When Talking About the Exchanges, It’s Probably a Good Idea to Look Beyond Opening Week Returns

It was an up and down week for supporters of the Affordable Care Act. Republicans appear to have stopped linking government funding with partial repeal of the ACA. And well-publicized software problems plagued the 36 federally managed exchanges, making it difficult for enrollees to complete the application process. Still, supporters could crow about the large number of insurers who are offering products and the millions of Americans who visited the online exchange enrollment sites as a clear sign of the success of the Affordable Care Act.

We should never confuse activity with accomplishment.

A few software updates will not be sufficient to assure the success of the exchanges. Two more important things must happen: Visits to web sites must translate into enrollments, and enrollees must represent the kind of cross-section of risks that will keep insurers in the exchanges in years to come.

Not surprisingly, enrollment figures vary considerably by state, with some states operating their own exchanges reporting some of the highest enrollments to date. But upon even minimal inspection, current enrollments leave much to be desired. In New York, 40,000 individuals completed applications in the first week, not bad until you consider that several million state residents are eligible for insurance.

Washington State has 1 million eligible residents and just over 10,000 applicants. Reporting that 29,000 California residents had completed their enrollment applications, exchange Executive Director Peter Lee stated that this “blew his socks off.”

Let’s put this in perspective.

With 7.1 million uninsured in California, an application pool of 29,000 shouldn’t knock any garments off of anyone!

These are the “success” stories. At the other end of the spectrum, at last count Maryland had a whopping 566 applicants. And lest we forget, applications are not the same thing as enrollments. Some insurers have claimed that applications are incomplete – potentially leading to a troubling situation where uninsured individuals may incorrectly think that they have secured insurance.

Before patting themselves on the back, exchange supporters should stand back and see what happens. Coming from the nation’s entertainment capital, California’s Mr. Lee should be especially aware of the dangers of judging success from opening week returns. Will the exchanges be like The Lone Ranger, which topped the box office in its opening week and then quickly faded away? Or will they be more like Argo, which gradually built its audience over time? Time will tell.

In addition, it is important that we have accurate indicators of success. In terms of the success of the exchanges, all enrollees are not created equally. It is perhaps more important to know who is enrolling than to know how many people are in the pool. Millions of Americans with chronic health problems are eligible for substantial subsidies for enrollment.

It would be shocking (and a sad statement about the marketing and management of exchanges) if most of these individuals were not beating down the doors of the exchanges on day one. However, it would be bode very poorly for the sustainability of the exchanges if on January 1, 2014 the risk pools of the exchanges were flooded only with relatively old and sick individuals. The true success of the exchange hinges on the enrollment of younger, healthier, and wealthier Americans.

While the software glitches are troubling, they will become truly disturbing if they have raised the search costs of insurance to the point that low risk enrollees decide to take a pass and pay the $95 fine this year. While the fine goes up in subsequent years, we both fear that the premiums necessary to cover the health costs of a risk pool filled with individuals who have been previously locked out of the individual market will rise even faster.

It took private insurers many years to figure out how to establish stable risk pools, often through the use of controversial practices such as preexisting condition exclusions. The government exchanges are relying on their own controversial practices, such as sliding scale subsidies and purchase mandates. Will these be equally or even more successful in establishing risk pools? Once again, time will tell.

These questions are critically important because we believe that the exchanges represent a vital and necessary change to the provision of health insurance in the United States. A well-functioning non-employer option will liberate an American labor market that has suffered from the linking of health insurance to employment. For the first time, small businesses will be able to compete on an equal footing with their larger counterparts, and entrepreneurs will be able to focus their attention on innovation without dwelling on how they will afford health insurance.

Given how essential these exchanges are, it is frustrating and frankly galling that the federal procurement system has produced such a dysfunctional outcome. Given that the United States is a center for technological advancement on the Internet and the home of a wide variety of innovating firms, we deserved better than this outcome.

David Dranove, PhD is the Walter McNerney Distinguished Professor of Health Industry Management at Northwestern University’s Kellogg Graduate School of Management, where he is also Professor of Management and Strategy and Director of the Health Enterprise Management Program. He has published over 80 research articles and book chapters and written five books, including “The Economic Evolution of American Healthcare and Code Red.” This post first appeared at Code Red.

Craig Garthwaite, PhD is an assistant professor of management and strategy at Northwestern University’s Kellogg Graduate School of Management.

Categories: Uncategorized

7 replies »

  1. You could potentially surely call at your knowledge of the repair you’re posting. This segment desires for a lot more ardent internet writers just like you whom are not afraid to state the way they feel. Continually go after the cardiovascular system.

  2. I don’t think anyone is patting themselved on the back about Healthcare.gov

  3. Insurance exchanges themselves are easy. Esurance builds them, TermQuote builds them, etc etc

    Verifying income for subsidies is what is hard. For Medicaid, SSI, VA disability and other federal subsidies, I believe there is a paper file and a caseworker for just about every appljcant.

    We may get to that point on the health care exchanges. Won’t kill us either.

  4. I certainly agree with Jonathan: The ACA will make a big impact on the American economy. it’s going to kill jobs, raise taxes on everyone and raise insurance costs for those who already have coverage. And Jonathan is bragging about that as a desirable thing?

    And I certainly DO NOT agree with Jonathan that “the launch will be a distant, dull memory in just a few years.” Quite the opposite, in a few years the full impact on the economy will be deeply entrenched and we’ll all be wondering “how the hell did we let this happen?” We’ll all have a very intimate, chronic headache due to the severe financial impact this ill-conceived attempt at health care reform has wrought upon the majority of Americans.

  5. Having been through several very difficult IT installs in hospitals, I am completely and utterly unsurprised by the difficulties with the exchanges. Does anyone know of a large and unprecedented IT install that has ever gone well? I am sure the causes of exchange problems are multifactorial, but let us not let the IT industry get yet another pass. Only when health information technology truly matures will we all begin to see the benefits, both in our daily lives and working in hospitals.

  6. You know, at this point you get points deducted on the test for not mentioning political obstructionism when giving reasons for why the launch was rockier than it should have been. Your lede is the fact that Republicans were willing to shut down the government in order to stop the ACA, so of course they did many, many things along the way to put obstacles in its way. For example:
    1) No supreme court ruling until the year before the go-live date, delaying the development of many exchanges, as legislatures waited to see the result. 2) Fights in states where Republicans used whatever tactics they could to prevent development or delay it by months or years, including in some blue states like New York where the Republican Senate refused to pass an enabling statute. 3) The feds getting swamped with the need to build state exchanges that they hadn’t anticipated, slowing down their ability to simultaneously work on the Data Hub that was the key for all state exchanges to work.

    Having said all that, unless the Republicans can finally find a way to cut off the oxygen (money), the ACA’s exchanges will end up succeeding as well as Medicare Part D, and will make a bigger impact on the American economy, as you rightly point out. The launch will be a distant, dull memory in just a few years.