In­ter­est in pri­vate ex­changes grows

Growth of pri­vate health in­sur­ance ex­changes still faces va­ri­ety of hur­dles

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The launch of pub­lic health in­sur­ance ex­changes in the states next year could presage an even broader move­ment to pri­vate in­sur­ance mar­ket­places. And that trend could have far-reach­ing im­pli­ca­tions for providers.

The Pa­tient Pro­tec­tion and Af­ford­able Care Act re­quires pub­licly op­er­ated health in­sur­ance ex­changes to be­gin en­rolling ben­e­fi­cia­ries in all 50 states in the fall of 2013. Some states will run their own ex­changes, while the fed­eral gov­ern­ment will op­er­ate most oth­ers, ei­ther alone or in part­ner­ship with states.

The mar­ket­places for in­sur­ance plans that meet min­i­mum fed­eral stan­dards and the sig­nif­i­cant fed­eral pre­mium sub­si­dies for en­rollees with in­comes of up to 400% of the fed­eral poverty level are expected to quickly drive their en­roll­ments to 22 mil­lion peo­ple by 2016, ac­cord­ing to the Con­gres­sional Bud­get Of­fice.

De­spite that sched­uled launch, the vast ma­jor­ity of pri­vately in­sured Amer­i­cans will continue to re­ceive their cov­er­age through em­ploy­er­spon­sored in­sur­ance. Mean­while, em­ploy­ers face spi­ral­ing cost pres­sures from their health cov­er­age that have spurred many to seek ad­di­tional steps to re­duce ex­penses. Em­ployer sur­veys have found up to one-third of or­ga­ni­za­tions may con­sider drop­ping their em­ploy­ees into those pub­lic mar­ket­places, a move that would carry its own down­sides for those busi­nesses.

But emerg­ing pri­vate in­sur­ance ex­changes could of­fer some of the same fi­nan­cial ben­e­fits for em­ploy­ers as their pub­lic cousins, while mit­i­gat­ing some of the prob­lems of the gov­ern­ment-run ver­sion, health in­dus­try an­a­lysts are say­ing.

Through pri­vate ex­changes, “em­ploy­ers can ac­cel­er­ate the drive to­ward a more mass-con­sumer-driven in­sur­ance mar­ket and gain more con­trol over their health­care con­tri­bu­tion costs, cap­ping their con­tri­bu­tions and shift­ing to work­ers the author­ity to con­trol the terms (and to some ex­tent, the costs) of their own health in­sur­ance,” ac­cord­ing to a July anal­y­sis by the Em­ployee Ben­e­fit Re­search In­sti­tute.

Pro­vid­ing fixed sub­si­dies for em­ploy­ees to buy cov­er­age in a pri­vate ex­change would al­low em­ploy­ers to use pre-tax funds for that pur­pose and avoid the $2,000-per-worker penalty un­der the fed­eral health­care law if any of their em­ploy­ees seek sub­si­dized pub- lic ex­change cov­er­age.

Ashish Kaura, a part­ner in the North Amer­i­can health prac­tice of Booz & Co., says the launch of pub­lic health in­sur­ance ex­changes will in­crease em­ploy­ers’ com­fort with the con­cept of ex­changes, even as they look for pri­vate al­ter­na­tives be­cause of con­cerns about the ef­fi­ciency of a gov­ern­ment-run en­tity.

“If the ex­change de­bate hadn’t started then, I don’t think pri­vate ex­changes would have been there, but now that it has started I think pri­vate ex­changes are go­ing to take the lead over pub­lic ex­changes,” Kaura says.

Paul Fron­stin, di­rec­tor of the health re­search and ed­u­ca­tion pro­gram at EBRI and au­thor of the July re­port, agrees that the pub­lic ex­changes and cost pres­sures are com­bin­ing to spur the growth of pri­vate ex­changes.

“No em­ployer wants to be first, but ev­ery­one wants to be sec­ond,” he says in an in­ter­view about a pos­si­ble surge in em­ployer use of pri­vate ex­changes.

Other health­care pol­icy ex­perts are less con­fi­dent about the pos­si­bil­ity of large pri­vate ex­changes emerg­ing where mul­ti­ple in­sur­ers of­fer com­pet­ing prod­ucts to the em­ploy­ees of mul­ti­ple com­pa­nies. Most ex­ist­ing ex­changes are lit­tle more than a sin­gle in­surer of­fer­ing dif­fer­ent plan op­tions to the em­ploy­ees of a sin­gle com­pany, ac­cord­ing to mar­ket an­a­lysts.

“That model in con­cept ex­ists, but I don’t know any­body in the pri­vate ex­change side yet who has been able to get the in­sur­ers to play in that game be­cause they are kind of com­pet­ing against them­selves,” says Joel Ario, a manag­ing di­rec­tor of Manatt Health So­lu­tions.

