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


The Hidden Healthcare Election


Posted by Errol Pierre

It’s Healthcare, Stupid!
James Carville famously coined the phrase “The Economy, Stupid!” while he was a campaign strategist for the 1992 Clinton Presidential campaign. Fast-forward to 2012 and for good reason both campaigns seemed to take heed to Carville’s advice. For good reason, the unemployment rate hovers around 8%.  On top of that 40% of the unemployed have been jobless for more than 6 months. The labor force participation is barely 64%. Lastly, more than 8 million people last month were employed only part-time specifically due to economic reasons.

However, there seemed to be an undercurrent of Healthcare specific issues in this election that never really surfaced or was given its due attention.  Many of these issues revealed themselves in the exit polling of the most contentious battle ground states.

Obamacare & Florida
16% of the U.S. population lacks health coverage. Obamacare would provide substantial subsidies to individuals that otherwise could not afford insurance. Even though Mitt Romney has proven experience with health care by being the first Governor to ever pass universal healthcare legislation in a state, he ran to repeal President Obama’s healthcare bill even though it closely mimicked the Massachusetts bill Romney himself signed into law just 3 years prior.

Florida has the highest uninsured rate and uninsured population of any battleground state standing at 20% and 4 million people respectively. Over 90% of the uninsured population falls below the 500% federal poverty level ($55,000 for an individual). In Florida roughly 50% of the electorate earns below $55,000 a year. Exit polling showed Obama carried 60% of that population with Romney winning only 40%.

Auto Bailout & Ohio
November 18, 2012 will mark the 4 year anniversary of Mitt Romney’s infamous New York Times Op-Ed entitled Let Detroit Go Bankrupt. Romney called for a managed bankruptcy for General Motors, Ford, and Chrysler standing in strong opposition to a pure bailout. He also called for the heads of the companies to step down and acknowledged that autoworker benefits, including health care, would need to be reduced in order to alleviate the $2,000 burden of additional costs Detroit cars had that made their cars foreign counterparts did not.  During the last leg of the Presidential election, Mitt Romney became unpopular in parts of Ohio for this stance. In fact, President Obama ran on the auto bailout with his Vice President claiming, “Osama Bin Laden is dead and General Motors is Alive!”

The Obama administration ended up moving forward with a plan that very much resembled the Romney Op-Ed. The Obama plan called for the heads of the car companies to step down, sought to have GM and Chrysler pursue Chapter 11 bankruptcy filings, and acknowledged that auto unions would face “belt-tightening in wages, healthcare, and retirement benefits”.  In the end, based on Ohio exit polling, 56% of Ohio voters approved of Obama’s auto bailout and Romney was never able to properly articulate how close his auto plan was to the President’s.

Minority Unemployment Rates & Ohio/Nevada/Colorado/Virginia
The majority of the country receives their health insurance from an employer-sponsored program. That means a job is more than just a paycheck, it’s a means to get health coverage as well. The unemployment rate for African Americans is 14%; six percentage points higher than the national average. Obama won 89% of the African American vote in Nevada, 93% of the African American vote in Virginia, and 96% of the African American vote in Ohio. The unemployment rate for Hispanics is 10%; two percentage points higher than the national average. In the battleground state of Colorado, Obama won 74% of the Hispanic vote. In Nevada  Obama won 69% of the Hispanic vote. In the end, Minorities were convinced that President Obama could grow jobs that offer comprehensive benefits like healthcare better than Mitt Romney.

Abortion & Ohio
Abortion is indeed more than a religious issue. It’s a healthcare issue as well.  Mitt Romney went on record vowing to defund Planned Parenthood during a campaign stop in Ohio. This was after Republican candidate, Todd Akin, interjected the phrase “Legitimate Rape” into the American lexicon justifying it as information he garnered from physicians. Overlay these two instances with Ohio exit polling and we witness that 56% of voters believe Abortion should either always or mostly be legal.  As a result, Obama won 80% and 63% of those votes leaving Romney on the losing end of an important Ohio issue.

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’s Behind the Slowdown in Health Care Costs?


Posted by Joel Wittman

In my article in the September blog, I wrote about a systemic approach to containing health care spending.  I thought this article about the slowdown in health care spending would also be of interest. 

Democrats on the campaign trail have warmed up to health care in recent months, touting the benefits of their mammoth 2010 law. While trumpeting popular provisions such as coverage for preexisting medical conditions, Democrats are also linking the Affordable Care Act to a recent slowdown in the rise of health care costs.

