Ensuring the Long-Term Viability of Health Insurance Exchanges

November 16 marks the deadline for states to submit their plans for establishing a health insurance exchange—or HIX—either on their own or with some level of assistance from the federal government. For those states, a majority, according to Kaiser Family Foundation research, have yet to set up a HIX or develop concrete plans to do so. That’s an uncomfortably tight timeline in which to make some tough decisions.

According to the Supreme Court’s June ruling on the Affordable Care Act, states will no longer forfeit federal funding for Medicaid if they choose not to expand their Medicaid programs to all residents with incomes below 138 percent of the federal poverty level. Nevertheless, they must ensure coverage for an estimated 16 million currently uninsured people with an income between 100 percent and 400 percent of that poverty level. And by October 2013, each state needs to demonstrate that it has a HIX in place that can provide such cover: A user-friendly, one-stop shop for affordable healthcare, or affirmatively state that it intends to participate in the Federal exchange..

A HIX needs to have sufficient scale to support large and balanced risk pools. But there may not be sufficient numbers of uninsured state residents to make the HIX viable, particularly if a state is small, or has an extensive Medicaid program already in place. How will such states attract and sustain enrollment? How will they attract payers?

The Medicaid issue is just one aspect of the challenge. The states also confront difficult choices around appropriate HIX governance, potential conflicts of interest, and of course funding. They will have to define their relationships with qualified health plans (QHPs)—either by creating a marketplace open to all such entities that meet specified criteria (the so-called clearinghouse model), or by acting as active purchasers and contracting only with certain selected QHPs—perhaps to secure better pricing and product options. Moreover, they need to be able to fully finance the costs of operating their exchanges by January 1 2015, and that will involve choosing between public and private funding options.
Those decisions are ultimately dependent, of course, on a combination of individual state politics and overall HIX readiness, and different states will obviously take different specific pathways. All states, however, should recognize that the new law also offers significant opportunities to develop a new kind of healthcare—characterized by premium subsidies and rich product offerings, and delivered, like any other Internet marketplace, to consumers as individuals. By taking their cues from other industries with longer experiences with such marketplaces—the retail, financial services and travel industries among them—the states can turn their exchanges into vehicles for effectively “consumerizing” and improving the health experience.

First, however, they will need to decide how to tailor their exchanges to their specific populations—either as state agencies, independent public entities, or non-profits.

Modeling the opportunity

There are pros and cons associated with each option. A HIX established as a state agency can leverage existing systems and processes, and is accountable to elected officials, both of which could be advantageous in getting things done. A HIX established as a quasi-governmental or non-profit entity, on the other hand, may derive benefits from its relative independence—though non-profits may not be as comfortable performing governmental-type functions. Regardless of the governance structure, there are three clear structural models emerging.

The Federally-Facilitated HIX — Though the state may elect to determine such issues as Medicaid/CHIP eligibility for itself, a federally facilitated HIX is effectively run by the federal government, which assesses eligibility and handles enrollment, as well as all core functions. Louisiana, for example, which has a relatively large uninsured population (29% of adults per statehealthfacts.org), returned its federal exchange planning grant and chose to let the federal government run all aspects of its exchange back in 2011.

The Federal-State Partnership — The federal-state partnership model is similar to a federally facilitated HIX, but the eligibility task is split. The federal government screens applicants for Medicaid and then refers those deemed eligible to the state for a final determination. The government retains responsibility for determining advance payment tax credit eligibility; but all other core exchange functions (shop and compare, enrollment, plan management billing) could remain with the state.

The State-Based Model– In this model the state provides all core HIX functions, including plan shopping and comparison, but can opt to outsource some activities such reinsurance and risk adjustment to a federal exchange.

Massachusetts took a quasi-governmental approach when it established the Commonwealth Health Insurance Connector Authority (CCA). In fact, having passed legislation mandating universal healthcare cover back in 2006, Massachusetts was an early mover in establishing a HIX, and much of the new federal law around health exchanges is based on the Massachusetts law.

