Exchange Exchanges for What?

By Kim Bellard, May 21, 2012

Last week HHS released new guidance on their approaches for health insurance exchanges, as well as announcing $181 million in exchange establishment grants.  This brings the exchange grants to $1 billion over the last two years.  Among the states, only Alaska did not apply even for a planning grant.  (For detail on state activity, see here). 

HHS has bent over backwards to give states options for their exchanges.  The most recent guidance allows states to run the exchanges or to partner with the federal government in running them.  Of course, if a state does not act, the federal government would run an exchange on behalf of the state’s residents.  States have until November 16, 2012 to inform HHS about what type of exchange they intend.  HHS had also previously given states discretion in defining necessary benefits.  The exchanges are scheduled to go into effect as of January 1, 2014, under the provisions of the Affordable Care Act (ACA).  The interested reader can view a nice overview of the recent guidance here or read the actual guidance.

Many states are not keen on the idea of an exchange under ACA.  New Jersey Governor Christie recently vetoed a bill to set up an exchange in that state.  Other states that have recently expressed wariness about setting up exchanges include Illinois, Louisiana, Michigan. Minnesota, and South Dakota.   Curiously, Illinois and South Dakota were among the states in the most recent set of grants announced by HHS, which illustrates that taking money from the federal government is not the same as agreeing with what it wants you to do it.

Of course, much of the resistance is ideological, with Republican legislators and/or Governors doing what they can to offer resistance to ACA in an election year.   It’s too bad that exchanges are caught up in that fight, because there are good reasons to see them as important components of the health care system with or without ACA.

The two operational exchanges in the country – Utah and Massachusetts – predate ACA, and were set up for distinctly different ideological reasons.  Massachusetts, of course, had its own health reform bill, including a mandate for coverage, while Utah was seeking to facilitate coverage for uninsured but employed individuals.  As might be expected by the political make-up of each state, the Massachusetts exchange has a more regulated approach, and the Utah exchange a more free market approach, which only demonstrates that health reform solutions can cover the political spectrum. 

Even more interesting is that the private sector is interested in the exchange concept as well.  On one level, shopping sites such as ehealthinsurance are a type of exchange.  ehealthinsurance has been providing a consolidated online shopping experience for health insurance for over a decade, and are a leading source of sales for many carriers.  They’re even licensing their underlying technology, such as to power a private exchange for Blue Cross Blue Shield of Minnesota.  That exchange supports a defined contribution plan that employers can use to give their employees more choices.  The Minnesota Blues may have felt pressure from competitor Medica, which announced its own private exchange earlier this year.  The Medica exchange is powered by Bloom Health, which itself was acquired last fall by Wellpoint, HCSC (the holding company for Blues plans in Illinois, Texas, New Mexico, and Oklahoma), and Blue Cross Blue Shield of Michigan.   Obviously those large Blue plans see a big future in exchanges.

Other Blue plans are joining the movement, including Highmark (with Array Health) and Blue Cross Blue Shield of Kansas City.  Of course, it’s not only the Blues that see a new world in private exchanges.  Companies such as Liazon or ConnectedHealth started out aiming to assist consumers in selecting health insurance, but now are reorienting themselves to an exchange approach.  Consulting firms such as Aon Hewitt and Towers see themselves in the exchange business, because even their larger customers – even self-funded ones -- are interested in that approach.  Towers just purchased Extend Health, which claims to be the largest private Medicare insurance exchange.     

Let’s face it: employer-based coverage may have seen its heyday, regardless of what happens to ACA.  A recent survey by GfK Custom Research found only 56% of employers are sure they would keep offering coverage once ACA fully kicks in; 12% said they would drop coverage, and almost a third did not know what they will do.  CBO recently estimated only a small – 3 to 5 million people – loss in employment-based coverage due to ACA.  Time will tell how large the effect is, but it’s a safe bet that the number is going down, not up.  EBRI’s analysis of Census data suggest that the percentage of people with employer coverage has steadily declined over the past decade, dropping from 69% to 59% from 2000 to 2010.  Those numbers reflect both a shift in jobs into industries less likely to provide coverage and employers finding offering coverage increasingly too costly, and neither of those trends is going away, regardless of ACA’s fate.  There is going to be more directly purchased individual coverage. 

Exchanges – private or public, through an employer defined contribution approach or for individual coverage – should help consumers by providing more choices, facilitating meaningful comparison of choices, and simplifying enrollment.  What’s not to like?  

When you come to think about it, the tax preference for employer-based coverage is nice, but it may increasingly rankle more consumers to have their employer dictate not only what options they have but also what specific treatments, diagnoses, or procedures are covered – as the recent contraception mess highlighted.   I have previously written on these negative aspects of the employment-based system.  Shouldn’t we all have broad choices, with easy comparisons? 

The bitter partisan feuds over ACA and the American Recovery and Reinvestment Act (which included HITECH) obfuscate some of the good ideas contained in them.  I have a hard time seeing a future of our health care system (absent single payor) that does not include:

• provider structures similar to ACOs;
• payment approaches based on value-based purchasing;
• increased health IT, such as EHRs and health information exchanges;
• health insurance exchanges.

Those genies may be out of the bottle, as both the public sector and the private sector are pursuing these concepts aggressively, and neither is likely to stop even if ACA is struck down or repealed.  It would be fitting, and perhaps ironic, if the fruits of these approaches end up being ACA’s true legacy.