49
Implementing Exchanges that Enhance Choice, Affordability and Coverage 1 | Page Gateway to Improved Health Access Implementing Exchanges that Enhance Choice, Affordability and Coverage Harold L. Martin II 12/2/2010 The Patient Protection and Affordable Act (ACA) of 2010 provide for the establishment of state-based health insurance exchanges. Beginning in 2014, states will be required to establish new purchasing arrangements to distribute coverage to individuals and small employers. The goal of these exchanges is to expand health insurance coverage, slow the rate of health care inflation, and provide subsidized coverage for modest and low income Americans, and increase choice and competition in the health insurance marketplace. Prior attempts at creating health insurance exchanges have resulted

Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Embed Size (px)

Citation preview

Page 1: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 1 | P a g e

Gateway to Improved Health Access

Implementing Exchanges that Enhance Choice, Affordability and Coverage

Harold L. Martin II

12/2/2010

The Patient Protection and Affordable Act (ACA) of 2010 provide for the establishment of state-based health insurance exchanges. Beginning in 2014, states will be required to establish new purchasing arrangements to distribute coverage to individuals and small employers. The goal of these exchanges is to expand health insurance coverage, slow the rate of health care inflation, and provide subsidized coverage for modest and low income Americans, and increase choice and competition in the health insurance marketplace. Prior attempts at creating health insurance exchanges have resulted in mixed results. This paper considers the challenges of previous efforts, analyzes the ACA’s key components, identifies relevant aspects for Exchanges and discusses reasonable policy recommendations. The way forward involves a concerted effort from several stakeholders coming together to mitigate the complexities of implementing health care reform.

Page 2: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 2 | P a g e

Abstract

The Patient Protection and Affordable Act (ACA) of 2010 provide

for the establishment of state-based health insurance exchanges.

Beginning in 2014, states will be required to establish new

purchasing arrangements to distribute coverage to individuals and

small employers. The goal of these exchanges is to expand health

insurance coverage, slow the rate of health inflation, provide

subsidized coverage for modest and low income Americans, and

increase competition in the health insurance marketplace. Prior

attempts at creating health insurance exchanges have resulted in

mixed results. This paper considers the challenges of previous

efforts, analyzes the ACA’s key components, identifies relevant

aspects for Exchanges and discusses reasonable policy

recommendations. The way forward involves a concerted effort from

several stakeholders coming together to mitigate the complexities

of implementing health care reform.

Page 3: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 3 | P a g e

Table of Contents

Introduction………………………………………………………………………………………………………………………………4-7

Background of Health Reform………………………………………………………………………………………7-13

The Current Landscape……………………………………………………………………………………………………13-16

Midterm Elections: New Challenges for Health Policy………………….16-19

Scan of Policy Alternatives………………………………………………………………………………….19-22

Analysis and Policy Recommendation……………………………………………………………..22-32

Implementation and Monitoring…………………………………………………………………………….33-35

Conclusion and Recommendations………………………………………………………………………….35-39

References…………………………………………………………………………………………………………………………………40-45

Page 4: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 4 | P a g e

I. Introduction

Health Insurance exchanges are a key element of the

private health insurance reforms of the Patient

Protection and Affordable Care Act (ACA) of 2010. The so

called “Travelocity” of health insurance (Curtis 2010)

may determine the fate of federal health care reform in

meeting its goals to improve access to health coverage,

enhance the value of health insurance and moderate the

cost of health care. The issues facing the American

people are: health insurance is expensive; subsidies

to expand coverage for all citizens is an objective of

the current administration; financing of the delivery

system is dependent on slowing growth without sacrificing

quality; and governance of exchanges must consider both

state and federal institutions. ACA creates broad

guidelines for the exchanges and federal regulations

require the Department of Health and Human Services (HHS)

to provide additional guidance over the coming months to

the states. People who today cannot afford health

insurance or are denied coverage will be able to purchase

Page 5: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 5 | P a g e

insurance. Implementing a health insurance exchange will

be a new responsibility for virtually all states. (Kaiser

Family Foundation 2010) The list of stakeholders is both

long and far reaching. Implementation will impact

representatives of community-based organizations,

insurance commissioners, Medicaid administrators, finance

directors, leaders of health care reform cabinets, health

policy experts, state officials, members of the

legislature, health care professionals, insurance

providers, hospital executives, academics, unions,

employee groups, and trade associations. At a federal

level the following institutions or agencies will play a

role in facilitating exchange development and monitoring

outcomes; HHS, General Accounting Office, Centers for

Medicare and Medicaid Services, the Office of Personnel

Management, The Department of Treasury, Children’s Health

insurance Program(CHIP), Office of the Actuary, National

Health Care Statistics, Congressional Budget Office, The

National Commission on Fiscal Responsibility and Reform,

and a newly created public-private entity the Patient-

Centered Outcomes Research Institute. (Patel 2010) The

act gives broad authority to the state governments to

Page 6: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 6 | P a g e

implement the exchanges with guidance from HHS but must

also consider the following major components: expansion

of the number of people with insurance, reform of the

individual and small group insurance markets, changes to

the health care delivery system, and slowing the rate of

cost increases, tax increases and spending reductions to

finance the reform efforts.(Ginsburg 2009) The enactment

of the legislation is a beginning to the tackling of this

multidimensional, complex and highly charged issue.

