The Brave New World (of Health Insurance Exchanges)

New York Times reporter Abby Goodnough’s piece last week about the health insurance exchange in Massachusetts is instructive—especially since other states are trying to set up their own versions of these shopping bazaars where the uninsured can buy coverage if the health reform law eventually takes effect. For the last three years we have been suggesting there’s an untold story in the Bay State about how the law is working, so we were glad to see Goodnough’s reporting and offer a tip of the hat.

Goodnough gets into the subject with a success story: the tale of Peter Kim, who lost his employer-sponsored health insurance in 2005 when he opted for a career as an independent consultant. He found that shopping for insurance in the open market was a complicated affair, and that most plans were too expensive. He eventually chose coverage for catastrophic illness.

Then he discovered his state’s health insurance exchange, called the Connector. After just an hour of research, he found a plan with a monthly premium of only $1,086, a better deal than the coverage he previously had. And ideally, that’s how exchanges should work, Goodnough said.

The trouble, she reports, is that so far the Connector has not drawn enough full-paying customers like Peter Kim.

As Goodnough notes, the exchanges have drawn little journalistic scrutiny so far, despite their key place in health reform. (And, we note, despite the fact that they grew out of initiatives backed by former Massachusetts governor and current presidential candidate Mitt Romney.)

If the Supreme Court upholds President Obama’s federal health care law in a decision expected this month, proponents say that exchanges will be a crucial tool for extending insurance to most Americans. Debate over the law has centered on the individual mandate, the lightning-rod provision that requires most Americans to have health insurance by 2014.

But once the court decides whether the law is constitutional, the focus could shift to exchanges.

Goodnough makes three major points that journalists should keep in mind and be prepared to investigate should they do similar stories.

1. For the exchanges to work properly, there needs to be lots of customers like Kim who pay the full price for their coverage, in order to help offset the cost of providing subsidies to those who can’t afford the premiums. The Massachusetts Connector has attracted only half the available pool of full-paying customers in the individual market. Instead, 82 percent of Massachusetts residents in the exchange qualify for state or federal subsidies, and pay only a modest premium or none at all. That, Goodnough notes, “is precisely what many opponents of exchanges fear, that instead of a free marketplace they will become something resembling an extensive public welfare program.”

Small businesses, which could pay the full premiums the exchange needs, have been slow to sign up their workers for insurance through the Connector, largely because the costs of coverage are too high. About 1,700 small businesses insure only 4,230 people so far—what the Times called “only a minute fraction of that market.”

2. Customers who do pay full price in the exchange are buying the low-cost bronze plans that offer less coverage in return for a lower price. In fact, 52 percent are choosing these policies—up from 42 percent in 2009, when I went to Massachusetts to check on how well the state’s law was working. The problem: these plans have high deductibles, the Times reported—as much as $4,000 per family, and maximum out-of-pocket costs “meaning that people who get sick often end up paying a lot.”

“We are growing increasingly concerned about high-deductible plans that seem like a short-term solution to folks,” explained Amy Whitcomb Slemmer, the director of the advocacy group, Health Care For All, a big supporter of the Massachusetts law. “We spend a tremendous amount of time helping people understand what risk they’re taking,” Whitcomb Slemmer said. But his kind of coverage is fast becoming part of the brave new world of health insurance, and will continue whether or not the Supreme Court upholds the Affordable Care Act.

3. In insurance, every action seems to generate an equal and opposite reaction, and Goodnough identified an important one. To attract low-cost insurers to the subsidized program—in order to reduce the cost of the subsidies—the state has limited the choice for people who pay no premiums to the two lowest-cost carriers, rewarding those companies by sending a lot of new customers to them.

The insurers in turn have responded by restricting which doctors and hospitals policyholders can choose. Those limitations are controversial, Goodnough reported. She quotes Glen Shor, the Connector’s director, defending these arrangements as “the kind of cost-saving innovation that exchanges are well-positioned to bring about by promoting competition in the market.”

It seems to me the press needs to explore this assertion, as well as the warning from Nancy Turnbull, an associate dean at the Harvard School of Public Health and one of the architects of the Massachusetts reform law. Said Turnbull: “For the exchange to continue to be a big purchaser and have market clout, we’re going to need to be successful at adding more small employers and potentially other populations.”

So far, Goodnough reports, about “15 states and the District of Columbia have established exchanges, with California and Maryland among the furthest in their planning.” Other states are watching and waiting. More good reporting on the pluses and minuses of these mechanisms seems like a useful idea.

Trudy Lieberman, a journalist for more than 40 years, had a long career at Consumer Reports specializing in insurance, health care, health care financing and long-term care. She contributes to the Columbia Journalism Review where this post first appeared.

1 reply »

  1. Trudy, I agree that we should be focusing more attention on the Exchanges.

    But Goodnough may be needlessly pessimistic. She writes that “15 states have established Exchanges”m but the fact is that 34 states have accepted
    funding to create Exchanges. They still have time to establish them. Most importantly, the Federal govt has offered to help them, and many will wind up
    taking that help.

    MOre importantly, when talking about few small businesses offering insurance in Masschusetts, she ignores the fact that under federal health reform, small businesses receive generous tax credits that pay for up to 35% of their of premiums– rising eventually to 50%.

    This will make insurance far more afforable for them/

    In addition, Masschusetts is the Most Expensive Place on the Globe to
    recieve healthcare. Many of its marquee hospitas charge more–even for simple procedures. (The Boston Globe has done a good job of covering this)
    And doctors in Mass are, on average, more expensive than physicians in
    many other parts of the country.

    Moreover, the Dartmouth Reserach (www.dartmouthatlas.org) reveals that
    patients in Masschusetts undergo more tests and treatments than patients in
    many other states– though outcomes are often no better than in states where patients are less likely to be overtreated. Patients in Mass. also see
    more speciaists.

    This all adds to the cost of care in Mass. which, in turn, leads to more
    expensive insurance, making it more difficult for smal businesses to afford it..

    The Affordable Care Act contains many incentives to reduce over-treatment– for example doctors who establish medical homes will be paid bonsues if they keep their patients well and out of the hospital.

    Finally, you talk about high decutibles in Massachusetts. But under the Affordable Care Act there is a limit on how much a patient can be asked to pay out of pocket–(deductibles plus co-pays) and the limit is lower for
    with people with moderate to low incomes.

    In addition, under the ACA, there are no co-pays for preventive care, and the deductible does not apply. This makes health insurance a much better
    buy — and more attractive to low to moderate income people.

    All in all, there are many reasons why Massachusetts doesn’t predict
    what will happen in the Exchanges nationwide.