Lack of Competition Might Hamper Health Exchanges

Part One of Two Parts

The White House sums up the central idea behind the health care exchanges in the new federal health law with a simple motto: “more choices, greater competition.”

But even some stalwart supporters of the Affordable Care Act worry that in many states, people won’t have a lot of health insurance choices when the exchanges launch in October.

Health economists predict that in states that already have robust competition among insurance companies—states such as Colorado, Minnesota and Oregon—the exchanges are likely to stimulate more. But according to Linda Blumberg of the Urban Institute, “There are still going to be states with virtual monopolies.” Currently Alabama, Hawaii, Michigan, Delaware, Alaska, North Dakota, South Carolina, Rhode Island, Wyoming and Nebraska all are dominated by a single insurance company. The advent of the exchanges is unlikely to change that, according to Blumberg.

Competition aside, the exchanges face a number of technical and logistical problems. No less a figure than Montana Sen. Max Baucus, one of the chief Democratic authors of the ACA, said in a hearing earlier this month that he sees “a huge train wreck coming” when the exchanges open for business. Meanwhile, a March survey by the Kaiser Family Foundation indicates a majority of Americans still don’t know what a health insurance exchange is, and skeptics wonder how many eligible individuals will show up.

The exchanges were conceived as private marketplaces operating within federal guidelines. They are designed to give Americans who do not get health insurance from their employers the opportunity to choose from an array of private insurance plans, and to generate competition between insurers that will lead to lower premiums.

Individuals and businesses with up to 100 employees will be able to shop on the exchanges, and people who can’t afford coverage on their own will get government subsidies to help them. About 26 million Americans are expected to purchase health insurance through the exchanges.

But it is unclear how many insurance carriers will decide to seek approval for selling their products through these online marketplaces. Insurance companies have been mostly silent about their plans, with some citing uncertainty about federal and state rules as a reason for holding back.

Some fear that any uptick in competition will bypass those states where doctors are in short supply and the number of hospital systems is limited. A recent analysis by the American Medical Association found that a single insurance company held 50 percent or more of the market in nearly 38 percent of local markets nationwide.

On top of this lack of competition, some of the new federal regulations may push up premiums, at least in the short term. For example, under the health care law insurers will have to cover everyone, including people with pre-existing health conditions. Insurers are likely to raise their premiums to cover the cost of insuring these people who are less healthy.

The mandate that everybody must have insurance is intended to balance this new cost by adding a huge number of young, healthy people to the risk pool. Many of these people, figuring they wouldn’t need health care, have been taking their chances without coverage. But because the federal penalties for not having insurance are so small, especially before 2016, many of the healthiest people may continue to decline coverage.

The Society of Actuaries, which is aligned with the insurance industry, predicts that insurance rates for individuals may increase by as much as 32 percent over the first few years of the exchanges, according to a March report. The Obama administration argues, however, that while premiums may rise for certain people in the short term, in the long run the new federal rules will lead to lower premiums.

Cheryl Smith helped run an early exchange in Utah, and as a consultant she now helps other states develop their own marketplaces. But even though she is a strong believer in the concept, she doubts the exchanges will spur competition in the short term.

“You can talk in theory about how competition will thrive in these exchanges, but the health plans don’t actually have a lot of time to get product on the shelf,” she said. “If you don’t have product on the shelf, where’s the competition?”

Will insurers come?

Under the federal health law, states had the choice of developing their own exchanges or letting the federal government do it for them. Even after the administration extended the deadline to early this year for states to declare what they would do, only 16 states and the District of Columbia chose to run their own exchanges. Seven others chose partnerships with the federal government. That left the federal government responsible for building exchanges in 27 states.

In addition, the U.S. Department of Health and Human Services is supposed to set up a “data hub” that all 50 exchanges will need to plug into to determine whether an individual or family is eligible for Medicaid or federal tax subsidies. U.S. Health and Human Services Secretary Kathleen Sebelius earlier this month assured Congress that the technology would be unveiled in time for the October launch of the exchanges, even though Republicans in Congress last year failed to approve the funding needed to complete the project.

Another cause for concern is the Obama administration’s recent proposal to scale back a requirement that small businesses offer their employees a menu of insurance policies. If the proposal is adopted, companies with fewer than 100 employees could offer a single policy to their workers, as they have in the past. Without employee choice, critics say, the small business exchange will do little to pressure insurers to develop lower-priced options.