To be sure, Massachusetts started with a clear advantage in achieving near-universal coverage: One of the lowest rates of uninsured in the country. Its experience, however, offers important lessons for any state looking to establish a viable HIX—especially in terms of governance, Medicaid integration and service costs.

Take governance. By opting for a quasi-governmental structure, Massachusetts could be more nimble in purchasing and hiring than a traditional state agency, while still maintaining public-sector transparency requirements. The CCA’s external board, indeed, which included public officials, academic experts, and representatives of organized labor and employer groups, as well as members with actuarial and plan design and purchasing expertise, gave its efforts both legitimacy and heft.
The state’s experience with Medicaid integration was more mixed. Rapid roll out was enabled because the CCA and Medicaid worked collaboratively to present a single “front door” for health coverage. Applicants applied for general health coverage, rather than for a specific program, via the state’s web-based “virtual gateway”. Their information was passed through the Medicaid eligibility system, which was modified to include CCA program rules, and Medicaid staff then determined their coverage eligibility.

The process, though, was less than perfect for two key reasons. First, because the state’s Medicaid program was not established as a “seller” of services it took time to refine such unfamiliar tasks as creating and managing the service contract, or agreeing on a cost-allocation methodology and budget. The appointment of a full-time, empowered relationship manager within Medicaid proved decisive; and other states would be well advised to take similar steps. Second, thanks to the natural tension between the eligibility rules of a state Medicaid program and those of the CCA, members sometimes fell into a coverage gap when they transitioned from one to the other—a problem exacerbated by general caseload “churn”. All of which suggests that states looking to leverage Medicaid operations for their exchange should recognize cultural and business differences in advance, and take steps to harmonize them.

Meanwhile, Massachusetts’ experience shows that collaborative efforts can pay off. The CCA made ample use of Medicaid’s established network of stakeholder relationships to gain an understanding of the market and develop enrollment campaigns—including an innovative partnership with the Boston Red Sox that helped the exchange interact directly with newly eligible childless adults.

Maximizing the opportunity

At its core, a HIX is an Internet marketplace. Just as consumers might use a site like Travelocity to organize their travel, they will use a HIX to buy health coverage. And they will expect the HIX to function as efficiently and to meet their needs as effectively as any other customer-centric business. Private health exchanges, mindful of the states’ Medicaid dilemma, are already starting to cherry-pick the “best” customers, so states really need to ensure that their HIX offers the very best value proposition available in what is, essentially, a retail marketplace for healthcare.

Research clearly shows a widening disconnect between what consumers expect from healthcare service providers and what those providers actually deliver. And this suggests that knowing the customer, tailoring the offer, personalizing the customer experience and empowering the HIX organization for executional excellence—just as in a retail organization—should become the HIX mantra: Not least because it would open the door to significant revenue-generating opportunities.
State HIX could, for example, consider offering complementary products or ancillary services alongside basic coverage—products such as discounted health club memberships or nutrition counseling, and services such as dental or eye care. Segmentation research even indicates demand for relatively unusual add-ons including pet insurance and acupuncture, so the possibilities are potentially vast.

There’s also plainly plenty of potential for state HIX to develop services including payroll and 401K plans that would appeal to small businesses—the so-called SHOP exchange. And by contracting with third-party providers and sellers, or collaborating with each other to buy products and services in aggregate, or to establish economies of scale by sharing claims processing and call center capabilities, the states could both drive down costs and generate savings that could be re-invested in improving the overall functionality of their HIX.

Health insurance exchanges, over time, will become the single largest “connector” of healthcare information across the country. HIX will not only enable more access points across the healthcare system, but they’ll infuse the system with a network of timely, accurate information. For this reason, there’s a significant opportunity to connect insurance exchanges and health information exchanges so that the health interaction (patient-doctor) becomes more than a moment in time, but instead coordinates all aspects of a patient’s care. Ultimately, this transitions a patient’s experience beyond a mere financial transaction.

Phil Poley is a Senior Executive at Accenture’s Health & Public Service practice and former chief operating officer of the Massachusetts Medicaid program.