Building a Health Exchange Strategy – Part III


Understanding Your Operational Readiness – Step 1
Posted by Errol Pierre

In Part I of Building a Health Exchange Strategy the discussion centered on how payers will have to be more consumer centric in their approaches to delivering health care. Part II focused on being aware of the political climate and how that will impact strategic decisions on whether to enter a Health Exchange market and upon entrance how to operate within one. Both dynamics, though critical, outlined external factors. Part III dives into internal factors; particularly around operational readiness.

It is clearly recognized that Health Exchanges offer a tremendous opportunity for health insurance companies to broaden their consumer base and expand their market share. By making health coverage more affordable it is likely that 30 million of the 45 to 50 million uninsured Americans will enter the market and purchase coverage through a Health Exchange.  Despite this opportunity, there is a high degree of complexity behind implementing and operating a Health Exchange book of business. The work in 2012 and 2013 provides a barrier to entry for smaller firms who may not have the financial and human capital to build the necessary tools and operational foundation to effectively compete with the larger players. Additionally, there are many interdependencies that exist with heavy reliance on each individual state as well as select Federal agencies to coordinate the coverage and manage the financing of the Health Exchange. The three main areas of concern that health insurance companies are grappling with are (1) product and plan design, (2) subsidy calculations and premium collection, and (3) eligibility and enrollment. Today’s article, (Part III, Step 1) will focus specifically on products and plan designs.

Product and Plan Design
Health Exchanges require at a minimum four levels of benefit offerings; bronze, silver, gold, and platinum. The different metals denote the level of coverage each plan must provide. For example, a bronze plan must cover up to 58% and no more than 62% of the health care costs for the health benefits a state deems “essential “ for a health insurer to provide. Likewise, a platinum plan must cover up to 88% and no more than 92% of the health care costs. These plan designs may be dictated by the individual state depending on the type of Health Exchange the state decides to run. Active Purchaser states like New York would be more inclined to create standard plan designs while Facilitator state like Utah would allow health insurance companies to come up with products and plan designs independently.

Within the “Silver” plan offerings the Health Exchanges will require the reduction of cost-sharing levels such as deductibles, co-payments, coinsurance, and out of pocket maximums depending on the consumer’s federal poverty level (FPL). For example, a silver plan may have a $1,000 deductible before coverage from the health plan kicks in. However, if a consumer with a FPL below 250% purchases a silver plan, the $1,000 deductible would need to be lowered by up to $500. This provides a level of complexity for health plans that has not been seen before. Lowering the deductible actuarially increases the price of the plan since the plan will provide more coverage. However, that cost of lowering the deductible is returned back to the health plan by the Federal government and not the purchasing consumer.

Additionally, the silver plan created by a health plan will have to be replicated up to 4 times over to accommodate for the variations in cost-sharing reductions that change the plan design of the product for each FPL level. Operationally, this inevitably means multiple people can buy the same exact silver plan. However based on their income level, they will have very different plans and very different utilization trends. Accumulator calculators that help health plans count up health care dollars will be imperative to ensure that physicians, hospitals, health plans, and most importantly health care consumers know when they have reached their deductibles and coinsurance maximums. The costs of administering such a complex set of plan designs are still unknown to many health plans; however this has not deterred them from pursuing the Health Exchange opportunity. However, the bigger impact to the cost of administration is how it will work in parallel with minimum loss ratio requirements that mandate the percentage of health care revenue that must be spent on providing health care as opposed to administrative costs; particularly if administrative costs increase due to the complexity of administering these plans.  This undoubtedly eats away at the profit margins of health care plans that already operate with very low margins (2-4% on average).

Basic Health Option
In addition to the four metal plans a state may opt to offer a Basic Health Option. This basically extends the state’s current Medicaid plan eligibility from beyond the 133% FPL up to 200% FPL. It behooves a state to pursue such an option because the Federal government would reimburse 95% of the costs. Today, the Federal government only pays 50% of a state’s Medicaid costs. As a result, states could potentially realize huge savings by shifting a portion of its Medicaid population to this Basic Health Option.