Former President Clinton delved into the subject at his convention speech in Charlotte, N.C., suggesting that President Obama’s health care law produced the slower-than-average growth in health care spending in 2010 and 2011.

“Health care spending has been under 4 percent in both years, for the first time in 50 years,” Clinton said.

Health care spending increased by just 3.9 percent in 2010 and 3.8 percent in 2009. And within Medicare, the spending slowdown has been even more dramatic: Instead of the program’s average 6 percent annual increase per beneficiary in recent years, 2010’s rate was 0.2 percent. In 2011, it was 2.8 percent. This benefits household budgets but also the government’s coffers since the longer-term costs of Medicare and other health entitlements pose huge fiscal challenges for the nation.

But economists on both sides of the political spectrum say that a variety of forces are at work in the more restrained increases in health care spending. One factor is a weak economy, which means Americans might opt to postpone elective procedures like cataract or knee surgery to avoid out-of-pocket costs that aren’t covered by insurance. Or they might skimp on costs like prescription drugs. When fewer people visit the doctor or when people cut back on prescription-drug purchases, insurance companies see lower costs and that can eventually translate into cheaper premiums for consumers.

The Kaiser Family Foundation found that the average family premium for employer-sponsored health insurance rose to nearly $16,000 a year, about a 4 percent increase from last year. The numbers might give many Americans sticker shock, but it was a smaller rise than expected. KFF President Drew Altman said that it’s too soon to tell what the cause is, exactly.

David Cutler, a Harvard economist and frequent adviser to the Obama campaign, told the New York Times this week that the Affordable Care Act’s efforts to control costs were contributing to the slowdown.

“The slow economy is only part of it,” he told The Times.

The good numbers are fodder for Democrats on the campaign trail to argue that Obama’s health care law did, in fact, slow down health care costs. The law primarily saves money by slashing $716 billion from Medicare payment rates to hospitals and private Medicare plans. Those cuts just went into effect this year, and at least on the hospital side, they are contributing to the slower-than-expected growth in Medicare spending in 2012. But those cuts were largely put in place to offset the cost of helping an additional 30 million people get insurance coverage, not to stem the rising cost of health care.

There are also several pilot programs in the Affordable Care Act that reward hospitals and doctors with federal funding if they successfully save money by using new delivery methods, most of which emphasize greater coordination between health care providers. Many of those programs just started in the past year and haven’t been operating long enough to see savings.

As far as consumers’ pocketbooks are concerned, the law also included a new rule for insurance companies that limits how much they can spend from premiums on things like advertising and salaries. That went into effect in 2011, and consumers started seeing the dividends of that rule last month: the Obama administration reports that insurance companies paid back more than $1 billion to American consumers this year.

Gail Wilensky, a former top health official in the George H.W. Bush administration, said she hoped it was true that the health care law was contributing to a lasting trend of lower health care inflation. But Wilensky said in an interview, “Whatever is going on, it’s very hard to attribute it to anything in the ACA. It was starting before that.”

Wilensky said that though the slowdown in health spending outpaces the decline in incomes tied to the recession, that calculation does not include other losses in wealth that impact how much people spend on health care.

“It was not just job loss, but in a way that has been unusual, it was wealth loss, as reflected by the decline of the stock market and, for many people, the decline in their home values. That is such a big, big part of middle-class American’s wealth position, and we underestimate if we only look at income loss,” Wilensky said.

She also pointed to a slowdown in spending that occurred in the 1990s as health-maintenance organizations restricted health services. Eventually that spending slowdown was reversed as doctors, hospitals, and patients pushed back against insurance-company restrictions.

Robert Berenson, a fellow at the liberal-leaning Urban Institute, said that the talk of health care reform in general, and not the specific policies of the Affordable Care Act in particular, could potentially be credited with the spending slowdown.

“I do think it’s more of an environmental phenomenon that the world is going to change,” Berenson said in an interview. “I think something real is going on related to all the proposals for new payment models, and physicians and others are getting the message.”

In other words, the health care industry has seen the writing on the wall: They will no longer get paid for every single test and procedure they do.

Berenson, who spent 20 years practicing as an internist, said it might be that doctors are tired of getting criticized for not paying attention to costs.

“I suspect physicians are tired being criticized for not being able to restrain themselves,” Berenson said. “It’s more health reform in general, rather than specific provisions that are associated with ACA.”

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.