Let’s now examine some of the key concerns associated

with the “centerpiece” of the private health insurance

reforms.(Stolzfus 2010) As such, the exchanges present

each state with an opportunity to improve the

inefficiencies in the small group and individual

insurance markets, to provide coverage and choice to more

people, to minimize the adverse selection concern from

past purchasing arrangements, to impact favorably the

cost side of the equation, and to provide a model of how

state and federal government can work together. The

issues are: 1.How should exchanges be governed? 2. What

should be done to avoid adverse selection?

3. What must exchanges consider to reduce health costs?

Page 7: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 7 | P a g e

4. What information should exchanges make available to

consumers or employers?

5. How can administrative costs be managed to make

exchanges self sustaining entities over time?

Perhaps the biggest hurdles are: each state’s political

environment, the economic constraints of operating in a

recession, and the political uncertainty of expected

leadership transitions created by the mid-term elections.

II. Background of Health Reform

The health care reform that President Obama signed into

law earlier this year is seventy-five years in the

making. Beginning with Franklin D. Roosevelt, U. S.

presidents have struggled to pass health care reform

legislation; most have failed.(Morone 2010) This paper

does not set out to provide exhaustive detail on each of

the failed attempts to change the health care system, but

rather examines the “public option” as background for

framing the discussion. The “public option” for health

insurance grew from roots planted in California in 2001.

(Halpin and Herbage 2010) Generally speaking,

progressives supported it as a voluntary transition

Page 8: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 8 | P a g e

toward single-payer insurance while conservatives opposed

it as government takeover of health care. The public

option language did not make into the final packages

passed by both houses of government in March, 2010.

Today we have public health insurance programs like

Medicare, Medicaid, the Federal Employees Health Benefit

Plan (FEHBP), and the Children’s Health Insurance Program

(CHIP) that have operated for years. The notion of a

“public option” to compete directly with the private

health insurance industry that reduces health care costs

and premiums has been proposed. Proponents argue a

public option would have significant impact on the U. S.

health care market by creating a more competitive playing

field particularly in select states where few insurance

options exist. It was advocated that such a “public

option” would keep insurers honest by giving consumers an

option to choose the “public option”. Opponents feared

that private plans could not compete against it and that,

over time, it would cause erosion in the risk selection

of both the individual and group health insurance

markets. A fundamental question arises do government

sponsored health insurance purchasing entities reduce

Page 9: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 9 | P a g e

costs or expand coverage for individuals and small

employers? Let’s examine four prior policy imperatives

that address this issue while providing insights into the

actual results of these efforts.(Bender and Fritchen

2008) Policymakers have previously considered alternative

purchasing mechanisms to facilitate the purchase of

insurance coverage while delivering lower cost

alternatives for individuals and small employers.

Insurance Purchasing Cooperatives (HIPCS)

Several states established state-sponsored purchasing

arrangements commonly called Health Insurance Purchasing

Cooperatives during the 1990’s. Supporters reasoned that

that they would provide “lower-cost” health insurance and

offered up the following rationale: (1) collective

purchasing power would increase competition;(2)purchasing

insurance through a single entity would provide economies

of scale reducing administrative costs; and (3)

competition would be introduced by allowing employees to

select from a menu of options offered by several health

plans. These state-sponsored entities failed to deliver

on these promises because they failed to offer better

value for those electing the option. Most were

Page 10: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 10 | P a g e

“disbanded” shortly after initial operations began.

HIPC’s Fail to Attract Sizeable Enrollment (Bender 2007)

State Eligible

Employers

Market Share Status

12/31/2007

CA 2-50 2% Disbanded in

2006

CO Any Size 2% Disbanded in

2002

FL 1-50 5% Disbanded in

2000

TX 2-50 1% Disbanded in

1999

UT 2-50 N/A Disbanded

(date

unknown)

Connector/Exchange Models

The concept of connectors is not a new approach as proposals

Page 11: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 11 | P a g e

have been introduced in at least 15 states prior to the

current health reform law with Massachusetts and Washington

state adopting health insurance legislation in 2006 and 2007

respectively.(Kingsdale 2010) The basic tenets are similar to

what is being proposed today as the exchange would market

coverage, collect premiums, enroll employees, and administer a

subsidy program for those less fortunate. The Commonwealth

Health Insurance Connector is the most comparable program and

many elements have been incorporated into the current

approach. Sources have cited a number of factors that may

alter the cost of insurance coverage that are problematic to

measure. They include: mandates to buy insurance could force

lower-cost persons and companies who previously decided not to

buy coverage to enter the market, subsidies create incentives

to purchase insurance through the Connector, merging the

individual and small groups markets might lower premiums for

individuals while raising costs for small employers, and the

Connector would enjoy a pricing advantage largely due to

requiring young adults to purchase products through the

Connector and not in the open market. In Massachusetts, the

Commonwealth Connector (a form of purchasing pool) has played

a role in reducing the cost of health insurance for employers

Page 12: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 12 | P a g e

who do not receive health insurance through their employer.