However, this route is very complex. The nuances here are that the Basic Health Option must have the essential health benefits deemed by the state even though the current Medicaid plans do not. So the population over and above the 133% FPL level will have a similar product however the underlying benefits could be substantially different. This poses complexity to the providers with coding and claim submissions. The states will be free to choose the methodology for their essential health benefit package as long as it represents (1) the most popular small group health plan, (2) the most popular HMO health plan in the state, (3) the health plan offered by the State to its employees, or (4) the health plan offered by the Federal Government to its employees in that state. There is also added complexity to the Basic Health Option when it comes to cost sharing. Deductibles and coinsurance levels are regulated within the health care reform bill to be based on FPL as well. So a health plan would have to administer two different types of Basic Health Plans based on whether a consumer is 133% to 150% of the FPL or if they are 150% to 200% of the FPL. These intricacies cause added complexity when it comes to administering a health plan, accumulating consumers’ deductibles and out of pocket maximums, and ensuring the plan designs receive actuarially sound price increases and adjustments year to year.

Catastrophic Plan
Lastly, individual states will also have the ability to create catastrophic plans that can only be offered to health care consumers under the age of 30. Many industry insiders refer to this population as the “young invincibles”. These plans must also meet the essential health benefit requirements, however the deductibles and out of pocket maximums are allowed to be higher. As a safeguard against consumers forgoing care because of high out of pocket healthcare expense there are a number of protections put in place as well. For example, preventive care and particular routine care must be covered in full and not be subject to the deductible. Additionally, three to four primary care office visits must also be covered in full and not subject to the deductible as well. Pricing for these plans provides a unique opportunity for health insurers since the risk pool and experience of the population will reflect a younger demographic. This means that pricing should in theory be more affordable and subsidies from the Federal government potentially could go a longer way.

In the End
Health Exchanges present standardization of plan designs to the health care consumer market with the potential of commoditization of health insurers as they compete for market share. As a result, the emphasis on products and plan designs becomes imperative. How an insurer operationally administers health care products in this space will be the differentiator to the consumer. Innovation in finding the ability to be unique in a very regulated space produces an opportunity for insurers to make product development the focal point of their Health Exchange success strategy.

Errol Pierre is the Assistant Vice President of Product Management at a regional health insurance company focused on business development, sales, and strategy planning around Health Exchanges. He is currently pursuing a degree in Health Policy and Management with a specializing in health finance. He can be reached at errol.pierre@nyu.edu


What Will SCOTUS* Do?


Posted by Joel Wittman

After three days of hearing oral arguments on the legality of all, or parts, of the Patient Protection and Affordable Care Act (ACA), the Supreme Court is hopeful of rendering its decision in June.  Based on what we’ve heard so far, it doesn’t bode well for the ACA.  The primary issue of contention is the inclusion of an “insurance mandate” whereby citizens are required to purchase health insurance or pay a penalty.  The mandate seems to be the linchpin of the reform act; without this requirement will insurance premiums skyrocket and will access to health insurance be limited?  This also raises the question of severability.  If the mandate is struck down, will the entire ACA also be invalidated or can parts of it survive?  Will the law’s popular “guarantee issue” and “community rating” provisions survive without the mandate that virtually all Americans must have health insurance?  Guarantee issue prevents insurers from discriminating against people with pre-existing conditions and community rating standardizes insurance premiums for those living in the same area.  The states that have attempted to enact guarantee issue and community rating systems without instituting mandates saw their health reforms fail – insurance premiums skyrocketed, consumers had fewer choices and the number of uninsured went up.

So, what is the insurance industry to do?  Insurers must prepare for a worst-case scenario – a ruling that the individual mandate is unconstitutional, but insurers still must provide policies for all people.  In that situation, insurers say premiums will rise sharply because of people with chronic illnesses and pre-existing conditions, for example, would buy health coverage, but healthy people would not.  Short of persuading Congress to write a new law, the insurers are considering certain contingencies including:

– Penalizing those who enroll outside of short annual windows

– Denying treatment for specific conditions, especially right after a policy is purchased

– Rewarding certain insurance buyers, such as offering much lower premiums for younger and healthier people

– Expanding employers’ role in automatically enrolling employees for health insurance

– Urging credit- rating firms to use health insurance status as a factor in determining individuals’ credit ratings.

There remains, however, a divided opinion about the exclusion or inclusion of the individual mandate in the health reform act.  Some believe that its exclusion will cripple the ACA and all of its proposed benefits, while others contend that the penalty associated with the mandate is not onerous enough to deter individuals from not purchasing health insurance.

