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Covered California News & Commentary

Topics of interest to both consumers and agents related to Covered California and the ACA biased in favor of the successful implementation of the Exchange and deliberately apolitical.

May 2012 Archives

Many of us who are interested in the development of the Covered California SHOP, had thought the primary appeal of the SHOP would be its ability to offer a wide range of choices to the employees of California small businesses - both among carriers and benefit plans. Yet as discussions with stakeholders progressed, some experts presented opposing views.

Experts Presented Limited Choice Views

James Robinson, Ph.D. Director of the Center for Health Technology at UC Berkeley advised, “There is always this back-and-forth between choice and efficiency. You have to either rely on the individual to make choices among a broad menu of choices, or you have to use the leverage of enrollment and limit contracting to a small number of plans.”

Bill Wehrle is Vice President, Health Insurance Exchanges for Kaiser Permanente said, “Kaiser Permanente believes that offering a choice of carriers is crucial. However, introducing unfettered choice among benefits is expensive. We favor a system where the employer picks a benefit level (bronze for example) and the worker can buy up one level (silver) if he chooses. That offers some choice, but is not completely unfettered.”

The Pacific Community Ventures small businesses survey, “Understanding Health Care Decision Making in California” published the following: We asked small business owners if an employee choice option in the Exchange would make it more attractive, less attractive, or about the same - 54% said “about the same”, 29% more attractive, 13% less attractive.

Available Choices Considered

So it is not a foregone conclusion that the Exchange Board will opt for a wide selection of choices for employees in the SHOP exchange. At the Exchange Board Meeting on May 22nd, staff presented the options it has considered and its recommendations regarding the choice issues. The following options are available:

  • Option 1. Employer chooses issuer (insurance company) and tier (bronze, silver, gold, etc.) employee selects the health plan and coverage level within the available SHOP options.
  • Option 2. Employer chooses issuers, employee chooses tier: Employer chooses among available health plans and allows the employee to select the level of coverage among metal tiers.
  • Option 3. Employer chooses tier, employee chooses issuer: Employer establishes the metal tier for all employees, and allows employee to select among available health plans.
  • Option 4. Paired or defined choice: Employee chooses a specific combination of health plans for employees to select from. Further choice may or may not be available among coverage tiers.
  • Option 5. Full employee choice: Employer determines the maximum contribution that will be made on behalf of employee, and allows employee to select health plan and coverage level.

Staff Recommendations

Staff, advised by its Price Waterhouse consultants, made a preliminary recommendation to pursue option 5 - full choice of Qualified Health Plans (QHP) and coverage tiers for employees, with a defined contribution paid by the employer. “This option provides maximum choice for employees which may encourage long term participation of employers in Covered California, requires minimal decision-making by the employer, and enhances competition among health plans.”

We applaud the staff’s recommendations and agree wholeheartedly that employee choice with defined contributions by employers is the way to go, This decision empowers employees and frees employers from making benefit decisions based on the “greater good”.

State-Based Exchanges

To date, 34 states have received planning grants from The Department of Health Human Services (HHS) to set up their own health insurance exchanges. According to the ACA, the HHS will establish and operate a Federally Facilitated Exchange (FFE) in states that have not shown progress toward implementing a health insurance exchange (i.e., meeting minimum functions of an exchange including enrollment, operating the Small Business Health Options Program [SHOP] program, and oversight of qualified health plans [QHP]) by January 1, 2013.

Federal HIX Partnerships

Last week, the Center for Consumer Information and Insurance Oversight (CCIIO) released guidance on implementing FFEs. Mindful that many states simply do not have the population or to justify the development of a state-based exchange, including many of the states who have planning grants, the feds offered all states the option to operate a HIX in partnership with HHS. While several partnership models were outlined, all include the feds managing the website and call center.

Open Market Model

The HHS decided that any health plans meeting certification requirements as QHPs will be able to participate in the FFE, thus using an open market model. HHS will provide ongoing support to FFEs to support their ongoing operations by developing and implementing a system to calculate user fees from participating issuers, with details expected this fall. And, to the extent permitted by a state, a federal exchange will permit agents and brokers to enroll individuals in a QHP through an exchange; web-based brokers can help consumers pick health plans online.

California Chooses State-Based Plan

After several hours behind closed doors, the California Health Benefit Exchange (HBEX) board decided to go ahead with a state-based exchange, at least for now. When discussing the federal partnership option in open session board member, Kim Belshe, voiced concerns about the “seamlessness” of the interface between federal and state components of the eligibility and enrollment process. Additionally, board members and stakeholders questioned the ability of a centralized federal call center to handle the diversity of California’s citizens on the basis of the variety of spoken languages alone. The federal partnership remains an option down the road.

Starting in 2014, brokers in some states may offer state Exchange qualified health plans via broker websites or “private exchanges” that let consumers compare coverage and weigh costs and benefits among health plans. In California, that would give brokers access to as many as 4 million uninsured Californians. Under rules proposed March 12 by HHS the exchanges can now also be offered by companies such as California based eHealth, the biggest online retailer of health plans, and closely held rivals such as HealthcareShopper.

