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A Fair Exchange: Insurance, Enrollment and the Games People Play

By Emily Friedman. First published in Hospitals & Health Networks Daily on October 1, 2013

One of the Affordable Care Act's key features — health insurance exchanges where the uninsured and others can shop for coverage — is now in effect. It's likely to be an interesting experience for all concerned. What are the potential obstacles and opportunities?

Emily Friedman

Editor's note: Just to be accurate, although most people still refer to them as exchanges, in January HHS renamed the insurance shopping services "health care marketplaces."

Well, the Great Experiment is under way. As of today, the state health insurance exchanges mandated by the Affordable Care Act should be up and running, ready to accept applicants immediately and to be fully operational by Jan. 1, when coverage purchased through them kicks in.

The Basics of Exchanges

Rather than providing an overview of the entire exchange landscape — heaven knows, there's more than enough information available — suffice it to say that states (which regulate insurance and hold onto that power with an iron grip) had three options when it came to setting up the exchanges. They could be operated by states (known as state-based marketplaces, or SBMs), as state-federal partnerships (known as state partnership marketplaces, or SPMs), or as federal entities (known as federally facilitated marketplaces, or FFMs).

The box score as of Opening Day (sorry about the baseball metaphors, but the postseason begins today): 17 states and the District of Columbia have SBMs, six have SPMs and 27 have FFMs. These "marketplaces" are designed to make it easier for uninsured individuals, whether employed or not, to acquire coverage to comply with the ACA's requirement that all legal residents of the United States have health insurance by next year (with a few exemptions for religious and other reasons).

Whether one loves or hates the law (there seem to be few people in the middle), the stakes are high for providers. If the gloomiest predictions come true, many employers — especially small ones — will stop offering coverage to workers and will send them off to buy insurance at the exchanges. Also, patients are going to be asking for information from their providers, and everyone from physicians to admitting professionals will need to know at least the basics. And those providers that have the size and resources — hospitals, group practices, clinics, even nursing homes — would be wise to try to enroll as many of their uninsured patients as possible through the exchanges.

Key Questions

This is not going to be an easy time or an easy process. Here are some of the key questions to which we will need answers.

Will they work? History presents a mixed picture. The Massachusetts state health insurance "connector," which helped to inspire the ACA exchanges, appears to have been effective in helping state residents find coverage.

But there have been failures as well. In 1993, the state of California set up an exchange, the Health Insurance Plan of California, which was designed to help small employers by offering several health plans. Because the law that created it required that it be privatized, HIPC was transferred after a few years to the Pacific Business Group on Health, which renamed it PacAdvantage. Although it enrolled 150,000 people, in the end it failed.

A postmortem study funded by the California Health Care Foundation found that HIPC faced a bundle of obstacles. It could not achieve significant savings on the administrative side, and it did not command enough market share to convince insurers to provide meaningful discounts. And it learned that if there aren't enough insurers offering attractive products, the exchange cannot compete with the larger outside marketplace. A former director of HIPC was quoted by the researchers as saying, "An exchange is often just one health plan away from failure."

The study also concluded that an exchange that is not the sole market where a group or individuals can shop is in major danger of attracting high-risk (that is, sicker and more expensive) people. In other words, it needs a captive audience, or else there will not be a balanced risk pool. The reason is that insurers are likely to avoid the exchange, or offer only certain products within the exchange that could exacerbate the adverse risk to which the exchange is liable. Through these and other means, insurers can manipulate the market so that high-risk, costly patients go to the exchange or to other carriers. "An exchange," the researchers concluded, "can become a big pool of high-risk people."

And if that is the case, the price of coverage will skyrocket. That was the experience of another ACA program, the Pre-Existing Condition Insurance Plan, which went into effect in 2010 and was designed to make coverage available to people whose health status made insurance unavailable or unaffordable until 2014, when insurers can no longer discriminate against the sick. No one expected the PCIP to make money, but enrollment was far below expectations (78,000 people out of an estimated 6 million who were eligible) and costs were much higher than predicted. Five billion dollars was allocated to the program, and $2.4 billion was spent on this small patient population. The PCIP stopped accepting new members earlier this year to ensure that there would be sufficient funding for care of those already in the program.

The lessons: Sick people cost more (duh). Higher costs mean higher premiums (duh). If premiums are too high, people can't afford the coverage (duh). Commonwealth Fund researchers, in another postmortem analysis, concluded that the PCIP was of no help to the low-income sick, but did provide much-needed access to coverage for those with poor health status who could afford the premiums.

So will the exchanges work this time? My guess is, some will, some won't.

Who is operating the exchanges, and are they competent to do so? Insurers know more about insurance than other people do, and although I am not recommending that exchanges engage in some of the questionable practices that insurers do, they do need to understand the insurance market. Operators of exchanges currently range from state governments to nonprofit organizations contracting with the feds, and some are going to do better than others.