The state requires that employers have a Section 125 plan

allowing employees to buy health insurance through the

Connector with pretax dollars (The Massachusetts Health

Insurance Connector Authority, 2008). The purchasing entity is

coupled with a legislative approach requiring employers to

allow employees to purchase coverage with pretax dollars which

reduces the cost for people who work but do not have access to

insurance through their employers. Similar strategies are

incorporated within the ACA legislation.

Federal Employee Health Benefit Plan (FEHBP)

Many individuals prior to the health reform legislation

referenced the FEHBP. This program is offered to federal

government employees who enjoy premium contributions of

seventy five percent by the federal government. The funding

and coverage levels proposed in the “exchanges” would also

enjoy federal funding support. The FEHBP plan was profiled

because it offers a “benefits rich” package to government

employees is relatively stable and serves as a “benchmark” for

the essential benefits package incorporated in the

legislation. Exchanges comes in a number of different

varieties such as health purchasing cooperatives (HIPCs),

Page 13: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 13 | P a g e

Association Health Plans (AHP’s) and health connectors. Many

HIPCs were established in the 1990’s with other reforms aimed

at improving access and affordability. AHP’s differ from HIPCS

in that they limit participation to members in a trade or

professional association (Wicks and Hall 2001). The state of

Massachusetts included a purchasing pool, called the

Commonwealth Connector which is open to those who do not have

insurance from an employer or are ineligible for public

insurance programs. (Solomon 2007) Like the ACA legislation

the purchasing pool was coupled with an individual mandate.

III. The Current Landscape

Today there are a number of factors impacting health care

costs and reform efforts. Consumers have difficulty

weighing options and understanding how coverage operates.

Health insurers must be carefully monitored to avoid

“redlining” (i.e. denying coverage to certain occupations

or communities) and “street underwriting” both of which

Page 14: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 14 | P a g e

impact risk selection. (Business Roundtable 2009) More

rigid monitoring of underwriting rules consistently

applied with marketplace plans could level the playing

field, but today’s realities of gimmickry in plan

designs makes it difficult to compare “apples to apples”

plans and challenging to examine pricing objectively.

“Churning” carrier and coverage at the employer level

make insurers ability to focus on “improving health” in

the small and individual markets problematic. Agents and

brokers fees comprise up to 15 to 20 percent of

“marketing expenses”. Advocates for health insurance

reforms see an opportunity to reduce costs in these

areas. Next, I will consider the legal, economic and

political contexts of health care reform.

If we take a “macro” view of what the Affordable Care Act

does it fundamentally alters three things: (1) Legally it

creates a mandate, requiring that nearly every American

get an approved threshold of health insurance coverage or

pay a penalty. (2) Economically it creates a mechanism of

federal subsidies to completely or partially pay for the

newly created health insurance of approximately thirty-

four million Americans. The subsidies are made possible

Page 15: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 15 | P a g e

through a combination of expanding the existing Medicaid

program and the establishment of new administrative

entities called Exchanges. (3)It places new requirements

on the health insurance industry that will alter the

business model.(Hoff 2010) Examples include: it requires

insurers to issue policies to anyone who qualifies, to

renew policies without regard to the health status of the

individual and it requires that rates in the Exchange

and small group markets vary only on age, the geographic

area, family composition, and tobacco use.(Bredsen 2010)

Some consider the provisions requiring insurance

companies to pay providers at least 85% of the premium

dollars collected from large groups for medical care

excessive and political in nature.(Business Roundtable

2009). Politically, and to confirm to the president’s

stated goal, health care reform had to show that it would

not “increase the deficit”.(CBO 2010) The financial

impact of the legislation is complex and may be even more

so by the practice of focusing on the deficit rather than

actual costs, savings, and new revenues it’s expected to

produce. (Bredsen 2010)The Innovation Center run by the

Centers for Medicare & Medicaid Services (CMS) identified

Page 16: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 16 | P a g e

additional risks that could undermine potential savings

or shift costs to the private sector (Business

Roundtable, 2010). They include: delayed or water down

implementations; potential legislative reversals of cost

saving components; continuation of the practice of

“defensive medicine”; failure to implement a strong

mandate; and cost shifting to the private sector from

reductions in federal reimbursements to providers.(Sisko,

Truffer, Keenhan,Poisal,Clemens,Madison 2010)

IV. Midterm Elections: New Challenges for Health Policy

The results of the 2010 midterm elections have

significant implications for health care reform

implementation though I do not believe the campaign trail

rhetoric calling for repeal of this landmark legislation

by some high ranking Republicans will materialize.

