Big American companies have moved their employees form defined benefit pension plans to defined contributions which the workers invest 401K pension plans. The employers are off the hook for future pension costs.

Defined Contribution Health Benefits

Big business is now employing a defined contribution strategy to employee health benefits. They see it as a way to get off the hook for ever increasing health insurance costs. By making a defined contribution to the worker. it is now up to the worker to deal with rate increases. But the workers need someplace to buy healthcare coverage, a place like the 401K plan for retirement.

Private Exchanges

Yesterday, Aon Hewitt (AH) announced that they signed up Sears (90,000 employees). and Darden Restaurants (Olive Garden, Red Lobster etc. with 45,000 employees) for their private insurance exchange. AH will set up customize their exchange platform for each employer. Sears or Darden employees will go to their prospective private exchanges to shop for a plan using the defined contribution money from their employer to pay for the plan they select. Sears and Darden have effectively insulated themself from future rate increases and passed them on to the their employees. They may be generous and make fair annual increases to the defined contribution, but the point is, they are now in control of their health benefit costs.

The standardization that the ACA builds into Covered California including essential health benefits and actuarial values, accomplishes a lot of necessary things to be sure, unfortunately standardization will bottleneck innovation of health plans offered. Covered California will market “catastrophic” health plans to the under-thirty crowd in California. Catastrophic plan means bare-bones health insurance coverage with the emphasis on covering the larger medical expenses. It’s affordable. Which is important to the young men who make up a disproportionate share of the California’s 7 million uninsured.

The feds haven’t gotten around to defining the “catastrophic plan” yet and that could be a good thing. This category could provide room for an “inferior plan”. By that I mean, a young person who is healthy is probably going to buy something very different than somebody who is sick, and it is that notion of providing something probably very inferior to what an employer would buy, but exactly what the individual might need.

Disruptive innovation typically starts at the low end of the market. This segment is less profitable for the incumbents, so there is room for new players to get a foothold. Who might these innovators be? It could be a savvy retailer like Walmart Healthcare or CVS Healthcare. It could be a bank like Wells Fargo Healthcare. More likely it will be an established health plan currently serving the Medicaid or Medicare market. I like the chances of Molina Healthcare, already a known brand in the target market.

Covered California Board Meetings feature a great deal of public comment from so-called “stakeholders”. The idea is that any interested citizen can come to the microphone for up to 2 minutes and give their views on any issue the board may be considering. I applaud Covered California sincere effort toward transparency. The September board meeting had a great example of this. A small-business owner traveled from San Francisco to the meeting in Sacramento to deliver a very personal and articulate pitch for choice and affordability in the SHOP Exchange qualified plans.

Most of the other commenters are representatives of special interest groups, some representing very small slices of the demographic. They are paid to show up and be seen pressing the group’s agenda. Let’s be clear, they are wasting time that could be much better spent on the decision making process and we need to make some room for people with something to say - like that lady from San Francisco. Ruthless enforcement of the 2-minute rule helps, but I’ll suggest a further restriction. They get to share 2 minutes only once per meeting. They get to pick one issue per meeting on which they absolutely must comment.. Of course, an exception should be made for Beth Capell Health Access. She speaks for a much broader constituency - the Covered California customer. But why do I always feel that she wants to rap my knuckles with a ruler?

At 2:35 PM PDT today, a tipping point was reached at the Exchange Board Meeting when the spokesperson for the Pacific Island Gay and Lesbian Coalition used the word “robust” while commenting on Covered California decisions regarding enrollment and education grants being “not robust enough”. At that point in the board meeting, 18 individuals - accounting for over 33% of the board members and stakeholders in attendance - had used “robust” at least once, pushing it officially into buzzword status if not throughout Sacramento at least within the Exchange’s circle of influence.

A Very Brief “Robust” History

People who study such things tell us that, “robust” first came into prominence soon after the millennium in the academic community. Within a few years, Washington was full of “robust” use. Nobody knows for sure, but some say that “robust” made it way to Sacramento on the backs of federal bureaucrats soon after the ACA became law.

Phase 1: Introduction

Others claim that Peter Lee brought “robust” with him from his days in DC. There can be no doubt that Peter introduced the Exchange community to the use of “robust” as the multi-purpose modifier de jour. He has been using “robust” 5 to 10 times per board meeting since he got the job.

Phase 2: Early Adopters

Dr. Robert Ross was the first board member to pick up “robust” and make it his own. The amiable Dr. Ross uses it almost as much as Lee does now, often woven into his avuncular compliments to anyone making the effort to show up for one of these things. As the Exchange added staff through the summer of 2012, “robust” use spread quickly as new Exchange employees emulated their boss.

Phase 3: Buzzword

It wasn’t until today that “robust” use reached the masses. It seemed as though nearly everyone who made it to the podium to deliver their 2-minutes of self-interest used “robust” in some way, though not always making any sense. While some of the union members in attendance were still struggling to work it into a sentence, most of the rank and file seem comfortable with “robust”.

The ROBUST Brand

Robust could make a very “robust” brand.

Covered California will contract with a vendor the for administration of the SHOP Exchange as opposed to developing its own administrative infrastructure. Several business functions such as governance and policy management are considered “core” and will be maintained internally.

Rationale Considered

The federal government must certify that Covered California will be capable of performing all minimum functions in time for open enrollment in October 2013. The complexity of the Individual Exchange and the interrelationship with other state health programs require the Exchange to devote significant staff and consultant support to policy and systems development that will assure the success of this effort. Because of this, the Exchange will go with a contracting arrangement strategy for the initial administration of the SHOP at least in the early years. Covered California will implement a transition strategy contracting for establishment and operational services for SHOP in the near term, and then they will evaluate bringing operational control of the SHOP operations in-house after after 2015. This transitional approach will allow Covered California to focus on standing up the individual exchange in the near term while taking advantage of consultant outside expertise to ensure that small businesses and their employees receive best-in-class service.