But supporters of the health law are confident that competition and lower prices will ultimately come. In the meantime, they say, consumers will be better off.  Today many Americans pay high premiums if they are sick or old—if they can find coverage at all. They also run the risk of purchasing policies that don’t cover certain medical conditions or limit the total dollar amount of claims. In addition to the new pre-existing condition rule, the health law sets a minimum set of benefits; prohibits lifetime caps on claims; and mandates that insurance companies participating in the exchanges spend at least 85 percent of their revenue on health care.

Big New Market

Despite the federal rules, millions of potential customers will be a powerful draw for insurance companies to participate in the exchanges. Furthermore, the federal government is expected to provide about $350 billion in subsidies to people who can’t afford to purchase insurance on their own.

On top of that, if all states eventually choose to expand Medicaid, the federal government will pour another $952 billion into the health care market over the next 10 years, much of which will go to Medicaid managed-care companies and other private insurers.

Some predict that new insurance carriers, made up of hospitals and large physician practices, will emerge. As it becomes more difficult for traditional carriers to make a profit under the federal health law, the most successful new players may be provider organizations that can control medical costs by avoiding duplication and errors and more carefully coordinating the care they provide, said Rick Curtis, director of the Institute for Health Policy Solutions.

Furthermore, Medicaid managed-care companies, which are used to providing care to low-income people, may decide to offer commercial plans on the exchanges. According to Jeff Van Ness of the Association of Community Affiliated Plans, between one-quarter and one-third of the group’s 58 nonprofit safety net health plans are expected to offer products on the exchanges in 26 states the first year.

By Christine Vestal

Many employers say they're ready for PPACA

More employers than might be thought are well ahead in preparing to meet the requirements of the Patient Protection and Affordable Care Act.

That’s according to a survey of HR managers conducted with the coming open enrollment season in mind. Wellness program consultant and provider Keas said its survey of more than 100 HR professionals found that three-quarters of them had taken steps to meet the law’s original Jan. 1, 2014 deadline. Another 58 percent were confident they would still be fully compliant with the act by January, despite the Obama administration decision to delay implementation of the employer mandate until January 2015.

Offering a less optimistic view on the question, Aflac on Wednesday released results of a much larger, but professionally broader, study that found that just 9 percent of respondents felt their employers were “very prepared” to meet the law’s requirements. Seven of 10 workers interviewed for the Aflac study said a very basic requirement of the PPACA — that employers communicate benefits package options to workers by Oct. 1 — had yet to happen.

The Keas “HR Executive Survey” identified top open enrollment pain points for HR managers in the reform era included educating employees about available benefits (47 percent) and getting employees to participate in benefits selection (22 percent).

Also, many (39 percent) worry “they will be overwhelmed by employee communications and questions, when it comes to post PPACA implementation concerns.” On the other hand, 24 percent say they have “no concerns at all.”

"Enterprises are keeping a close eye on health reform policy,” the report said, “and a majority are well ahead of plans in preparing for these new requirements.”

Questions concerning wellness plans and employee health yielded responses that suggest “health and wellness programs are taking center stage in employee engagement and retention.”

In fact, wellness is top-of-mind this year, thanks to the act, Keas said.

“With healthcare costs and obesity-related diseases on the rise and wellness incentives baked into the Affordable Care Act, this will be the first year health will play a major role in health benefits as organizations integrate preventative care programs to manage costs,” it said.

Wellness findings included:

• 60 percent of HR executives cite “lowering overall healthcare costs” and “improving overall employee health” as top priorities of 2014;
• 34 percent plan to focus on creating a company culture of health and increasing employee participation in existing health programs;

“Businesses understand that while wellness programs have historically been optional, employee health is mission critical,” said Josh Stevens, CEO of Keas. “Our survey results show that health in the workplace is a strategic priority for 2014 – it will drive employee productivity and ultimately manage healthcare claims costs.”

BY DAN COOK

Health Exchange Shoppers Can Expect $2,700 in Tax Credits

In about six weeks, Americans will have a new kind of open enrollment to consider.