Things are never as simple as they seem to be.  The good intention of the current administration to increase access to health insurance coverage for all individuals at affordable pricing may not be good enough to preserve the goals of the ACA.  Do you throw out the baby with the bath water if the entire plan is deemed unconstitutional?  Do you preserve part of plan and try to make the best of the remaining regulations?  Or, do you leave the ACA as is and have the first meaningful health care reform since the Great Society?  Only SCOTUS can let us know.

* Supreme Court of the United States

Joel Wittman is an Adjunct Associate Professor at the Wagner School of Public service of New York University.  He is the proprietor of both Health Care Mergers and Acquisitions and The Wittman Group, two organizations that provide management advisory services to companies in the post-acute health care industry. He can be reached at joel.wittman@verizon.net.


Building an Exchange Strategy Part II – Understanding Your Political Climate


Posted By  Errol Pierre

By 2014 there will potentially be a health benefit exchange in every state across the country. Like snowflakes no exchange will be alike and politics will play a pivotal role in the differences found between them. While the healthcare reform bill signed into law requires the establishment of exchanges, the details of operation have yet to be determined. In fact, in March 2012, the Department of Health and Human Services (HHS) provided 600 pages of additional guidance to the states. The guidance given was more of a framework while much of the particulars were purposefully left out. This has made the role of the individual State Governors ever important. They are now in a position of power and play a very integral role in bringing exchanges from a theoretical policy concept to a legislative and operational reality.

Right or Left
At a high level, left leaning blue states will design their exchange to be an active purchaser. This will allow the Governor to take an active role in the day to day exchange operations. Under the direction of an exchange board, most likely selected by the Governor, these states would choose precisely which insurance companies participate, the types of policies sold, the rates of the selected products, and how enrollment and eligibility of those enrolled would work. In some more aggressive instances, states could even negotiate pricings with doctors, hospitals and pharmaceutical companies in the very same ways insurance companies do today in the private sector. This is obviously foreign territory to many of the states pursuing such a model. Nonetheless, proponents of the model see value in such an approach believing more oversight will lead to more affordability and better health outcomes in the long run.

Right leaning red states on the other hand will opt for a facilitator model. The state will merely be a marketplace for health benefit transactions between consumers and insurance companies to occur. They will set the high level guidelines and guardrails and merely outline the rules of engagement. Much of the market dynamics will be left up to private insurance and market forces to sort out. Benefit design, rate approval, distribution strategy, the “off-exchange” marketplace, and pricing will all be left up to “the invisible hand” of Adam Smith’s market forces. The idea of competition lowering healthcare costs has been refuted by the likes of many including Alain Enthoven – the father of managed competition – and Kenneth Arrow – the pioneer in research on asymmetric information as a market failure in healthcare. Nonetheless, American capitalism seems to have trumped over such doubts in these states. As a result, the role of government in these exchanges will be as minimal as the healthcare reform legislation will allow. There are already mandates that must be in place for each exchange. For example there must be four benefit categories ranked by actuarial values labeled bronze, silver, gold, and platinum for simplicity. The legislation also caps insurance company profit at 20% before operating costs are factored in. Lastly, the legislation requires health insurance companies to accept all enrollees and requires that the ratio between the pricing of the healthiest and the sickest consumer not exceed a 3 to 1 ratio. All in all, governors of these red states feel too much regulation stifles competition and the reform bill already has enough rules. As such, they are reluctant to add any further requirements on top of the federal ones. In this role the state will play referee rather than player/coach.

Politics at Play
State by state, there will be different shades of blue as states consider the ramifications of building a health benefit exchange. Health insurers must be prepared to understand how these different shades will impact the development of health policy. Vermont, for example, will be one of those very bold blue states. On May 26, 2011, Governor Peter Shumlin signed into law a historic universal healthcare bill which would cover every citizen in the state under a single payer system called Green Mountain Care. It will be in place by 2017 and the state has been drawing down federal funds from the national health reform bill as it prepares.

Like blue states, there too will be shades of red. Arkansas is a perfect example of a bright red state. Legislative opposition to a state run exchange was so great, Jay Bradford, the State Insurance Commissioner, had to  start preparing for a federally run exchange. By law, when a state cannot come up with its own legislation to run an exchange, the federal government is required to step in and set one up. Ironically, legislators that are so vehemently against Obama’s healthcare reform legislation will end up with a federally run exchange led behind Kathleen Sebelius, the current Secretary of Health and Human Services and former democratic Governor of Kansas.