The rationale for contracting with a vendor for the establishment and initial administration of the SHOP include:

• The time required to build an internal operational capability for SHOP is significant, and the time may not be sufficient to be in a position to implement small business open enrollment by 2013
• External vendors have existing functionality that serves the small business market today that could be easily adapted to the Covered California functions
• There are other competing, high priorities with tight timelines facing Covered California Staff (i.e. building and operationalizing the Individual exchange)
• Variations in enrollment volume (higher volume at the end of the month and immediate enrollment growth during open enrollment) are expected in the near term. These factors will require flexibility in service center operations - and possibly other areas - which could be challenging to manage internally

SHOP Functions to Retain

It is important to note that Covered California considers some functions to be “core” operational and policy functions. “Core” functions that will be internal to the Exchange include:

• Governance, policy development, and quality assurance: Covered California will retain ultimate governance and policy-making authority and ensure that contractors are meeting contractual quality, service and related standards.
• Health plan management: Covered California will retain control over health plan selection, certification and ongoing management of plan relationships for the SHOP.
• Marketing: Covered California will lead SHOP marketing efforts and will maintain direction of marketing campaigns and outreach.

Questions and Concerns Remain

• How should Covered California best use marketing expertise and agent relationships that may reside with potential vendors?
• How can Covered California best assure coordination and integration between it and a contracted vendor to assure maximum enrollment of individuals who may be family-members of covered small business employees who are eligible for Exchange tax- credit support or Medi-Cal?

Covered California is expecting $40 million in federal funding for the Outreach and Education Grant Program. $20 mil will be awarded in Phase One, with award winners to be announced on April 1, 2013. Covered California still has to come up with an application process and performance guidelines for interested applicants. Covered California will make multi-year grants as well as long as federal funding exists. Grants are not expected to exceed $250,000 each.

Eligible Organizations

The grant money is for “organizations and entities with trusted relationships with California’s uninsured markets”. Eligible organizations to be considered are:

• 501(c)(3) and non-profit organizations
• School districts or community colleges
• Trade, Industry, and professional organizations
• Public agencies
• Collaboratives that can coordinate services and are under the coordination of a 501(c)(3) or other public agency

Selection Criteria

• Level of access to target markets and ability to leverage resources.
• Federal or state guidelines restricting eligibility to receive federal funds.
• Alignment of vision, mission and values with the Project Sponsors.
• Established relationships with target markets.
• Demonstrate experience performing outreach activities .
• Provide access to those counties and markets where the greatest opportunity exists in terms of number of uninsured and eligible Californians.
• Ensure that all regions of the state, including hard-to-move (e.g. “invincibles”), limited-English proficiency, and rural populations will benefit from the program.
• Reflect the cultural and linguistic diversity of the target markets.
• Demonstrate the capacity to deliver a cost-effective and evidence-based program likely to result in increased awareness, fewer perceived barriers and ultimately, a commitment to act.

Healthy Families is California’s version of the Children’s Health Insurance Program (CHIP), which provides health insurance coverage to children whose parents earn more than the Medi-Cal limit, but not enough to make health insurance affordable. California had 1.7 million children in the program as of 2010. One of Gov. Jerry Brown’s budget-cutting moves this year was to end Healthy Families and cover them instead through Medi-Cal. The elimination of the Healthy Families program begins Jan. 1, 2013 with the first phase of the conversion - moving approximately 415,000 children to Medi-Cal managed care plans during the first month. The balance of the children will be moved into managed care over the following 12 months.

Awkward Timing

Folding Healthy Families into Medi-Cal comes at an awkward time for its members. It forces hundreds of thousands of children to change insurers and doctors now and then again a year later. In Jan 2014, the majority of those parents will be obtaining subsidized coverage through Covered California from private insurers, not from Medi-Cal. As a result, children and their parents would be getting their healthcare from different programs, in many cases with separate networks of doctors and hospitals.

Covered California Wants the Numbers

While the Exchange Board and staff have been largely quiet on this issue, the additional enrollments, perhaps as much as 1 million lives, add to their marketing muscle. Covered California, in its role as active purchaser, is about to engage in the initial round of negotiations with health plans over the the cost of qualified health plans to be offered on Covered California.

Essential Health Benefits: SB 951 by Senate member Ed Hernandez (D-West Covina) and AB 1453 by Assembly member Bill Monning (D-Carmel) passed a concurrence vote in separate houses, and are now headed to the governor for signature.

Bar Set Too High

Recent HHS guidance says states can define their own set of essential benefits by using an existing major health benefit plan in the state as a benchmark. California’s new law will set the level of essential health benefits to be modeled on the Kaiser Permanente Small Group HMO 30 Plan, and include autism, acupuncture and tobacco cessation coverage as well. My understanding is that a version of this plan with an 70% actuarial value will become the Silver Level standard against which all other qualified plans offerings will be based.

Affordability Takes a Hit

An individual buyer of that plan today - say: female, age 45, Los Angeles - would pay a monthly premium of about $400. That number could be considerably higher in 2014 when guaranteed issue and community rating are factored in. Thank God for federal subsidies.

HHS to Blame

The ACA equiped the HHS with broad powers to provide crucial direction to the states. Perhaps they succumbed to essential health benefit politics but in the end they wimped out. The HHS passed the buck to the states, directing them to select from the most popular group benefit plans or federal coverage. Covered California has chosen to go with the “most popular” or “best seller”, the Kaiser HMO 30.