A Primer On Insurance Exchanges, Courtesy of the New England Journal (plus, what about the brokers?)

Thanks to an article (here too) in the published June 10 New England Journal, the Disease Management Care Blog got to bone up on the issue of on-line health insurance exchanges. Written by Massachusetts Commonwealth Connector's Jon Kingsdale, it gives readers a well written if enthusiastic snapshot of what a lot of of us can look forward to on January 1, 2014 when we start buying insurance on-line.

You can also look forward to this handy DMCB summary, suitable for a few minutes of your precious time.

By the way, two State exchanges have been set up: Massachusetts (which Dr. Kingsdale says was the model for the Patient Protection and Affordable Care Act) and Utah. Both are available for on-line test drives.

According to the article, exchanges will generally have to be run by the States (including the option of outsourcing it to a not-for-profit entity). They'll be funded by a transaction tax that is anticipated to amount to about 3% of premiums. Mathematically, this is a great deal for individuals and small groups, whose premiums often include higher administrative costs compared to the large "bulk" purchasers. The job of the Exchanges is to present transparent and easy to read on-screen summaries of the various health insurance options so that consumers can comparison shop. This means not overloading users with too much information; rather, the Exchanges will give users standardized information so that they can balance the premiums, deductibles, co-pays, pharmacy benefits and other information to make truly informed choices that fit their personal preferences. The Exchanges will also set up the various tax credits and the subsidies that kick in below the 400% Federal Poverty Level (FPL) threshold. Established health insurers will need to compete and the market barriers to new insurers should become lower. As a result, hopes Dr. Kingsdale, health insurers that 1) achieve consumer-friendly levels of efficiency and 2) don't have to resort to wide-open networks will win the Exchange-mediated race in the long run.

For a slightly different point of view on how things are being done in the era before Exchanges, check out this 2002 Center for Studying Health System Change Issue Brief On the Role of Insurance Brokers. Brokers - the folks that are paid by commissions by insurers to refer potential customers to them - have generally commanded from 2%-10% of the premium. Their job is present customers with a tailored spreadsheet of the insurance options that they represent, so that individuals and employers can presumably chose what's best. What's more, after the sale, brokers often act as trouble shooting intermediaries between the health plans and consumers.

The DMCB recently relied on a broker for its health insurance. There were four dominant insurers and the broker provided a packet with pages of easy to understand options. They answered the DMCB calls, responded to the DMCB emails, took my faxes and called the DMCB after one year at renewal time. They were not at all like the government.

What can the DMCB conclude?

1. Brokers' with a majority of their business in health insurance are in trouble.

2. Yet, brokers' fees don't seem to be that much higher than the Exchange costs described by Dr. Kingsdale. It may be that the DMCB and other health care consumers will confirm the adage that you get what you pay for.

3. The article points out that Exchanges are one area of agreement from both sides of the health reform debate. What better example of that than Utah and Massachusetts?

4. Dr. Kingsdale's speculative closing plug that Exchanges will usher in an age of highly efficient competing closed networks (much like Accountable Care Organizations) seems a little far-fetched. If that were true, the health insurance brokers would have done that long ago. It seems the conceit of everyone in health care policy with a good idea is that their idea can fix everything.

5. Last but not least, the DMCB hopes the on-line Exchanges will eventually list the health insurers' coverage options for wellness, prevention and chronic disease care management. Stay tuned.