Starting Oct. 1, people without health insurance can sign up for standardized coverage through new health-insurance marketplaces run either by their state, the federal government or a combination of the two—the centerpiece of the Patient Protection and Affordable Care Act.

Republican politicians in states including Indiana, Ohio, Georgia and Florida have tried to discourage participation in the exchanges, warning consumers that premiums will rise as a result of the law’s requirement that insurers cover sick people. Those warnings focus on “sticker prices” and ignore tax credits available to people earning less than four times the poverty level, about $94,200 for a family of four, Kaiser said.

“Tax subsidies are an essential part of the equation for many people who buy insurance through the new marketplaces,” Drew Altman, chief executive officer of Menlo Park, California-based Kaiser, said in a statement. “They will help make coverage more affordable for low- and middle-income people.”

About 48 percent of people who currently buy insurance for themselves, instead of getting it through work, will be eligible for subsidies to reduce their premiums next year, Kaiser said. Those tax credits will average $5,548 per family for that pool of people. When all consumers are taken into account, whether eligible for credits or not, the average subsidy works out to $2,672 each, according to the study.

Healthy Youth

U.S. Health and Human Services Secretary Kathleen Sebelius criticized Republican state leaders warning of big premium increases due to the Affordable Care Act, saying last week that their numbers are “just factually incorrect.”

Republican officials in Georgia, Indiana and Ohio have predicted premium increases of as much as 200 percent. Leaders in Democratic-led states including New York and California have said smaller increases or savings will occur when subsidies accompanying the law are included.

The Obama administration has said it wants to see about 7 million people enroll in plans through the exchanges next year, including at least 2.7 million who are young and healthy. That’s necessary to balance the cost of covering sick people.

Better Deal

Sebelius also said her department wasn’t worrying about a “pretty dismal” effort by politically conservative groups to discourage young people from signing up. Two months before enrollment begins for the online exchanges, the project is on schedule, she told reporters on an Aug. 5 conference call.

“We are on target and ready to flip the switch on Oct. 1,” Sebelius said. The markets “are already increasing competition and giving consumers a better deal.”

As of June, proposed monthly premiums in nine states for the benchmark level of medical coverage were less than congressional estimates, according to a study at the time from Avalere Health, a Washington-based consulting company.

The reported premiums and subsidies are what customers can expect for plans that go on sale Oct. 1 and take effect Jan. 1, 2014. About 24 million people are expected to get their coverage from exchange plans by 2023, according to the Congressional Budget Office.

By Alex Wayne

Estimate: Nearly 1M workers to quit when exchanges open

The end of working for the perk?

Some Obamacare opponents have labeled the Patient Protection and Affordable Care Act as a job-killer. New research indicates there may be a grain of truth to that — although the jobs won’t be “lost” the way the naysayers are predicting.

Rather, workers who are today in the workforce primarily as a means of obtaining affordable health care coverage will likely quit working, either temporarily or permanently.

That’s the prediction of research by a triumvirate of academicians, in a study spearheaded by the University of Chicago’s Booth School of Business, with contributions from others at Columbia University and Northwestern.

They based their projection — that upwards of 900,000 current jobholders might quit — on extrapolations from a Tennessee “test case.”

In the Volunteer State, a health plan was created in 1994 for those whose income put them above the Medicaid line but below the wage levels that would have allowed them to comfortably afford coverage on the open market.

Confronting a budget crunch, Tennessee discontinued the program in 2005 and 170,000 people lost coverage. Almost immediately, these people — mostly single adults without kids — started looking hard for jobs. About half of them were able to find employment where they received health care as a benefit.

“This shows that there are many people out there who look for work simply because they need health insurance. For them, the perk matters more than the paycheck,” said Tal Gross, co-author of the paper and assistant professor of Health Policy and Management at the Mailman School at Columbia.

The conclusion the authors draw is that the same thing will happen when the insurance exchanges go live. People who are working primarily for the health coverage will quit working, get coverage through an exchange, and do whatever it is they really want to do instead of report to work on a regular basis.

Their conclusion, the researchers said, underscored one of the big flaws in the insurance industry.

“The fact that people are working solely to get health insurance signals a failure of the private health insurance market (to make coverage affordable),” said Matthew J. Notowidigdo, Neubauer Family Assistant Professor of Economics at the Booth School and a study co-author. “That’s one of the reasons why the Affordable Care Act was created.”

by. Dan Cook

Self-insurance: A threat to Obamacare?