How effective will outreach be? As anyone who has tried to enroll people in anything can tell you, it's harder than it looks. I think enrollment through exchanges will be made even more difficult by an overdependence on the Internet, varying levels of support or hostility on the part of states and other governmental units, and the overly complex process by which individuals can become official "navigators," "non-navigator assistance personnel" or "certified application counselors."

I understand that there was concern on the part of the framers of the law about gaming the market, fraud and other dirty deeds, but the result is that this could end up being Medicaid in miniature: Relatively few people will know what's actually going on. This is not good when you are trying to enroll difficult, hard-to-reach populations.

Nonetheless, from the American Hospital Association to other hospital groups to a host of organizations that want to see the law succeed, many forces in health care are going to be working very hard to help people enroll, and if everyone pulls together, it is possible that the estimates of 30 million more insured patients could come to pass. No one short of Scrooge could complain about that.

Will there be proper regulation? That depends. The governors and/or legislatures in many states are not fans of the ACA and are doing their best to sabotage enrollment through exchanges. A recent Washington Post story reported that Republican leaders in several states are placing all kinds of licensure and other restrictions on the "navigators" who are supposed to help applicants deal with the exchanges. Even more troubling is that a few states are refusing to enforce two key ACA provisions: that insurers not discriminate against the sick in terms of pricing, and that they spend at least 80 percent of premium income on patient care. This is a default of responsibility to the federal government, which is not allowed to regulate insurance, so it's a heck of a catch-22.

There is a back story here, of course. Some of these stonewalling efforts have been enthusiastically supported by insurance brokers, who see the exchanges as a threat to their means of making a living. And that plays into the hands of states whose leaders don't like the law, anyway. In Missouri, for example, navigators may have no further contact with a potential applicant who has spoken with a broker about health insurance, if the navigator is made aware of this. That should be fun to enforce.

And, needless to say, some insurers would be delighted if the exchanges — which hope to jawbone carriers into lower premiums — don't make it.

All this falls into the laps of state insurance commissioners, some of whom are very effective, and some of whom are barely visible. Of all the commissioners in U.S. states, territories and the District of Columbia, only 12 are elected. The rest are appointed. That can lead to, shall we say, limited accountability.

What about privacy of information? The confidentiality and security of personal health information is a major topic of discussion as breach after breach after breach occurs. Laptops left in unlocked cars, covert peeking into celebrities' medical records, bribes for information, unauthorized posting of sensitive data on the Web — these have become daily fodder for the public press.

Exchanges will have access to a great deal of personal information, from income to Social Security numbers to health status. So will navigators. There is a potential for real mischief here. Furthermore, as of late August, completion of the federal "data hub" that will be used to verify income and share information about exchange applicants with other federal agencies (such as the U.S. Citizenship and Immigration Services) was behind schedule. The Obama administration announced in September that testing had been finished and the hub was ready; it is supposed to be up and running today. Here's hoping: The Idaho exchange has already announced that it may delay its own launch because of privacy concerns about the data hub.

But exchange participants — including vendors, payers and operators of infrastructure — will have to do their privacy homework as well. Health information technology consultant Maria Friedman, D.B.A. (no relation), warns, "Exchanges must ensure the privacy and security of enrollees' data. That includes, among other things, keeping up-to-date with privacy and security requirements mandated by states (especially when operating in multiple jurisdictions), the exchanges themselves and possibly HIPAA." She explains that privacy means preventing unauthorized access and/or use of personal health information by anyone from staff to contractors to even identity thieves. Security covers the internal and external steps required to safeguard that information, whether it is in paper or electronic form. Nearly all privacy breaches go hand in hand with security breaches, according to Dr. Friedman.

Will insurers play by the rules? In many cases, not likely, especially with some states refusing to regulate them in terms of applicants with pre-existing conditions. Besides, risk rating is only one way to avoid potentially expensive policyholders. I remember the dawn of the AIDS epidemic, when insurers in San Francisco told agents to avoid florists, dancers and men who worked in the theater. In terms of the exchanges, in 36 of Mississippi's 82 counties, no insurer was willing to offer coverage until Humana stepped up in July.

And then there's the matter of what I call "selective referral." Back when Medicaid managed care was first introduced in California in the 1970s, recruiters were told to avoid pregnant women and anyone who looked as if he or she were ill. That led to one of the toughest state insurance laws in the country, California's Knox-Keene Health Care Service Plan Act of 1975.