Nevertheless, health care reform will remain a leading

issue for the new Congress which convenes in January 2011

and governs through the end of 2012(Towers Watson 2010).

There was never a chance that Republican mid-term

victories even with the most optimistic of scenarios

would or even could untangle the health reform law. Even

Page 17: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 17 | P a g e

if Republicans had secured a majority control in the

Senate along with their victories in the House, the law

was in no danger of repeal according to the International

Foundation of Employee Benefits and Lockton, the world’s

largest privately held insurance broker. (Willis 2010)

Perhaps the most impactful potential for change comes

from the newly elected Republican governors in twelve

states bringing a majority to the republican side.

Look for governors to influence implementation on four

“battlefronts”: (1) slowing the progress of the exchanges

in selling insurance policies; (2) tinkering with the

proposed Medicaid expansion subsidies; (3) challenging

the legality requiring most Americans carry insurance or

pay a fine; and (4) delaying the expansion beyond the

2014 timeline.(Adamy 2010). Looking forward politically

and practically, I can envision five scenarios

Republicans might do to disrupt the implementation of the

Patient Protection and Affordable Care Act. A brief

overview for each scenario follows. (Koster, 2010)

Scenarios

1. “Repeal and Replace.” This is unlikely given the

President’s ultimate veto authority and the sentiment

Page 18: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 18 | P a g e

around getting the economy moving again among many

republicans. This could move to the forefront during the

2012 presidential elections. 2. “An incremental

approach”. Compromise on items like the individual

mandate, medical loss ratios or “play or pay”

requirements for employers may surface given the

President’s willingness to “tweak” various aspects of the

law to preserve his credibility. 3. “Starvation”. Many of

the provisions in the legislation take place in the

future and involve continued and consistent funding.

Political maneuvers to eliminate or reduce funding for

key regulations in the law would put various aspects of

the law in “limbo” creating a state of uncertainty which

would be problematic for the White House. 4. “Legal

challenge and investigation”. Legal suits are pending in

21 states today declaring the individual mandate as

“unconstitutional” with a likely outcome being the

Supreme Court will get involved. 5. “State-level

intervention”. Three options are likely: a) Republicans

could pass mandates stating that states are not obligated

to enforce the individual mandate or incur additional

expenses relative to health care reform; b) states could

Page 19: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 19 | P a g e

elect not to develop exchanges leaving the set-up

responsibility with the Federal government; and c)

Medicaid expansion efforts could be thwarted. (Koster

2010) Political pundits point out that predictions

predicated on mid-term elections are almost always wrong.

That said it is comforting to know that the time, money

and resources committed to this monumental legislation

during 2009 may still have an impact on the well being of

many without access to care and coverage. (Liberto 2010)

V. Scan of Policy Alternatives

A poorly functioning health care “market” is one cause of

the rapid growth in health care costs above that of

growth rates in other industries. Health care is unique

in that the traditional forces of supply and demand are

altered by a third-party, fee for service payment model

and significant cost shift among payers. (Brookings

2010). Let’s consider briefly other approaches that have

been proposed to tame this perplexing issue. I will

examine the public option, consumer-directed system and a

Page 20: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 20 | P a g e

new idea recently introduced (11/24/2010) by Senators Ron

Wyden (D-Ore) and Scott Brown(R-Mass). (Klein 2010)

In simple terms the public option is synonymous with

government-controlled health care. Many want a public

option to compete with private insurance and to improve

accountability. By definition, a public option would be

accountable to elected officials rather than many health

plans which are accountable to investors. In general

those who support a public option believe that with a

“central” purchaser concept, costs would necessarily be

lower. Many opponents see expanding government’s role as

a payer as a move toward socialism (Halpin 2010). Though

the public option had support from the public, labor

unions, consumer groups and civil rights organizations it

ultimately did not find its way into the recent

legislation.

Conservatives generally favor a market approach to health

care reform. They reason that the health insurance

industry through competition, individual accountability,

and innovation will help dampen rising costs. Past and

present strategies have been unable to demonstrate

significant improvement and sustainable improvements in

Page 21: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 21 | P a g e

reigning in health care costs. Bending the cost curve has

been challenging and continues to be elusive for most

private employers. Recently two senators introduced

legislation that would essentially allow states to come

up with a comprehensive way to cover as many people as

the federal plan, without adding to the deficit, whereby

that state could get the same amount of money that it

would get from the federal government for health care

reform but be exempt from the individual mandate, the

exchanges, the insurance requirements, the subsidy scheme

and virtually everything else. It is clear that with new

politicians being sworn in for the 2011 Congress that

this battle is far from over which seems to suggest that

all things are still “on the table”. Those who would

rather seek prudent, comprehensive and practical guidance

for implementation should consult the article from

Brookings entitled “Bending the Curve through Health

Reform Implementation”. It is fair to assert that with

double digit increases in annual health care costs for

the public and private sector that no policy is working

in a sustainable, efficient and consistent manner.