One change that could spur the growth of mul­ti­plein­surer pri­vate ex­changes is if fed­eral sub­si­dies of­fered on the pub­lic ex­changes were ex­tended to them. That would al­low com­pe­ti­tion among pub­lic and pri­vate ex­changes and pre­vent mar­ket dom­i­na­tion by the state-run ver­sions.

Such ex­change sub­sidy ex­pan­sions have drawn at least some Repub­li­can sup­port, ac­cord­ing to pol­icy ex­perts, be­cause they min­i­mize gov­ern­ment’s role in the health­care sec­tor and spur pri­vate in­no­va­tion.

“Es­sen­tially, we are do­ing a startup busi­ness en­ter­prise, a novel idea, a dis­rup­tive in­no­va­tion and we are ex­pect­ing it to be the one an­swer for the en­tire coun­try,” Dr. Bill Hazel, sec­re­tary of

the Vir­ginia Health and Hu­man Re­sources Depart­ment, said about the pub­lic ex­changes dur­ing a July 30 Wash­ing­ton health pol­icy meet­ing. “And that’s not likely to be the case.”

If multi-in­surer pri­vate ex­changes do take off, hos­pi­tals and other providers could face sec­ondary but “sig­nif­i­cant” im­pacts from them, Kaura says, be­cause pri­vate ex­change plans will have cost pres­sures that large em­ployer plans don’t face. For ex­am­ple, ex­change plans for in­di­vid­ual em­ploy­ees gen­er­ally have more ad­min­is­tra­tive costs and smaller profit mar­gins than a sin­gle large plan for an em­ployer. Such fis­cal pres­sure will push them to seek more cost-sav­ing ar­range­ments with providers than em­ployer plans tra­di­tion­ally have, he says.

“In or­der to meet the price and pre­mium needs for these cus­tomers, hos­pi­tals will need to lower their costs and work more closely with pay­ers to get to that point,” Kaura says.

Those ar­range­ments could look like the net­work launched in Fe­bru­ary by Stew­ard Health Care Sys­tem, Bos­ton; Fal­lon Community Health Plan, Worces­ter, Mass.; and the group pur­chas­ing co­op­er­a­tive of the Re­tail­ers As­so­ci­a­tion of Mas­sachusetts. The plan of­fered pre- mium sav­ings of at least 20% and plans with no de­ductibles for cov­ered care pro­vided by the Stew­ard net­work, Brigham and Women’s Hospi­tal and Mas­sachusetts Gen­eral Hospi­tal.

“Here is a provider and payer com­ing to­gether where the payer is say­ing, ‘We will of­fer your net­work as the pri­mary low-cost net­work be­cause we be­lieve our con­sumers re­quire 10%-, 20%-, 30%-lower pre­mi­ums, and we can’t af­ford to do that un­less we start pick­ing our net­work more se­lec­tively,’ ” Kaura says.

Un­cer­tain ef­fects

Fron­stin of the EBRI says the im­pact of pri­vate ex­changes on hos­pi­tals and other providers is un­cer­tain be­cause they have yet to be im­ple­mented on a large scale.

“If you put ev­ery­one into this new mar­ket­place and ev­ery­one picks the cheap­est plans that have the high­est cost-shar­ing, then I think it’s go­ing to trickle down to hos­pi­tals and provider groups in the sense that they need to be more con­cerned about un­com­pen­sated care,” he says. “But it’s to be seen how it’s go­ing to play out.”

One of the ear­li­est pri­vate in­sur­ance ex­changes, HealthPass New York, has yet to see any ev­i­dence of a spike in un­com­pen­sated care sought by some of the 30,000 en­rollees that about 4,000 busi­nesses have placed in plans of­fered by four in­sur­ers on the ex­change, says Mark Kessler, di­rec­tor of strate­gic ini­tia­tives for the ex­change.

“We po­lice very strongly can­cel­la­tion if peo­ple don’t pay on time,” Kessler says in an in­ter­view about the 13-year-old ex­change. “We’ve not seen any in­di­ca­tion of that prob­lem what­so­ever.”

Or­ga­niz­ers of pub­lic and pri­vate in­sur­ance ex­changes will likely need to con­duct ex­ten­sive en­rollee ed­u­ca­tion on the newly avail­able in­sur­ance al­ter­na­tives. Il­lus­trat­ing the ex­tent of the need for such ed­u­ca­tion was a July sur­vey of work­ers by the Na­tional Busi­ness Group on Health, which found 53% of re­spon­dents had lit­tle or no con­fi­dence in pick­ing a re­place­ment health in­sur­ance plan at least as good as the one their em­ployer or union of­fered, and 37% ex­pressed lit­tle or no con­fi­dence in their abil­i­ties to shop for health­care in­sur­ance on their own (See chart, p. 30).

“Un­til pri­vate ex­changes un­dergo some sort of ed­u­ca­tion and mar­ket­ing cam­paign, folks will continue to be leery,” Kaura says.

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