General Business Issues

Featured Health Business Daily Story June 15, 2009

Health Insurance Exchanges Are Likely to Be a Part of Reform, but Health Plans Are Wary of Such Models

Reprinted from HEALTH PLAN WEEK, the industry's leading source of business, financial and regulatory news of health plans, PPOs and POS plans.

By Jill Brown, Contributing Editor, (jbrown@aispub.com)

With health insurance exchanges included in health care reform proposals offered by both Republicans and Democrats in the House and Senate, it appears likely that some form of the purchasing system will be included in the final bill. But how an exchange would operate — including how much authority it would have, whether it would be one national entity or many state entities, and whether individuals could receive coverage subsidies without using the exchange — still must be hammered out. Insurers remain wary of the proposals, but say they are waiting to see a final bill before taking a position.

The Senate Finance Committee (SFC) outlined proposed features of an exchange in a paper issued May 11. The Associated Press on May 14 reported that House Democrats are incorporating the system into their proposal. And state exchanges also are a feature of the Patients' Choice Act proposed May 20 by House and Senate Republicans.

Ultimately, "I would expect the insurance exchanges to look a lot like [the one already operating] in Massachusetts," predicts health care consultant Robert Laszewski, president of Alexandria, Va.-based Health Policy and Strategy Associates. It's "a proven model that seems to be working for everyone." The Massachusetts "Connector," however, has had substantial cost overruns.

The Massachusetts Health Insurance Connector Authority, created in 2006, acts as an intermediary between individual and small-group insurance customers and the carriers. The entity manages both Commonwealth Care for low-income residents who are not eligible for Medicaid, and Commonwealth Choice, which offers unsubsidized insurance products. Health insurers sell four standard benefit designs (Gold, Silver, Bronze and the Young Adult Product) through the Connector, and also are permitted to sell products outside that entity.

AHIP spokesperson Robert Zirkelbach says his organization has "not seen any specific legislation, so it's really hard to comment" on the specifics of any of the exchange proposals. And although AHIP officials "always have supported…one-stop shopping for consumers," he says, the "real question is how would an exchange be structured and what regulations and rules would be attached to it." He adds that "in our reform proposal, we expressed support for states setting up a mechanism." But that proposal didn't address setting up a single national exchange.

Baucus, Grassley Paper Describes Exchange

The SFC policy options paper, issued by Committee Chairman Max Baucus (D-Mont.) and minority ranking member Chuck Grassley (R-Iowa), describes a single national exchange that enables state-specific information to be displayed to residents. The exchange would:

• Require all insurers that sell individual and small-group products to participate in the exchange. All insurers would be required to sell four standardized benefit options that have an actuarial value (defined as the percentage of health care costs covered by the product) ranging from 76% for the lowest option to 93% for the highest.
• Allow individuals and very small groups to purchase the standardized products either through the exchange or buy products directly from an agent, broker or insurance company. All products, whether purchased inside or outside the exchange, would have to meet new rating and benefit requirements. And only individuals purchasing products through the exchange would be eligible for tax credits.
• Require all individuals to purchase coverage, either through the individual or group market.
• Initially limit participation to individuals and "micro-groups" of two to 10 employees.
• Use a standard enrollment application and a standardized format for presenting insurance options.
• Create marketing rules modeled on the Medicare Advantage (MA) program.
• Establish rate schedules for broker commissions.

The HHS secretary could contract with a private entity to operate the exchange. The SFC policy options paper also suggests that several competing exchanges could be established in each state.

The Republican proposal calls for the creation of state exchanges. Sponsored by Sens. Tom Coburn, M.D. (R-Okla.) and Richard Burr (R-N.C.) and Reps. Paul Ryan (R-Wis.) and Devin Nunes (R-Calif.), the Patients' Choice Act praises the "well-known, bipartisan achievement of universal health care through a private system in Massachusetts." Exchanges would allow individuals a "hassle-free opportunity to choose the plan that best meets their needs." Insurers participating in the exchange would have to offer a standard benefits package based on the Federal Employees Health Benefits Program. There would be no individual coverage mandate.

"The Massachusetts exchange is the sort of structure that people could compromise on down here in Washington," Laszewski says. He adds that insurers' opposition to an exchange may be softening as they have seen the positive impact of the Connector on the Massachusetts market.

The SFC proposal for an exchange "is not so much a bricks-and-mortar, heavily regulated situation like [the] Massachusetts [Connector]," says Janet Trautwein, executive vice president and CEO of the National Association of Health Underwriters. "It's not that it wouldn't be heavily regulated," she adds. "But it's a portal, as opposed to a great big giant entity that we're creating another agency for." Instead, she says, the SFC exchange "still uses some state regulatory services that [state insurance] commissioners are already doing.

Proposed Rules Cause Concern

The SFC proposal calls for commissioners to "continue to provide oversight of plans with regard to consumer protections (e.g., grievance procedures, external review, oversight of agent practices and training, market conduct), rate reviews, solvency, reserve requirements, and premium taxes. They would provide oversight of plans with regards to federal rating rules and any additional state rating rules and facilitate risk adjustment within service areas."

Trautwein says her organization has pushed for tax credits to be available to individuals whether they purchase products inside or outside the exchange in order "to maintain a level playing field.…We keep hearing that for ease of administration, they want to keep them only inside. I think that may be what we end up with." NAHU also has taken issue with the SFC proposal for marketing rules to be patterned after those used in the MA program. To apply those rules in the commercial market would be "completely unworkable…[and] just not appropriate," she contends.

For example, Trautwein notes, MA agents are prohibited from cross-selling products. But for a small-business owner, cross selling is "an integral part of planning" to assess which benefits employees need, she maintains. MA agents also must get permission before contacting a potential customer. "Someone in a small business would be very annoyed if you had to keep coming back like that" to obtain permission to discuss product options, she says.

She suggests that perhaps the MA rules were simply used as an example until more specific marketing rules could be designed. "We're putting together, right now, examples of how that ought to be done," she adds.

Trautwein says one SFC proposal that is not a big issue for agents is the commission rate schedule. She asserts that few agents know how much commissions vary between carriers, and adds that it doesn't play a role in which products are selected.

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