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Tag: Health Insurance Exchanges

Private Insurance Exchanges––Will They Save Money? Will the Idea Grow?

Private health insurance exchanges will save employers money but not make health insurance cheaper.

Because private health insurance will save employers money, they will grow.

Will Private Insurance Exchanges Reduce Health Insurance Costs?

There’s lots of buzz these days about private insurance exchanges. The idea is to give employees more choice in purchasing their own individual coverage from a big menu of insurance companies and plan alternatives, and as a result, create more robust competition and thereby help control costs.

But I think private insurance exchanges will have just the opposite effect on the price of large employer health insurance plans.

First, private insurance exchanges will increase the insurance program expense factor for any large employer plan using them. A large self-insured plan may operate on an expense factor in single digits (maybe 90% of premiums go for claims and 10% of premiums for insurance company overhead). Individual products operate on an expense factor of as much as 20% and small group plans as much as 15%. Moving away from self-insurance and to an individual choice platform will increase the expense factor leaving the employee less money for benefits.

Second, employers currently save a lot of money in a self-insured plan because self-insurance gives the employer more flexibility. For example, a self-insured plan doesn’t have to comply with state benefit mandates. There is widespread agreement that self-insurance flexibility saves employers lots of money and that is why almost 100% of large employers do it. That savings would end, or be reduced, if the employer eliminated its self-insured plan and instead offered a much more complex individual choice platform in an insurance exchange, leaving less money for benefits.

Proponents of private insurance exchanges argue that by pitting many health plans against each other and giving employees these choices we will have a more robust market which will drive health insurance prices down. But it’s dog eat dog out there now in the group health insurance business. Ask a business owner or benefits manager how they market their health insurance and they will tell you they have their consultant or broker regularly get bids from a number of insurers to improve their plan. Most small employers do it every year.

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Health Plan Case Studies: A New Florida Blue

One of the perks of giving keynotes all over the country is being able to hear what other health care leaders are saying without having to pay the conference fees. One of my major keynote themes is that everyone (patients, doctors, hospitals, employers, and health plans) will have to change in order to thrive during the current health care delivery system transformation.

Recently in Delray Beach, I stayed after my keynote to hear Florida Blue CEO Patrick Geraghty describe his first year of trying to change the Blue Cross/Blue Shield franchise to respond to health care reform. I have written elsewhere about the health plan response to the changing environment, but Geraghty’s speech highlighted how urgent and how difficult change can be when an industry business model is disrupted by federal legislation and market forces.

Geraghty has led the Blues effort in Florida to update their name, mission, vision, and values. Focus groups revealed that the new name Florida Blue was easier to say and communicated a less corporate, more friendly image than the old name Blue Cross Blue Shield which brought to mind adjectives such as corporate, distant, and expensive.

A four paragraph mission statement was replaced by a single sentence: “To help people and communities achieve better health.” The vision statement was rewritten to now describe the company as “a leading innovator enabling healthy communities.” The five corporate values now include the familiar “respect,” “integrity,” and “excellence,” and the more unusual “courage” and “imagination.”

What I found most intriguing and revealing was how these new efforts are being translated into concrete tactics such as opening retail centers and partnering with Disney on a new innovation institute.

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Will the Rollout Of the Exchanges Be Delayed?

While the Governor’s Mansion in Pennsylvania is currently under the control of the Republicans. I know the state’s Insurance Department is relatively apolitical. That’s why this September statement by Pennsylvania Commissioner Consedine before the U.S. House Ways and Means’ Subcommittee on Health is quite telling.

In it, Mr. Consedine describes how the Keystone state is encountering difficulties implementing an health insurance exchange. As readers will recall, exchanges are a key feature of the Affordable Care Act, because they’ll provide an online market that will enable individuals to obtain coverage.

According to Mr Consedine, CMS is failing to support a good law with the many regulatory details that turn a vague idea into a functioning reality. These failings include:

1. “Interim,” not “final” rules on eligibility, tax credit calculations, cost sharing and the role of brokers

2. Little formal guidance on the determination of the essential health benefit.

3. Delays in issuance of regulations on how states and Uncle Sam will split or mutually indemnify the myriad costs of the exchange and the Federal Data Hub.

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Health Insurance Exchanges Work

The Salt Lake Tribune Editorial Board recently used strong words to criticize the Utah Health Exchange. Its perspective ran afoul of our firm’s recent experience with the Utah exchange, which has been overwhelmingly positive.

Like many small businesses, the triggering event for our involvement in the Utah Health Exchange was the appearance of our insurance broker who laid out a spreadsheet presenting a 22 percent increase in next year’s premium costs. Disappointed, we asked our broker to review other options.

The conventional market yielded quotes ranging from a 22 percent to a 134 percent increase. Ask any small business and you will learn that these increases come right out of employee compensation and, in many cases, new hires. Containing these costs, particularly in small businesses with small risk pools, has eluded the best minds in health care policy for decades.

We asked our broker to explore the Utah Health Exchange with vigor. We considered it last year, but the deadlines proved to be an obstacle for us. Our experience this year was remarkable and is instructive for states that object to state-created health insurance exchanges on the flimsy basis of their association with federal health reform.

The Utah Health Exchange started in August 2009 with the primary target of helping small businesses obtain health insurance for their employees. It was named an exchange before the fury over Obamacare tainted the concept.

The word “exchange” connotes the market freedom that is associated with activities like the New York Stock Exchange. The Utah Health Exchange is organized by state government, but driven by the market. What we found was a transparent system that created options for every individual employed by us and exemplified market principles, states’ rights and federalism.

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