Next, I will examine the current legislative policy for

Page 22: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 22 | P a g e

health care reform.

VI. Analysis and Policy Recommendation

The performance dimensions against which I examined the exchanges

as a viable policy option include: cost/effectiveness,

administrative efficiency, equity, cost benefit, political

feasibility, legality, health, and unintended consequences.

Cost/Effectiveness

There is no “direct” evidence of the impact the exchange model

will have relative to overall health care spending. Sources

suggest that unsubsidized purchasing pools have not been able to

reduce premiums enough to induce un-insured employers to

participate.(Fensholt 2010) The subsidized exchange model extends

coverage to the uninsured which results in two outcomes (1) an

increase in health care use among the affected population and (2)

an increase in the overall health care spending. (Kaiser Family

Foundation 2010) This could partially be offset by “efficiently”

managed exchanges which provide greater bargaining power, reduced

administrative costs, and greater economies of scale. Moreover,

the legislation seeks to minimize the effects of adverse

selection with the individual mandate which should positively

Page 23: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 23 | P a g e

affect premium costs. Administrative efficiency

Classic economics suggest that the exchanges will reduce the

administrative overhead of individual and small group insurance

policies by creating economies of scale. Such costs reduce

redundant functions that are noticeable in plans that exist

today. Typically administrative costs can represent up to 30 to

40 percent of premiums for individual non-group policies, 20 to

25 percent for small group plans, and 10 percent for large group

employer plans (GAO 2000). Even if the exchanges obtain

sufficient enrollment, we do not know if they will achieve the

same level of administrative efficiency as large employer groups.

It is important to remember that the potential of having 50

different state run exchanges or separate “individual” and “small

employer” exchanges within each state or duplicative functions

performed by several entities could jeopardize any cost

efficiencies. It is not clear at this stage of the process

whether exchanges will deliver on the promise of improved

efficiency.

Equity Simply

put the Exchanges are required by January 2014 to provide

individuals and small employers the ability to shop for insurance

from a range of health plans offered through the Exchanges. Lower

Page 24: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 24 | P a g e

and middle-income individuals up to four times the Federal

Poverty level (FPL)—more than $88,000 for a family of four in

calendar year 2010- may be eligible for premium relief. In

addition small employers with lower income workers that offer

employer provided insurance (ESI) may be eligible for premium

subsidies for up to two years (Carey, 2010). The eligibility

process makes clear that there is no wrong door. Regardless of

where an individual or family in need shows up, its application

for assistance must be routed to the right program. (Stoltzfus,

2010)Supporters of the Affordable Care Act take considerable

pride in the fact that it will make health insurance available to

another thirty-four million people. That is a lot of citizens who

won’t have to go to emergency rooms or charitable clinics every

time they need medical attention, who will get preventive care,

and who will have continuity in their medical care, and who will

not be forced into bankruptcy by unanticipated health problems.

Many non supporters would suggest that expanding coverage is

about all that was done.

Cost/ Benefit Most

employers do not believe that the health care reform legislation

will reduce the rising health care costs (Willis, 2010).

According to the Office of the Actuary “by calendar year 2019,

Page 25: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 25 | P a g e

the mandates, coupled with Medicaid expansion would reduce the

number of uninsured from 57 million as projected under prior law,

to an estimated 23 million under the PPCA. The additional 34

million people would become insured by 2019 reflect the net

effect of several shifts”.(Foster, 2010)One, an estimated 18

million would gain primary Medicaid coverage by virtue of the

expansion of eligibility to all legal adults under 133 percent of

the FPL. Second, about 2 million people with employer sponsored

coverage would enroll in Medicaid for supplemental coverage.

Third, another 16 million people would receive individual

coverage through the Exchanges with most of these eligible for

federal premium subsidies. Lastly, it is estimated that the

number of individuals with employer sponsored coverage would

decline by about 1 million. The independent technical advisor to

the Administration and Congress asserts “that the overall

national health care expenditures under the health care reform

act would increase by a total of $311 billion(0.9 percent) during

calendar years 2010-2019, principally reflecting the net impact

of greater utilization of health care services by individuals

becoming newly covered, lower prices paid to health providers for

those individuals who become covered by Medicaid, and lower

payments and payment updates for Medicare services.(Foster,

Page 26: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 26 | P a g e

2010). He further asserts that although several provisions would

help reduce health care growth, their impact would be more than

offset through 2019 by the higher health expenditures resulting

from the coverage expansions. The future impact of ACA on health

expenditures, insured status, individual decisions, and employer

behavior are very uncertain. The legislation will result in how

health insurance is provided and funded in America and the scope

and order of magnitude of these changes is without precedent.