Understanding the political environment of your state of operation is paramount to assessing the viability of a successful exchange strategy for a private insurance company. An active purchaser model lends itself to be a market where the constraints may be too great to be successful and sustainable. If the market is too controlled, healthcare coverage quickly becomes a commodity and erodes the levers of differentiation used to be competitive. Health insurance companies could come to the conclusion that participating in such a state will not be viable and opt to stay on the sidelines. However, the state would technically have the right to mandate (either directly or indirectly) insurance company participation, which could turn the state into a defacto-single payer.

On the other hand, a facilitator model lends itself to be the more favorable for an insurance company to operate within. However, a state that has done everything to obstruct healthcare reform progress like Arkansas is just as dangerous. It most likely will end up with a federally run exchange which could potentially be more burdensome than a facilitated one a red state would have had the option to create.

Errol Pierre works at a large insurance company focused on business development, sales, and strategy for employee benefits. He is currently pursuing a degree in Health Policy and Management with a specializing in health finance. He can be reached at errol.pierre@nyu.edu

 


It’s a Rotten Apple for NY’s Small Businesses: A look at health care regulations that uniquely contribute to high health insurance costs in NY


Posted By Errol Pierre

Want to start a small business and help our staggering economy? Think twice about NY. Studies continue to show that affordable health coverage is the top concern for small businesses in this state. Contrary to popular belief health insurance profits and administrative costs barely contribute to the rising cost of coverage representing only 6% of total health spending. Despite this reality, this is exactly where policy makers have focused their time and energy with a desire to rein in costs. Profit margin in the NY small business insurance market is among the lowest in the country. In fact, many health insurance companies in NY are losing money, barely breaking even, or attaining modest 2-3% margins. Instead, we should focus on the big ticket items. That is, let’s focus on the factors that are unique to NY that contribute the most to higher costs. If modified to match national standards, these factors could substantially reduce insurance rates in this state making affordable health coverage available to more small businesses and in effect, more New Yorkers. After all, small businesses are the engine of the NY economy and the catalyst for NY job creation.

The primary driver of high insurance premiums in NY is the unusually high cost of health care delivery. NY is one of two states (California being the other) that lead the nation in spending at $163 billion per year. Each New Yorker makes up about $8,300 in annual health care costs per year; 22% higher than the national average. However, NY’s high spending rates have not translated into healthier New Yorkers. NY is only in the middle of the pack when it comes to quality (21nd out of 50 states). The state comes in dead last (50th out of 50 states) when it comes to avoidable hospital use. Statistics continue to show that hospital care is the #1 contributor to total health care spending in the America and this is exactly where NY has its problems. As health spending increases in this state, the price to insure New Yorkers increases as well.

Why is this happening?

Here are several regulatory factors unique to NY that exacerbates the high cost of coverage listed in order of magnitude:

High Medicaid Enrollment – A huge detriment to the affordability of small business health insurance rates is the number of New Yorkers enrolled in Medicaid. Of the 10 states that lead the nation in health insurance rates, high Medicaid enrollment is a reoccurring theme among them all. 1 out of every 4 New Yorkers receiving Medicaid benefits making it the 6th highest of any other state. Despite not leading the country in Medicaid enrollment, NY is the highest spending Medicaid state in the entire country. This means we are paying more per person without offering better care. In its meager attempts to rein in these high rates of spending, NY continually cuts the payments given to hospitals and doctors that provide care to NY Medicaid enrollees. These cuts set off a chain reaction causing hospitals and doctors to subsidize patient revenue losses with income from patients that have private insurance. This disproportionately impacts small businesses because there are fewer tools at their disposal to combat cost shifts. As a result, NY is the 2nd most expensive state for small business health insurance in the country averaging $554 a month for an individual and $1,455 a month for a family. How does that compare to the rest of the country? NY rates are 30% higher than the national average.

SOLUTION:  NY should immediately implement the recommendations from the NY Medicaid Redesign Team formed under the leadership of Governor Cuomo. The #1 cost contributor to small business health insurance is its subsidization of Medicaid spending in the state. If NY wishes to attract and retain small businesses, it must enact legislation that stops it from being the highest spending Medicaid state in the nation.