A more recent example was California Advantage, a health plan launched by the California Medical Association in 1995. John C. Lewin, M.D., who was CEO of the association at the time, concedes that the physician-run insurance company had other problems, but says that the greatest obstacle was that other insurers had a habit of telling high-risk, high-cost patients, "Go to the doctors; they'll take care of you." He explains, "When patients were disgruntled because they didn't think they were getting the care they needed for complex conditions, they were often referred to our program. So we suffered adverse selection, and we weren't able to raise premiums enough to cover costs and we didn't have enough healthy patients to balance it out."

California Advantage declared bankruptcy in 1998.

Lewin adds, "The ACA moderates this kind of thing, but it's still going to be a problem."

Although many despise insurers for it, their desire to avoid covering the sick has a rational basis. Health insurance over the decades has evolved from a sort of community pool from which those in need could draw to a risk-aversion model whereby the insurers make their money by covering only the healthy. To many people, myself included, that is a perversion of the notion of health insurance, but there are other examples, such as flood and earthquake coverage: If the event actually occurs, the carriers are resistant to payouts and tend to exit the market as soon as possible. That leaves state government to offer the coverage.

For insurers to convert from risk aversion to risk management would be a mighty big leap, involving an entirely different business model and, more important, an entirely different mindset and philosophy. It remains to be seen whether our insurers will undergo this change successfully, or whether their leaders will stubbornly cling to the old model, cash out as soon as possible, and leave the nation on a one-way track to a single-payer system.

Will products be affordable? Predictions are that costs will rise because of all those sick people, which I greet with a high degree of skepticism. Health insurers may see somewhat higher costs because previously uninsured sick people will be able to obtain coverage, but it should be kept in mind that the reason many of them were not covered was because insurers either refused them or priced them out of the market in the first place. Nonetheless, premium increases are inevitable. How large they are will depend on how aggressive state governments and exchanges are in leveraging their power, and, as I noted previously, the states are all over the map on that one.

Although there are federal premium subsidies available for people whose incomes are less than 400 percent of the federal poverty level, there is significant cost-sharing involved with the lower-cost plans, and, as hospitals in particular have learned from the growth in high-deductible plans, many people cannot afford to pay those deductibles. It's nice to want to encourage market competition by seeing to it that everyone has "skin in the game" — a term I detest — but too often, those who get skinned are the providers.

Federal subsidies are also available to moderate the impact of cost-sharing, but 2014 Congressionally mandated sequestration provisions kick in today that will lower those subsidies (premium subsidies are not subject to sequestration).

The basic point is that although the exchanges may be able to moderate premium costs, they are going to remain high, and significant deductibles likely will become more common as individuals choose the lowest-cost plans, which have the highest level of cost-sharing. That will lead more than a few people to refuse to participate, and will leave more providers holding the bag for those who do, but who can't afford to bear their part of the cost.

Indeed, what about those who won't join the party? Millions of people — notably undocumented residents — are excluded from the exchanges. But millions more will exclude themselves. One needs only a simple calculator to figure out that the fines for nonparticipation are less than what coverage would cost.

Among those that policymakers are most worried about are the 18- to 34-year-old "young invincibles," as they are being commonly referred to, who would rather spend their money on something else, unless they are pregnant (and sometimes even if they are). The entire ACA enterprise could fail if only sick people acquire coverage; young, healthy people are needed to balance out the pool.

On one hand, I am irritated by all the dissing of young people as irresponsible, selfish and too greedy to buy insurance. I would point out that thousands of young Americans have been killed and maimed while serving in the military over the years, and brash, danger-loving young Americans were among the Royal Air Force heroes who saved England from the Nazis during the Battle of Britain in 1940. These were hardly selfish acts.

On the other hand, the characteristics that make for a good fighter pilot can lead to a mindset that health insurance is optional. That's one reason employment-based insurance is so convenient; it's subsidized and if the cost-sharing is not too onerous, most employees sign up for it. When the landscape morphs into a giant individual market, many people won't play — not just young folks, but also those who live and work in the shadow cash-only economy and others who can't afford it, subsidies or no.

There is also the unfortunate fact that because ACA's framers thought that all states would jump at the chance to expand their Medicaid programs with the feds bearing the cost (there was a good bit of naïveté involved in the creation of this law), no provision was made for subsidies of people whose incomes are below the federal poverty level. Ineligible for Medicaid in several states because the program was not expanded, and certainly unable to afford coverage even through the exchanges, these millions of people are shucks out of luck.

How many people will end up getting coverage through the exchanges? I would say 20 to 30 million if we're lucky and if there is enough commitment to enrolling those who are eligible. That will leave at least 20 million still uninsured. But reducing a problem by half or more is not a minor accomplishment.

Not All Gloom and Doom

The exchanges are facing an extraordinary array of challenges, and not all will be up to meeting them. But there is so much possibility: millions more people with coverage, thereby reducing unnecessary illness and death, provider bad debt and one of this society's greatest inequities. Yes, many of the newly insured may not have gold-plated insurance, but Medicaid or a high-deductible plan is still better than no coverage at all.