That said any estimates are necessarily subject to a greater

degree of uncertainty than with less ambitious health care

legislation initiatives.

Political Feasibility

HHS officials tasked with delivering on the benefits of the law

to the American people will seek a consistent, transparent

implementation process. Yet recent surveys have suggested it

would be acceptable to repeal the law. (Willis 2010) The new

political environment creates uncertainty for health care reform

as stakeholders develop strategies to function in this new era

and while it is impossible to predict what the new Congress may

enact, much of the activity will be centered toward the 2012

elections. Opponents and supporters will use this period to

posture for their changes making the 2012 elections a referendum

Page 27: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 27 | P a g e

for “halftime” adjustments to health care reform. Moreover, far

more serious and subtle efforts to undermine the law may come

about through challenges to various administrative arrangements,

taxes, and subsidies to fund expansion of coverage. History tells

us that “the financing of the original 1935 blueprint for Social

Security was greatly revised in 1939, and the program experienced

near-fatal interruptions in scheduled taxes and benefits during

World War II”.(Skocpol 2010). I assert that politics moves

quicker today and that new health care reform may become

entrenched over the next five to eight years.

Legality

Legal fights against the law’s requirement that most Americans

carry insurance or pay a fine are already underway. Today’s

constitutional challenges may amount to political theater

scripted to insight media coverage, enlighten partisans and

influence uncertain or uninformed voters that something must be

inherently bad or wrong with the bill. Fundamentally it comes

down to whether you think health care is a “right” or a

privilege. Historically, the word health does not appear in the

Constitution and it relegates this function to the states or the

people. While we can debate the legality of the mandate the 2010

law calls for several years of complex implementation including a

Page 28: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 28 | P a g e

cascading series of regulations, subsidies, taxes, and tax breaks

intertwined with fifty states and more than a few federal

agencies. One thing is certain there will be midcourse

adjustments with the Affordable Care Act.

Health

In theory, the Exchanges expand coverage and they should have the

potential to improve health. The Exchanges address the needs of

high risk individuals who have been unable to purchase health

insurance previously. In addition the preventative components

within the legislation provide substantial opportunities to

address the health and wellbeing of individuals and their

families. Based on an economic model developed by the Urban

Institute, Trust for America’s Health found an investment of $10

per person per year in effective programs to improve physical

activity, nutrition and prevent smoking could result in more than

$16 billion in health care costs annually within 5 years. This is

a return of $5.60 for every $1. This may be a future modification

policymakers may want to consider. (Hamburg 2009) The law’s

provisions advance information technology and support

comparative-effectiveness research (Patel 2010). Many experts

believe it will improve the quality of care and it is hard to

predict if the gains will be substantial and long-lasting. The

Page 29: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 29 | P a g e

prevention efforts will improve health outcomes for those without

prior coverage and public health will benefit, but it is unlikely

to reduce costs quickly.

Unintended Consequences

The legislation has caused concern in the areas of Affordability,

Access and Coverage. Health insurance is expensive and the

legislation as enacted according to many reports will add costs

to the already expanding federal deficit.(Eaken and Ramlet 2010)

State governments will be asked to expand capacity and resources

to prepare for and establish the Exchanges at a time when their

fiscal budgets are in disarray.(Blumberg and Politz 2009) Some

question the merit of tackling such monumental legislation during

a recession purporting that job creation has been stifled with

the focus and debate lasting well beyond a year. Access may be

impaired as Medicaid will incur expansion under the law despite

grappling with state and federal challenges fiscally and resource

wise. “Doctor shortages” exist today and with additional

insured’s entering the market something short of a “Armageddon”

looms as a real possibility to access given the time and adequate

resources needed to train new doctors. Emergency room capacity

issues may have been minimized when sweeping the legislation to

the forefront of American social justice. Finally, I suspect the

Page 30: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 30 | P a g e

prospect of large employers eliminating employer provided and

sponsored coverage was largely ignored with passage of the

legislation. MIT economist Jon Gruber say’s its “impossible to

create new government benefits without some unintended

consequences, but he doesn’t see a big drop in employer coverage.

(Alonso-Zaldivar 2010) Ironically, one major assertion of the

legislation is that it would stimulate competition among health

insurance companies yet with the requirements being imposed on

the industry(i.e. medical loss ratio thresholds)some payers are

exiting the market(Principal) or reevaluating their business

strategies.