Pure Community RatingNY stands alone as the only state that requires health insurance companies to charge all small businesses purchasing the same plan in a similar region the same price regardless of business size, demographic makeup, industry type, or health history. The other 49 states allow pricing to differ on a variety of factors which provide lower rates for healthier, younger, and even larger small businesses encouraging enrollment. Enrollment from diverse companies balances the insurance risk pool making coverage affordable for all. Inherent to the smallest of companies are higher operating costs and more fluctuations in health status and demographics which cause pricing for this population to be higher than average. However, because of this law, NY must charge all small businesses the same price regardless of size. This has caused NY to be the highest priced state in the nation for companies with 11-50 employees, which becomes a huge disadvantage for the NY economy.  Small businesses in this segment size represent more than 60% of the total small business workforce in NY making neighboring states like CT, NJ, and PA more attractive to larger small businesses. When fewer small businesses opt to offer coverage and the ones that do are smaller in size, the cost of insurance drives up at even faster rates than the normal health trend.

SOLUTION:  Adopt “modified community rating” as outlined in the federal health care reform bill which allows small business rates to vary by age and  tobacco use. This will allow more favorable pricing that will attract a both larger small businesses that employ more people and attract younger/healthier New Yorkers into the insurance risk pool.

Hidden TaxesThe single largest small business tax in NY is on private health insurance coverage. NY collected over $4.1 billion in revenue through these various taxes, fees, and assessments in 2011. Private health insurance has historically been targeted for solving state budget deficits. As such, these taxes have increased year after year adding more than $500 million to insurance costs since 2007. No other state has such an onerous tax burden and it is only likely to get worse as Federal health care reform is implemented. Both Health Benefits Exchanges and Market share assessments will result in more taxes imposed on the privately insured).

SOLUTION: Make New Yorkers aware of the taxes, fees, assessments hidden in health insurance rates. New Yorkers have a right to know where tax revenue for the state is generated.

o   $2.33B was raised by surcharges placed on hospital and health services given to consumers of private insurance

o   $1.16B was raised by an assessment based on a health insurer’s enrollment

o   $353M was raised by taxes placed on the prices commercial insurance companies charge their customers

o   $270M was raised by assessments on health insurance companies to fund running the Department of Financial Services

o   $240M was raised by an assessment based on a health insurer’s enrollment to specifically fill NY State budget shortfalls.

Benefit Mandates NY has a laundry list of over 40 specific conditions and treatments that all health insurance policies must cover by law, regardless of an employee’s health needs or preferences. Compared to states like Idaho (12 mandates) and Alabama (18 mandates), NY is one of the states that lead the nation in mandates. These mandates in many instances supersede Federal standards, increasing NY’s health care costs by more than a 12%. In fact depending on the mandate, insurance costs can increase between 1% and 5% for each additional mandate.

SOLUTION:  Change the current set of benefit mandates that exceed the Federal standards to be “made available for purchase” rather than being mandated for inclusion in all small business plans offered.  This will allow employers to choose the plan that best suit their business needs. Larger employers that self-insure have been able to free themselves of many burdensome and costly mandates through ERISA rules which have not created a level playing field and disproportionately impacted smaller businesses.

Health Insurance Rate Review (Prior Approval Law) In 2010, NY passed a law requiring all small business insurance rates to be approved by the Department of Financial Services. It also requires that $0.82 of every $1.00 in revenue be spent on medical care. As feared, this new rate approval process has become highly politicized rather than being a true actuarial exercise. First, $0.82 is higher than the federal requirement of $0.80 found in the recent health care reform legislation. Secondly, insurance companies in NY spend closer to $0.87 of ever $1.00 in the small business market and after operating costs, profit margins average only 2%. These actions create a hostile market place for competition and have led to fewer insurance companies offering coverage to small businesses in NY.

SOLUTION: Remove the onerous and political nature of rate increase reviews and improve the timeliness of state decisions

Individual Market FailuresHealth insurance coverage for an individual in NY exceeds $1,000 a month in most cases. These rates are almost 60% higher than those for small businesses, causing some individuals who are priced out of the marketplace to form phony small businesses to avoid the high costs and market failures of the individual market.  As a result, insurance companies inadequately price small business insurance coverage to properly reflect the risk.

