's really nothing in the Affordable Care Act which has any concrete potential to reduce the rapidly-escalating price of health coverage, at least in the short to intermediate term.

That's because the Affordable Care Act essentially ignores the principal driver of health care cost increases: provider costs, especially on the hospital side.

Over eighty percent of health costs relate directly to payments to hospitals, physicians, drug and equipment companies, and other providers. And despite the potential promise of some of PPACA's experiments with delivery system reform, the likelihood is that those costs will continue to hyper-accelerate.

There is certainly a tempting target for cost containment: the estimated 210 billion dollars being spent on over-testing and over-treatment.

I wrote a little something about this phenomenon last year (http://polkiananalysis.blogspot.com/2011/10/economicsand-ethicsof-just-being-sure.html). And a recent column in The New York Times (http://well.blogs.nytimes.com/2012/08/27/overtreatment-is-taking-a-harmful-toll/?ref=health&wpisrc=nl_wonk ) expands on the theme.

Twenty to thirty percent of what we spend on health care can be retrospectively labelled as unnecessary. Let's pretend for a moment that, since one person's unnecessary treatment is another person's "do what it takes to help my Mom," only half that percentage is truly wasteful.

Would it/ should it be worth our time to figure out how to cut $100 billion or so per year out of our health expenditures? A reasonable person would say so.

But doctors get paid for how much they do. And while hospitals' primary business is treating disease, they are also in the business of maximizing revenue.

Unless there's a revolutionary (and counter-intuitive, for those revenue-conscious providers) trend toward awarding clinical efficacy versus the volume and intensity of services rendered, the cost curve isn't gonna bend appreciably over the next ten years or so. And until we can get to these root costs, we can expect to see health premiums double or triple over the same period.

What about defined contribution? Won't that have an effect on health costs?

A switch to a defined contribution will certainly do a lot to reduce small employers' cost exposure. But only by shifting the cost burden to employees, and making hyper-inflation their problem.

The myth of defined contribution is that employers will pass along a portion of the savings they experience by capping their own expenditures with their employees in the form of higher wages, which employees might use to pay for their share of health premiums. By and large, this won't happen.

The best example of why not is the proliferation of high-deductible health plans. The myth of HDHP's is that employers would establish partially-employer-funded Health Savings Accounts to enable their workers to cover their deductibles. Only about ten percent of small employers did this; the rest just saved the money.

And while defined contribution models are fine for large, self-insured employers...whose costs are lower to start with, and whose relationships with employees is largely...statistical...small employers tend to have personal relationships with their workers. Most (not all) understand that their employees are only a medical disaster from financial ruin. They see just unloading their problem on their workers not just as worrisome, but as an idea that can jump up and bite them, especially if their employees under-insure or, worse, take the employer contribution and pocket it.

Most small employers will not be subject to the mandate, but most suspect that, in the face of trouble, their employees, or their employees' lawyers, or, worse yet, the IRS, will be calling the business owner first.

My small business owner friends saw defined contribution as a short-term band-aid that simply sets the table for trouble down the road.

Won't health exchanges do something to reduce health costs?

I've written before that, properly organized and operated, health exchanges could do a lot to empower purchasers by aggregating demand and increasing purchasing power through effective administration and negotiation.

Haven't seen too many "active purchaser" exchange models yet. The Massachusetts Connector has certainly improved access for folks in that state, but hasn't had an appreciable effect on price increases.

And as of today, the vast majority of states have yet to begin seriously organizing their health exchanges; in fact, about 26 states have basically refused, for political and budgetary reasons, to consider getting into the exchange business. Most of these "hell, no, we won't go" states have Republican governors and legislatures.

It does strike me, a non-politician, as odd that these state leaders, proclaiming so loudly against federal interference in their health care systems, would default on the development of their own exchanges and create the scenario for a massive federal takeover of their health systems through the formation of a gigantic federal health exchange.

Maybe they're all expecting a Romney victory in November to make this issue go away.

But what if they guess wrong?

That's a damned fine question.

If they guess wrong, and President Obama is re-elected, I expect we'll see the Administration issuing waivers to states to give them more time to build their own exchange plans. So the "drop-dead date" for the formation of health exchanges will slip from January, 2014 to 2015 or later.

None of this should leave small business owners hopeful for long-term price relief any time soon. And yet, despite the confusion, the health insurance environment for small businesses hasn't really changed all that much. After all, if you've been swallowing 15-25 percent per year increases for the last 15 years, can it really get worse?