The Exchange implementation process among individual states may

affect health care reform in several ways. First, there is little

evidence to suggest effectiveness will be improved. Though

regulatory and policy options (i.e. individual mandate) might

improve the viability of purchasing pools and enhance their

ability to decrease costs, much is still unknown. Second,

administrative efficiency, cost benefit, political feasibility,

cost effectiveness, legality, indirect economic benefits and

health impacts are uncertain or dependent on too many variables

to predict with any degree of success. The exchanges face

difficult implementation, regulatory guidance and hurdles not yet

Page 31: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 31 | P a g e

envisioned as details emerge from the state and federal policy

recommendations. Third, equity is achieved with the policy as

many without health care coverage today gain insurance and some

unintended consequences may surface. Fourth the exchanges will

broaden the range of health plan choices available to consumers,

small employers and the uninsured. This may enhance the overall

experience and health of the population, but at a cost for

society. The following table will provide an overview of the

proposed health care reforms. Please note that the “Empower

States” option recently introduced on 11/24/2010 by Democratic

and Republican senator(s) is essentially a policy that givens the

states control to do whatever works best to cover everyone at the

lowest cost. States can go their separate ways and the other

states can judge the winner based on results not political

ideology. If the stakeholders make the system work better, then

states will prosper. If conservative solutions are more efficient

that will be evident when money is saved. If liberal ideas work

better perhaps it’s time we found out. This was recently

introduced making it challenging to draw conclusive results from

such an approach.

Page 32: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 32 | P a g e

Exchanges Status

Quo

Government

Run

Empower

States

Cost/Effectiveness No

Evidence

No

effect

Evidence

Inconclusive

No

Evidence

Administrative

Ease/Efficiency

Uncertain No

effect

Uncertain Uncertain

Equity Improve No

effect

Uncertain Improve

Cost/Benefit Uncertain No

effect

Uncertain No

Evidence

Political Feasibility Moderate Easy Difficult Difficult

Legality Possibly No

effect

Yes Yes

Health Improve No

effect

No Evidence No

Evidence

Consequence/Unintended Yes No Yes Uncertain

Page 33: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 33 | P a g e

VII. Implementation and Monitoring

The new national health care reform law calls for the state or

regional exchanges to be established by January 1st, 2014. HHS

will oversee and monitor the establishment of the exchanges

providing guidance, recommendations, and mechanisms for states

that choose to look to the federal government to provide safety

net protection. (Kinsgdale and Bertko 2010) This leaves

considerable discretion to each state in how they structure plan

offerings, facilitate comparison shopping and operate the

Exchange. State entities that may play a role include: (1)

insurance departments, (2) Medicaid agencies, (3) state health

benefits administrators, (4) state health departments, and (5)

the executive, legislative, and judicial branches of state

government. Nearly all states will be setting up a health

insurance exchange which involves a new responsibility in which

they have no experience.

Federal grants are an important element of funding states under

ACA. HHS announced the availability of $1 million in planning

grants per state to help establish exchanges. This will be put to

Page 34: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 34 | P a g e

good use by: managing information technology needs including

integrating data with other agency databases like Medicaid;

designing new eligibility and enrollment processes; finding staff

with diverse skills needed to run the Exchanges; creating

business plans for self-supporting operation of the unsubsidized

portions of the Exchanges; and competing for outside consultants

to assist with the design of Exchange programs. (HHS 2010). The

Massachusetts Connector, the Utah Health Exchange, and the

proposed California Health Benefits Exchange are up and coming

models that will be emulated in some form or fashion by many

states.(Stoltzfus 2010) Let’s consider what will be measured, who

should assess the outcomes and how often results should be

evaluated. Many elements will be measured, evaluated, and

reprioritized as the Exchanges mature but the following will be

of importance: enrollment and eligibility, outreach, rating

methodology, consumer experience, employer participation, risk

selection, data reporting, payment flows, IT systems integration,

costs, workforce capacity, governance, commercial insurance

carriers response, population health outcomes, and provider

acceptance. Judging by what was required by HHS to obtain state

planning and establishment grants to build a better health

insurance marketplace there will be no shortage of measurement

Page 35: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 35 | P a g e

activities. HHS required states to submit: (1) quarterly project

reports; (2) final project report; (3) public report; (4) federal

financial report; and (5) quarterly reports to comply with

payment management regulations. (HHS 2010) Grantees must also

comply with audit requirements and performance reviews. Executive

Order 12866 requires an assessment of the anticipated costs and

benefits of significant rulemaking action and alternatives

considered, using guidance provided by the Office of Management

and Budget. (Federal Register, 2010)

VIII. Conclusion and Recommendations

Despite the complexity, the uncertainties, and challenges

we face in implementing health care reform, I am an

advocate for implementing the Exchanges as a means to

improve the distribution of insurance options to the

individual, small group, and uninsured segments. The new

health reform law provides substantial opportunities to

address the health and well being of many children and

their families. This may eventually permit a potential

reduction in future cost trends if fully implemented and

sustained. There are some “adjustments” I would like to

see incorporated into successful Exchange implementation

Page 36: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 36 | P a g e

efforts.