SOLUTION: Enact a “facilitated model” for health benefit exchanges as outlined in the health care reform legislation. This will increase competition and fix the individual market by removing the restrictions of plan options that must be sold in the state. Today, NY requires all health insurance companies to offer basic HMO and POS products that costs more than $1,000 a month for an individual. Fewer regulations in the pricing and the plans offered to individuals would unleash the creativity and innovation found in products health insurance companies sell to larger businesses.

SOLUTION: Modify the NY “Young Adult Option” law that allows unmarried young adults through age 29 to purchase health insurance through their parent’s plan. This law should be modified to lower the cost of insurance to adequately reflect the health status of an average 29-year-old. Today, the pricing reflect the health status of the current population, which is much older and less healthy, making it unaffordable for many young workers in NY.

The NY Dilemma

Based on a 2010 AHIP study below, NY health insurance pricing is more attractive to the very small businesses that cause rates to sky-rocket. This is an unsustainable state of affairs that only hampers NY’s ability to have a strong and fast economic recovery.

Premiums by State, 2010 (Top 5 Most Expensive States)
       
Small Employers w/ 26-50 employees Avg. Monthly Premium
  State

Single

Family

1. New York

$565

$1,485

2. New Hampshire

$512

$1,345

3. Nebraska

$443

$1,164

4. Illinois

$435

$1,147

5. California

$428

$1,125

Avg. United States

$406

$1,065

   

Small Employers w/ 11-25 employees Avg. Monthly Premium
  State

Single

Family

1. New York

$577

$1,514

2. New Hampshire

$523

$1,374

3. Nebraska

$449

$1,179

4. Massachusetts

$439

$1,153

5. Illinois

$438

$1,151

Avg. United States

$419

$1,100

   

Small Employers w/ 10 or fewer employees Avg. Monthly Premium
  State

Single

Family

1. Nebraska

$579

$1,519

2. Massachusetts

$545

$1,430

3. New Hampshire

$539

$1,415

4. New York

$536

$1,408

5. Florida

$489

$1,283

Avg. United States

$446

$1,172

AHIP Small Group Health Insurance in 2010: A Comprehensive Survey of Premiums, Product Choices, and Benefits, July 2011

Errol Pierre works at a large insurance company focused on business development, sales, and strategy for employee benefits. He is currently pursuing a degree in Health Policy and Management with a specializing in health finance. He can be reached at errol.pierre@nyu.edu


Building an Exchange Strategy Part I – Changing Your Vantage Point


Posted By Errol Pierre

Health benefit exchanges are set to be fully operational by 2014. As part of the Patient Protection and Affordable Care Act (PPACA), these exchanges seek to be a marketplace for consumers to purchase affordable coverage. Subsidies to reduce both the cost of insurance and the out of pocket expenses from copayments and deductibles will be available to eligible consumers as well. Estimates suggest close to 30 million Americans will find coverage through this avenue lowering the uninsured rate to 3%.

These exchanges will revolutionize the way health insurance companies operate. Most Americans receive insurance through their employer. As such, insurance companies have built their world around marketing to them rather than directly to individual consumers. Over the years, insurance company processes, products, and strategies have all conformed to employer choice and preferences. Even the way customer service is organized and how information is shared caters to an employer-centric business model.  However, by 2014 health insurance companies will need to operate differently to capitalize on the million of new health consumers entering the market.

Consumers purchase products much differently than employers. Consumer motivation is largely based on personal preferences and emotions while companies make rational decisions based on economic value.  So business to consumer (B2C) marketing has been much more demanding and onerous than business to business (B2B) marketing. Health insurance companies as a result have gotten away with minimal efforts in advertising using business publications and newspaper ads that reach CEOs, CFOs, benefit consultants, and decision makers. Marketing campaigns targeting decisions makers has been an easier road to handle than attempting to market the average consumer.  In fact most of the insurance policies sold in the United States are through brokers or independent agents hired by a business that receives compensation from the company whose product gets sold. Consequently, the construct of this industry has kept marketing innovation and ingenuity at bay. For years the basic message segmentation for B2B advertisements has been limited to industry and firm size.