Happy Jack Adventures is a successful small business, much like the many others the federal government hopes will line up to buy health insurance for their workers once the Patient Protection and Affordable Care Act fully kicks in.

Yet fearful of sharp premium hikes and with a mostly young, seemingly healthy workforce of 50, Jack McCormick, the founder and CEO of the Seattle, Wash.-based adventure tourism company, has something else in mind.

McCormick believes his firm is fiscally sound enough to bear the risk of self-insurance and is looking to make the switch.

“(Self-insurance) looks like a good option for us and a way to avoid high premiums and other hidden costs we don’t know about yet,” he said. “I call those gotcha costs, and I hate those. Everyone does.”

It’s views like these that researchers and analysts have speculated could threaten the integrity of the PPACA, with small employers avoiding the requirements of the law altogether by going the self-insurance route and, along the way, potentially driving up the health care premiums the government is hoping to contain.

About 60 percent of insured American workers already are in self-insurance plans. Most of these workers are either in unions or employed by larger companies.

Self-insured employers pay for most worker health costs directly, though they typically contract with an insurer or another company to administer claims. Employers that self-insure buy coverage known as stop-loss to keep one huge claim from wiping them out.

Brokers say a growing number of organizations see such plans as low-cost alternatives to conventional coverage, given that they’re exempt from PPACA requirements such as insurance taxes and specified benefits.

“I’ve been at this over 30 years, and interest in the self-insurance market definitely is increasing,” said Larry Thompson, CEO of BSI Strategic Consulting, a Fresno, Calif.-based firm that specializes in self-insurance.

According to a recent study by Munich Health North America, a subsidiary of reinsurer Munich Re, more employers are expected to follow the self-insure path – perhaps many more.

Among the 326 industry executives surveyed, 82 percent said they have seen a growing level of interest among employers in self-funding their group health insurance plans over the past 12 months, with nearly one-third saying that interest has increased “significantly.”

Nearly 70 percent of health insurance organizations plan on growing their self-funding portfolios over the next year, the survey also found.

Still, self-insured plans today remain far more common among large employers, especially those with at least 1,000 employees. Their size gives these employers bargaining power in the health care market and allows them to pool risk across their employees.

According to a Kaiser Family Foundation Survey, just 15 percent of insured workers at firms with fewer than 200 employees are enrolled in self-insured plans, compared to 81 percent of insured workers at larger firms.

But, again, smaller employers are now increasingly exploring this option and large health insurers such as United Health Group and Humana are helping these employers – including those with as few as 10 members – sign up.

Historically, concerns about the financial risks have discouraged most small firms from self-insuring, said Amado Cordova, a senior engineer at RAND, a think tank that seeks to influence policy and decision making through research and analysis.

Cordova said that if the PPACA does lead to big premium increases, it’s likely small employers will find self-insurance more attractive.

And if significant numbers of small firms with healthy, young workers self-insure, this could have far-reaching implications including potentially increasing health care premiums for companies that choose to remain on the regulated market, she said.

He said whether more small firms self-insure may depend less on PPACA and more on the companies that sell stop-loss coverage.

“There are already many signs that insurers are trying to lure small firms into self-insuring by advertising low stop-loss attachment points,” she said in her RAND blog. “This inducement to self-insurance could be counterbalanced by government action, in order to maintain a balance of healthy and less-healthy employees across the marketplace.”

Some states already are looking at limitations to self-insurance coverage, Cordova said. California, Rhode Island and Minnesota are mulling over legislation that raises the point at which stop-loss insurance kicks in, reducing or eliminating small firms’ ability to self-insure.

In February, the Self-Insurance Institute of America announced the formation of the Self-Insurance Defense Coalition. The purpose of the new coalition is to coordinate lobbying, litigation and media relations activities of leading national trade associations on issues related to self-insured group health plans at both the federal and state levels.

Among those pushing back is the Center for American Progress, a liberal Washington think tank, which has openly declared war on self-insurance.

In a whitepaper entitled “The Threat of Self-Insured Plans Among Small Businesses,” the group predicted that the increasing popularity of self-insurance will “cause an insurance premium death spiral and threaten the stability of the (Obamacare) exchanges.”