Health Exchanges — A New Approach

Why don’t we think about the Exchanges as a place for people to choose their health care, not just their health insurance?

As the Exchanges are being designed, we have a great opportunity to rethink how to help people choose a physician for their care, but our current mindset may get in the way of developing innovative approaches.

Under the Affordable Care Act, each state is expected to establish “health benefit exchanges” for individuals and small employers in order to “facilitate the purchase of qualified health plans.”  This is consistent with the concept of health insurance exchanges that has been developed over many decades.  In this model – used by many large employers as well as existing exchanges such as CBIA’s Health Connections and the Massachusetts Health Connector – the individual consumer or employee is given a choice among several health insurers.

The consumers are given information about the quality, patient satisfaction, and provider networks of each insurer to help them choose the one that best meets their needs, and healthy competition among the health insurers is expected to drive improved value for consumers.  The consumer makes this choice upon initial enrollment and annually thereafter.  Once the consumer has chosen an insurer, the second step is to choose a provider from the list of providers with which the insurers has contracts.  It is seen as a two-step process: (1) choose an insurer, and (2) choose a provider.

There are two major problems with this approach.  First, it assumes that insurers will be differentiated and will compete based on quality, patient satisfaction and price, i.e., value to the consumers.  In reality, however, in most markets there appear to be only modest differences between insurers in the value offered to consumers.   The levels of quality, patient satisfaction and price offered by insurers are often very similar.  One reason for this is that most insurers offer a wide choice of providers, and there is a high degree of overlap in the networks with which the insurers have contracts.  When this occurs, it’s not surprising that the insurers’ ratings are very similar.  A second problem is the fact that most consumers consider the choice of provider to be more important than the choice of insurer.  They view the ratings of insurers to be irrelevant, since the insurer ratings reflect an aggregation of provider ratings.  To the extent they are concerned about quality and patient satisfaction, they want to know about specific providers, not a broad average for all the providers in an insurers’ network.  We know that many consumers first look to see if their current provider is on an insurer’s panel when making a choice of health insurer; this factor often trumps price and other considerations.

What if we took a different approach? One that was based on what most consumers consider to be critically important when getting health care?  We would give consumers the opportunity to first choose the provider that best meets their needs, then choose an insurer that includes that provider in its network.  In other words, we would be reversing the traditional two-step choice process.

We would allow people to make a choice based on their health care needs, not just their health insurance needs.  We would give consumers information about the clinical quality outcomes and patient satisfaction for each provider to help them choose the one that meets their health care needs.  We would also give them information about which insurers include the chosen provider in their networks as well as information about the costs to the consumer – premiums as well as out of pocket expenses – for using those insurers to get access to the chosen provider.  As a result, there would be healthy competition among providers to provide good value to patients.

This isn’t easy to do, and there may be some pitfalls to this approach, but it may open the door to better health care by helping consumers choose the best providers.  It will require new and improved measurement systems to assess the clinical quality and patient experience of individual providers.  It will also require the Exchanges to develop multiple paths for consumers to choose: one for those who prefer the traditional path of first choosing an insurer, and a second path for those who want to start by choosing a provider.  The Exchanges will also need to display the provider information in a way that helps consumers to make informed decisions without overwhelming them with complicated clinical information.  If we can address these challenges, however, it may unleash the power of consumer choice in ways that will drive real improvement in health care.

Bill Kramer is Executive Director for National Health Policy at the Pacific Business Group on Health.

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7 replies »

  1. I agree with you that consumers should be considering choosing their provider as an important factor in choosing their health insurance. However, I think that the order of the process does not really matter. If you have a particular healthcare provider you would like to see, you will search for an insurance company whose coverage includes that person. This can be accomplished by either evaluating this criteria as a process of choosing an insurance providers first or choosing a provider and then finding an insurance company that extends to that person.

  2. Bill, I don’t quite understand your poing regarding the “reversed approach”. When I recently researched individual insurance available to me, one of the first criteria I looked at was whether or not my current providers were in the plan’s network. Your suggested approach can be taken now if that is important to the buyer. I do agree with you however, that more information to the consumer is needed, and easier comparison of what providers are in what network might be part of that.

    I also think that the PPACA will lead to some insurers differentiating themselves from nearby competition. I have spoken with many leaders at insurance carriers over the last 6 months and asked them each what their strategy is in regards to healthcare reform. Almost everyone I talked to gave an answer of looking to better manage their network, to put together “preferred” networks of high quality, lower cost providers etc. I think you might start to see more differentiation as a result of the act.

    I just wrote an article about health care exchanges and the Pay or Play decision employers face with the exchanges around the corner. I would love comments and feedback

  3. I agree that giving consumer best value rather then the best can help people make better choices. I recently lost weight – 63 pounds and until now I was spending a lot of time at the doctors with very high cost, which is a big reason I lost the weight among other things like appearance and gaining more energy. And with obesity rates increasing to one third we also need to address this issue. I lost the weight on an online weight loss site ( it was convenient. Finally!

  4. There’s some obvious appeal to this approach, BUT unfortunately, it’s exactly this kind of thinking that’s causing our out-of-control health care costs.

    Until we can get people (and their employers) to choose coverage on the basis of “best value”, rather than “best” (a subjective measure, in any case, and one that may simply mean preferring not to switch docs), we aren’t going to control health care costs.

    Take a look at the experience of CalPERS, where enrollees have to use some of their own dollars if they choose anything other than the lowest cost coverage. It turns out that people make more cost-effective choices if the first thing they have to think about is “how much is coming out of my wallet?”

  5. “What if we took a different approach? One that was based on what most consumers consider to be critically important when getting health care? We would give consumers the opportunity to first choose the provider that best meets their needs, then choose an insurer that includes that provider in its network. In other words, we would be reversing the traditional two-step choice process.”

    ENTIRELY too sensible.

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