Not all insurance companies suffer from this lack of consumer centric segmentation however. The car insurance industry is a perfect example of what the health insurance industry will aspire to be by 2014. Geckos and cave men, made up stores with humorous sales representatives, over the top actors representing natural disasters and unfortunate accidents, and catchy jingles all represent the car insurance industry’s push for market share catering to consumer preferences. Geico, Progressive, Allstate, and State Farm have all used innovative TV, internet, and other media ads recently to differentiate themselves. One main reason is because car insurance is largely purchased at the consumer level. As such, the industry caters solely to the wants, needs, and desires of the personal shopper. They have developed enhanced customer service levels, easy to use online tools, and a wide array of products and services all with a focus on consumer appeal. The consumer is essentially the center of the strategy. After all, it is the consumer who has the power to terminate the policy at any time; not the consumer’s employer.

Health insurance companies have a tough road ahead if they wish to compete at the same level. Moving from an employer-centric model to a consumer-centric model is more than just a mission and a vision. It really is a shift in corporate culture. It starts from the top down as much as it does from the bottom up. The CEO must believe in the change as well as the customer service representative answering the phone. There must be a commitment to innovation, ease of use, positive public perception, and consumer preference. The products offered must allow for customization and flexibility. The policies for grievances, appeals, and complaints must be customer friendly and aimed at pleasing the client. Such attributes have unfortunately been foreign to the health insurance industry and they have less than 2 years to quickly figure it all out.

Errol Pierre works at a large insurance company focused on business development, sales, and strategy for employee benefits. He is currently pursuing a degree in Health Policy and Management with a specializing in health finance. He can be reached at errol.pierre@nyu.edu


The Curious Case of Kansas


Posted by Errol Pierre

On April 28, 2009, Kathleen Sebelius joined the Obama Administration as the Secretary of the Department of Health and Human Services (HHS). It was one month and five days after the President signed his landmark healthcare legislation into law. Sebelius’ primary task would be to lead the massive implementation effort of a very complex bill with multiple phased in milestones that run through 2018. Throughout her first two and half years she has been vocal about her commitment to transparency and affordability for the American healthcare consumer. She is no stranger to the underlying issues in our system. In fact her dealings with healthcare started in America’s heartland way before this cabinet appointment. It started in Kansas; the Sunshine state. Ironically, the same state where President Obama’s mother grew up.

There’s No Place like Home

After receiving a Masters in Public Administration from the University of Kansas, Sebelius moved to Kansas and pursued politics. This led her to an eight year stint as the state’s Insurance Commission from 1995 to 2003. It was historic for Kansas. Sebelius was the first woman to ever hold the post. She was later profiled as a public official of the year in 2001 noted for her balance between tough regulations and her promotion of business. In full manifestation of her principles, she publically battled healthcare giant, BlueCross BlueShield of Kansas. She successfully blocked the sale of the company to an even larger out of state insurance conglomerate noting her determination to keep healthcare costs low for Kansans. The move was unprecedented and proved to be very timely. It happened one year before the Kansas gubernatorial election of 2002. Sebelius would win that election handedly with 53% of the vote.
Despite her victory, she was a Democrat governing in a bright red Republican state. Nonetheless she reached across the aisle and signed several bipartisan healthcare reform bills in her first two terms. Her work increased the number of health professionals in underserved areas, expanded health coverage for children, and relaxed Medicaid eligibility rules covering more Kansan families. She also established the Kansas Business Health Policy Committee which found ways to the lower the number of the uninsured and increase the number of businesses that offered health benefits to their employees. The committee’s most important work however was the creation of a program that provided health premium assistance to low and modest waged employees ensuring affordability.

We’re not in Kansas Anymore

The Governor’s work on healthcare quickly caught national attention. She also publically supported Obama’s healthcare legislation prior to her cabinet post noting benefits the bill would have on her state. 13% of Kansas lacked health coverage but she believed those 360,000 Kansans could be covered through Obama’s bill. So it made perfect sense for Obama to have Sebelius continue her work on healthcare but on a much larger stage. Rather than worrying about the coverage of 2.8 million Kansans, as head of HHS, she now worried about 49 of the 308 million Americans that lacked insurance and the 40 or so insurance companies across the country she now had the power to regulate.
Sebelius brought along her expertise. Kansas had the prelude to health exchanges – the staple of the healthcare reform legislation. Health exchanges create a marketplace where individuals and small businesses can shop for coverage similar to the way they purchase airplane tickets from online websites. Subsides are also made available through these exchanges to anyone who cannot afford coverage. Exchanges must be in place by 2014 and will be equipped with navigators and a toll-free support line to assist with enrollment questions. HHS recently launched a 50 state version of such a website on November 21st (www.HealthCare.gov). As a former Governor, Sebelius realized that execution of exchanges would be a huge undertaking for the states though. So to nudge tem along, her office provided grants to states that act early. More than $241 million was awarded to seven states that were called early innovators. Secretary Sebelius’ own home state of Kansas was one such recipient; winning a $31.5 million grant

