Driving An Insurance Exchange in 2014 - A Conversation From the Future

On some weekends, the Disease Management Care Blog listens in on a certain car-themed National Public Radio call-in show that features the often entertaining and sometimes helpful advice of two wacky automotive repairmen brothers.

They’re the inspiration for this futuristic posting on another Golden Boy of health reform called “insurance exchanges”…..

Click: ….. and that’s why the answer to this week’s puzzler is that you have to cut the banana in half and then divide it into thirds! But now its time for another caller.

Caller: Hello, my name is Marcie and I’m calling from Lake Nogebow, Illinois.

Click: Hello Marcie. What’s on your mind?

Marcie: Well, I drive a 2014 Insurance Exchange and it's driving me crazy. I can’t get it out of first gear and it will only go to one place no matter how I much I turn the wheel!

Clack: Hey, that’s what my wife says about me nyuck nyuck nyuck!

Click: Marcie, I have bad news. You’re not driving a "Fix It Again Tony" or FIAT, you’re driving a DIAB or a Defund It Again Boehner! That jalopy may need to be junked!

Marcie: Oh no, my State paid millions of dollars for it!

Clack: My wife paid nothing for me, so what a good deal for her nyuck nyuck nyuck!

Click: Well Marcie, Insurance Exchanges were manufactured using parts made in Massachusetts using European engineering. That's a really bad combo.

Clack: And we know nothing good comes out of Massachusetts, just look at my brother!

Click: Unfortunately, it’s impossible to adjust the innovation to actuarial equivalence ratios anywhere in the drivetrain. There’s a shortage of new insurance design parts and drivers can’t read any of the dials to easily compare one insurance plan to another!

Marcie: So that’s why I can’t steer my Exchange to a benefit design that I want or that I can afford....

Click: That’s right Marcie. This is just like the government’s approach to electric cars: you can have any kind you want, any style you want with any features you want so long as it’s a Chevy Volt.

Marcie: Oh, my wife is going to be so mad!

Click: There was good advice back in 2010, like this from the Brookings Institution that was published in the American Journal of Managed Care. Those heavy weight authors recommended that Insurance Exchanges be specifically configured to promote a wide array of innovative benefit plan designs. In addition, they argued that Exchanges need to provide consumer-friendly information on quality, cost and patient experience information. The Disease Management Care Blog also warned its readers, but few in government seemed to think about it.

Clack: When the subsidized public option was inserted in the engine, it was all over nyuck nyuck nyuck!

Marcie: So that's why I can only go to one place in it!

Click: You're right. Since the government ultimately decided which insurers appeared on the exchange and the decision logic favored the public option, "crowd out" happened faster than an Obama tax-cut veto.

Marcie: So what should I do?

Click: Now that's a puzzler!

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.