Health Insurance Exchanges are the future
Author: James Sugden - January 9, 2012 - Updated: January 9, 2012
The Patient Protection and Affordable Care Act (PPACA) promises to revolutionize the health insurance marketplace. A component of this revolution is the creation of Health Insurance Exchanges, online portals where consumers will shop for and enroll in coverage. Exchanges hope to assist 32 million consumers in finding affordable health plans. They will direct those eligible for Medicaid to that program and will deliver premium subsidies and tax credits to those who qualify.
States are required to create an exchange or to join a new federal exchange. State exchanges must open by 2014 and be financially sustainable by 2015. They will not replace the current health insurance market but must compete in it. HealthReform.gov, a Department of Health and Human Services website, declares that exchanges will generate premium savings of up to 25 percent. That projection may prove optimistic but, if they are to survive, exchanges must deliver on the promise of lower premiums.
Here are six strategies that an exchange might want to implement to attract customers, impact rates and become sustainable.
1. Expand the Risk Pool. Proponents of PPACA stress that previously uninsurable people will now have access to coverage. However, to lower rates, exchanges will also need to attract healthy participants. Many healthy folks have felt little need to purchase coverage but it’s now hoped that they’ll find the combination of premium subsidies and easy-to-use online shopping attractive. If not, perhaps the penalties for noncompliance may draw them into the system.
Exchanges must also target small businesses. Those with 25 or fewer employees and average wages of less than $50,000 can qualify for tax credits which are only available to exchange purchasers. Three and a half million businesses are eligible for the credit, making them prime exchange prospects.
2. Create a Superior Customer Experience. Consumers have become used to well-designed websites and user-friendly shopping. Giving consumers the ability to compare health plans, shop prices, check provider networks and enroll online will be just the beginning. The site will need to be interesting, informative and easy to use. Pre and post-sale service will need to be polished, friendly and immediate.
3. Leverage Existing Distribution Channels. Most individuals and businesses currently own insurance purchased through an agent or broker. Enlisting this existing sales force could produce an immediate flow of business to an exchange. Building effective broker and agent partnerships and creating systems to facilitate broker involvement will be critical to the early success of an exchange.
4. Provide Consumer Tools That Can Reduce Premiums. Recent studies indicate that the average health plan pays eighty-seven cents of every premium dollar to cover health care costs. By providing tools for exchange participants to become better consumers, exchanges may lower premiums by reducing the amount and the cost of care that participants receive.
Offering wellness programs to exchange participants is one tactic that holds some promise. PPACA encourages participation in accredited wellness programs. Insurers can offer premium discounts and employers can reduce coverage contributions by as much as 30 percent for those who participate in wellness initiatives. Effective wellness programs could cause a dent in health care utilization and offer some hope for “bending the cost curve.”
Cost and quality ratings can vary widely among providers. Online transparency tools can supply provider cost and quality ratings that will exchange participants to make more informed choices. Websites that rate doctors and hospitals are becoming more accessible and are especially useful for reviewing provider ratings for elective surgery procedures.
5. Create a More Competitive Market. Exchanges can bolster competition in their states. Smaller carriers may now gain a level playing field allowing them to re-enter previously abandoned markets. Additional competition may be provided by two new players, CO-OPs and OPM plans. PPACA requires the Office of Planning and Management (OPM) to sponsor at least two national health plans in state exchanges. PPACA also provides for Consumer Oriented and Operated Plans (CO-OPs). Hospitals and physician groups are most likely to launch these new organizations which may target specific locales or population. The federal government has pledged $3.8 billion in grants and loans for CO-OP development.
6. Involve the Community. Promotion of exchanges will require acceptance by the entire community. Massachusetts partnered with the Council of Churches to educate consumers about its exchange. PPACA also provides for outreach services through Navigators. These entities will work to educate specific groups (union members, Chambers of Commerce, etc.) and will facilitate enrollment. The constructive use of Navigators could aid in the enrollment of targeted and underserved populations.
Health Insurance Exchanges can improve access to coverage, aid in reducing premiums and create a more competitive marketplace. They will best accomplish their mission by taking a multi-faceted approach in transforming the purchasing experience and creating more educated consumers.
James L. (Jim) Sugden, CLU is an employee benefits consultant based in Denver. He has been active in shaping health care legislation and in the development of the Colorado Health Benefit Exchange. He can be reached at: firstname.lastname@example.org.