Ding-Dong Reform is Dead

After Sebelius’ departure from Kansas though, things quickly began to change. Her successor, Mark Parkinson, indicated he would not run in 2010. Sam Brownback, a Kansas household name, won the election convincingly with 63% of the vote. As a Republican Senator for Kansas prior to winning, Brownback was one of the strongest challengers to federal healthcare reform not only voting against the bill but calling for its repeal.  One of his first acts as Governor was a very public and symbolic gesture. He returned the $31.5 million grant Kansas received from Sebelius’ office prior to his election.  It was a politicized move that reiterated his firm belief that healthcare reform placed a heavy financial burden on states just like Kansas. The reasons are surprising.

Mandates Are Costly - Kansas already requires thirty seven different health benefits be added to every health plan sold in the state regardless if the consumer wants it or will use it. Mandates like the coverage for Alzheimer’s disease regardless of a person’s age, or the coverage of child annual check up’s for policy holders without children, increase the cost of healthcare for everyone. Additionally, in 2014 when exchanges are implemented; Kansas will not receive federal funds for any mandated benefits that exceed the federal ones. This could potentially be a budget crisis for Kansas if not managed properly. Brownback would prefer to have consumers build their own health plans allowing the free market to dictate what sells and what does not.

Subsidies Shift Costs to the States – Brownback also fears that exchange subsidies will spur employer ‘dumping’. There are about 70,000 businesses in Kansas but the healthcare reform law only requires that roughly 7,800 of them offer health coverage because they are considered large employer. The remaining smaller employers representing close to half a million Kansas workers will not have to offer coverage even though their employees will face financial penalties if they are uninsured. Since these employees will receive lower prices through exchanges, the incentive for small employers to offer insurance in the state will naturally decline, a worry for the Governor. Kansas already has one of the lowest unemployment rates in the nation at 6.2%. Yet the uninsured rate in the state is more than double that.  Kansans are already working for employers that do not offer insurance and exchanges have the potential to widen that gap.

As a result of these issues, Brownback has yet to introduce a health exchange bill for his state; but he’s not alone. Only 14 states currently have legislation passed. However inaction by a state could prove to be costly. Kansas runs the risk of defaulting to federally facilitated exchange which would essentially give power to Sebelius to create an exchange in his state. Brownback acknowledges this ironic twist of events in a letter sent to Sebelius’ office with signatures from 19 other governors stating that unless he receives complete flexibility in handling healthcare reform, he vows to not to act at all.
Brownback has even questioned whether the healthcare bill infringes on the rights of the people of Kansas. In another letter signed by 27 other governors, Brownback strongly requested President Obama to speed up the ruling from the Supreme Court on the constitutionality of the healthcare reform law. The court is due to make its ruling by next summer, but in the meantime the Governor has has taken matters into his own hands. On May 26, 2011, he signed bill HB 2182 into law. The bill created the Kansas Health Care Freedom Act which sets out to protect the rights of Kansas citizens to either participate (or not participate) in any healthcare system freely. It is clearly a preemptive move attempting to block the portion of the healthcare reform law that would require citizens of his state to purchase health coverage from a private insurance company.  Despite all these actions, Kansas has made some progress with regard to healthcare reform. A sanctioned work group of leaders from government and the private sector discuss the implementation of several provisions of the reform bill monthly.  Their work thus far can be view at http://www.ksinsurance.org/consumers/healthreform/hcr.htm.

Errol Pierre works at a large insurance company focused on business development, sales, and strategy for employee benefits. He is currently pursuing a degree in Health Policy and Management with a specializing in health finance. He can be reached at errol.pierre@nyu.edu