“It’s going to put these private exchanges on steroids,” said Cindy Gillespie, head of health-care policy at McKenna Long & Aldridge LLP, a Washington law firm that advises brokers. “It’s no longer going to be a marketplace exclusive to the state-run exchanges, and that’s a game-changer, big time.”

States Have Final Say

The HHS regulations require private exchanges to offer all plans available in a state that meet the ACA standards for affordability and coverage. They also forbid the use of rebates or giveaways that might steer buyers to particular carriers. Each state gets the final say on whether to include private exchanges in the system. States will still have to keep certain functions for themselves, such as determining who meets income guidelines for the federal subsidies.

The administration’s proposal is an acknowledgment that some states may miss the deadline to have a marketplace up and running by 2014. In Republican-run states where officials have opposed the law, the option may prove politically popular as well. The path of least resistance may be to rely on the private exchanges to do all of the front-end work.

Private Exchanges and Brokers

The increasing focus on consumer-driven health care leads us to believe that private exchanges could provide huge opportunities for health benefit advisers in 2014 and beyond. Private exchanges are particularly attractive in conjunction with defined-contribution plans. If employers provide an annual stipend to their employees and release them into public insurance exchanges, the result is a complete loss of business for the broker. A private exchange connects the employees with plan options that the employer stands behind, supporting employees while still protecting the bottom line. Private exchanges can keep brokers and agents in the business of providing innovative solutions to their clients and their employees.

HR consulting giant, Mercer, conducts an annual survey of employer-sponsored health plans each year. The 2011 survey, completed by 2,800 employers with 500 or more employees, tracks new trends in the retiree medical market. In response to health care reform, some employers are now considering the use of state or private exchanges to provide health benefits for pre-Medicare-eligible retirees.

new_options.png New Options

While two-thirds of those employers with retiree health plans intend to continue offering these plans over the next 5 years, a fast growing number do not. More that half of the current retiree health plan sponsors say that if they were to terminate their plan they would provide some level of coverage through a state or private exchange.

How a Retiree Health Exchange Works

A retiree health exchange brings both pre-Medicare and Medicare eligible employees together with providers of a range of health plan options that provide coverage during retirement. Here’s how it works:

  • Employer opts for an exchange instead of traditional retiree medical plan
  • Employer determines whether and how much to contribute towards the cost of the health plan
  • Employer directs eligible participants to an online portal to select from a wide array of plan options
  • Exchange recommendation solution guides participants through the decision and enrollment process and provides full customer service
  • Employer has no risk of unpredictable costs nor administrative burden

The Affordable Care Act (ACA) and the California Health Benefit Exchange that the health care reform law spawned could increase the market size for individual health insurance in California by more than five times by 2020, raising the number of individual policy holders in California to approximately
 10 million by 2020. Much of this increase will likely be net new additions as many for the state’s 7 million uninsured enter the market through federally subsidized private insurance. At the same time, it is likely that the rise of the individual insurance market will disrupt the existing employer group market serving 15 million Californians

Employers Will Substitute Individual Coverage

As the individual market evolves with the advent of Covered California and subsidized individual plans for lower-income workers, smaller employers are likely substitute individual for group coverage. Should the individual market advance sufficiently, many employers will be able to drop group health benefits altogether without suffering in the market for talent. Also, despite the tax credits available for providing insurance to employees, in some cases, it may be more economically attractive for larger employers to terminate the benefit and pay the penalty ($3,000 per person per year). This will lead many more individuals to find their way to the Exchanges and the individual market.

Individual Consumers Not Well Served Today

Historically, the commercial health insurance industry’s primary customer has been employers. The individual insurance market has been a relatively immaterial fraction of industry revenue. The ways that an individual and an employer make purchase decisions are different, each values the coverage and service trade-offs with a different yardstick. Individuals only care about their own family’s needs 
and balancing their health care requirements with their household budgets. Most workers feel they have no choice in the selection of their coverage. However, the employers make up for the lack of choice by paying most of the cost. Consequently, since the health insurance market traditionally has been largely a business- to-business wholesale transaction, it has evolved into a complex system with limited flexibility for employee customization.

Build-Your-Own Customization Demanded

The byword in the individual market is customization so that consumers can make the choices they feel are best for them. Product variables, such as higher cost-sharing levels, health savings accounts, a more limited or lower-cost group of network providers, different plan designs, patient compliance and wellness incentives, and lower-cost self-service options, are examples of choices that would lower the overall cost of the premium. A successful health plan operating model and enabling technology that gives the subscriber the opportunity to make these choices real-time and online is a very different model than the mature employer-based model currently 
in use. Today, there simply is no model in the health plan world of “build- your-own,” but there is no good reason why, other than the market served by health insurers did not demand it. The new individual market will.

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