I also sincerely hope that our private insurers will, over time and however reluctantly, get with the program and make the shift to providing coverage to as many people as possible, with a goal of keeping them as healthy as possible, rather than treating illness and injury as not being their business. That will keep our system of coverage pluralistic, which would be my preference; I have no desire to see what kind of hash the United States would make of a single-payer system.

And some states are getting creative with their exchanges. Many are including marketplaces for small employers and their workers, even though that is not required until 2015. Vermont and the District of Columbia have mandated that insurers may sell individual and small-group coverage only through the exchanges, thus creating a more balanced risk pool. Six states are requiring insurers to stay in the exchanges for a decent length of time and will penalize them if they don't. Although the ACA requires only that insurers offer the two most generous of the five possible levels of coverage, several states are requiring that they offer four or all five. Washington state is aggressively advertising its exchange. The New York state exchange has done extensive research on potential applicants to ensure well-targeted outreach, and is marketing the exchange in many settings, including using social media and on-the-street "outreach partners."

It is indeed a Grand Experiment, and a risky one. As Colorado's insurance commissioner, Marguerite Salazar, told Colorado Public Radio in August, "We're going to have 500,000 new customers … . Just think of how many possibilities there are for things to go wrong." Yet she is supremely optimistic and sees her agency as a major force in helping insurers and uninsured alike to negotiate the new landscape.

What Providers Can Do

As I mentioned, providers have a huge stake in this. And whether they are fans of the ACA or not, they're in the middle of the action now. A Kaiser Family Foundation survey in late August found that the public trusts physicians, nurses, government agencies (that's a surprise) and pharmacists most to provide valid information about the ACA, including how to obtain coverage.

That means that uninsured patients, or those who are losing employer coverage or Medicaid, or who just want to know what's going on, will be asking physicians, nurses, aides, admitting staff and other health care professionals about the ACA and exchanges. It is unrealistic to expect that all of a provider's employees will become overnight experts in an incredibly complex program, but in every provider setting — hospital, health center, medical practice and elsewhere — there should be one or two people who know the basics: how to learn about the exchange, find a navigator and obtain other assistance. There is a ton of online information (not all of it accurate, however), and there are resources for those who don't have computer access as well.

Hospital emergency departments and outpatient clinics may be the most common site where people seek to learn about acquiring coverage, and thus hospitals and health systems can be critically important to the expansion of the insured population.

The AHA issued an extremely helpful advisory ("Helping People Get Insurance Coverage: Options for Hospitals") for members on July 22 that explains the basics and suggests that of the various "navigating" roles, hospitals and health systems would be best off serving as certified application counselors. They can designate employees for this work, and training will take about 30 hours.

Providers can also partner with each other to ensure that potential applicants don't fall through the cracks. Getting together with local pharmacies would also be an excellent idea, as the neighborhood Walgreens or CVS may well be bombarded with questions from people seeking coverage. The idea of having "outreach partners" — churches, beauty salons and barbershops, schools, community colleges, local activists, farmers markets, social service agencies, even police and fire departments — as New York state is doing can greatly increase the scope of the effort. Ideally, any uninsured person or someone who is losing coverage should be able to get information quickly and easily.

And anyone can become, in CMS's term, a "champion for coverage." All it takes is basic knowledge, which is available at www.HealthCare.gov. Just talking with friends who need coverage will help.

Not everyone loves the ACA. That includes me. But it is what we have, and it will benefit both our providers and our patients if coverage is extended to as many people as possible. It will be up to all of us to make that happen.

Resources:

This AHA site has information on becoming involved in recruitment and enrollment: http://www.aha.org/getenrolled

The Catholic Health Association site also offers information on enrollment and advocacy: http://www.chausa.org/affordable-care-act/overview

Although you have to dig around a little on this page, it does have information for both patients and providers: http://www.commonwealthfund.org/Topics/Health-Policy-Reform.aspx

A site dedicated to getting as many people enrolled as possible; and it's easy to use: http://www.enrollamerica.org/

Another site with loads of information on the ACA, exchanges and enrollment: http://www.familiesusa.org/health-reform-central/

This is CMS's site for information about obtaining coverage through the exchanges: http://www.HealthCare.gov

A very easy-to-use site with understandable information for consumers, as well as background material: http://kff.org/health-reform/


Copyright © 2013 by Emily Friedman. All rights reserved.

Emily Friedman is an independent writer, speaker and health policy and ethics analyst based in Chicago. She is also a regular contributor to H&HN Daily and a member of Speakers Express. The opinions expressed by authors do not necessarily reflect the policy of Health Forum Inc. or the American Hospital Association.


First published in Hospitals & Health Networks Daily on December 3, 2013

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