Recommendations

First, ACA Section 1302 requires the inclusion of

pediatric oral health care as part of the essential

benefits package. (Federal Register 2010) I would like to

see policymakers amend this section to encompass adult

oral health care. This is consistent with focusing on

prevention efforts and the costs are warranted given the

potential detection of cancer, cardiovascular, and

diabetic diseases from routine oral checkups. Second,

exchanges should be encouraged to develop a variety of

revenue sources to fund their work ahead. Exchanges

should seek ways to lower administrative costs with

employers, insurers and intermediaries. Legislation

statewide should include agents and brokers to help

educate the value of insurance within the exchange.

Commissions paid to agents should be assessed,

consistent, and transparent regardless of which health

plan is being sold and whether it is inside or outside

the exchange. Third, to the extent possible, state

regulation of the individual and small-group market

should be identical inside and outside the exchanges.

Page 37: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 37 | P a g e

This will negate adverse selection which has been a

problem with purchasing arrangements historically. HHS

may want to consider a risk-adjustment mechanism allowing

states to adjust risk among participating and

nonparticipating insurers. Fourth, the possibility of

having several unique and different exchanges within the

fifty states where some operating efficiently and others

do not is something that must be addressed. Simply stated

“there may be many different types of exchanges... you

can have exchanges that emphasize being a marketing

portal that allows comparison and examination of plans…

you can have an exchange that plays the expanded role as

a regulator of markets or health plans, as the enforcer

of regulations or as the financier of coverage… some may

fold in all of these activities.”(Reinke 2010) I

recommend that The State Consortium on Health Care Reform

Implementation, a collaboration of the National Governors

Association, The National Academy for State Health

Policy, the National Association of Insurance

Commissioners, and the Association of State Medicaid

Directors vigilantly monitor and share “best practices”

and navigation among all parties to help alleviate such

Page 38: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 38 | P a g e

concerns.(Weil 2010) Fifth, greater efforts with cost

containment will be necessary to balance new expenses as

millions gain access to the health system. The result

will be toxic if they end up gaining access to the status

quo, with its underuse, overuse and misuse of care.

Large employers can be a source of inspiration,

creativity, and relevance and states should seek their

guidance as containing health care costs has been their

highest priority for decades. The work of the private

sector with value based delivery models, pay for

performance, and incentives for lifestyle choices should

not be ignored. (Darling 2010) There is an old German

saying that God helps the sailor, but he must row. The

American Hospital Association crafted a proclamation

entitled “Health for Life” which included five goals for

a reformed health system: a focus on wellness; the most

efficient, affordable care; the highest quality care; the

best information; and health coverage for all, paid for

by all. (AHA 2010).The authors of the ACA legislation

likely borrowed from this passage to help create a

foundation and perhaps an “enabling” moment for health

care reform to achieve and sustain manageable cost

Page 39: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 39 | P a g e

trends. The way forward will involve all participants

from patients to purchasers to providers “rowing”

together to navigate the turbulent waters of health

reform in the coming years.

Page 40: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 40 | P a g e

References

Janet Adamy, “New Governors to Target Health Law”, WSJ 2010.

American Hospital Association Fund, “Shaping the Future for a

Healthier America”, August 2010.

Karen Bender and Beth Fretchen, “Government-Sponsored Health

Insurance Purchasing Arrangements: Do they Reduce Costs or Expand

Coverage for Individuals and Small Employers” for the Blue Cross

Blue Shield Association by Oliver Wyman Actuarial Consulting,

2007.

Linda J. Blumberg and Karen Politz, “Health Insurance Exchanges:

Organizing Health Insurance Marketplaces to Promote Health Reform

Goals”, The Urban Institute, April 2009.

Philip Bredsen, “Fresh Medicine: How to Fix Reform and Build a

Sustainable Health Care System”, Atlantic Monthly Press, October

2010.

Brookings Engelberg Center for Health Care Reform, “bending the

Curve through health reform Implementation”, 2010.

Business Roundtable, “Health Care Reform: Creating a Sustainable

Health Care Marketplace”, November 2009.

Page 41: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 41 | P a g e

Robert Carey, “Health insurance Exchanges: Key Issues for State

Implementation”, the Robert Wood Foundation, September 2010.

Christopher J. Conover, PhD and Thomas Miller, “Why a Public Plan

is Unnecessary to Stimulate Competition”, American Enterprise for

Public Policy Research, January 2010.

Rick Kurtis, “Health Reform: What Legislators Need to Know about

Exchanges”, Institute for Health Policy Solutions, 2020.

Helen Darling, “Perspectives from Large Employers”, Health

Affairs, Volume 29, No.6, June 2010.

Federal Register, Volume 75, No. 148, August 2010.

Edward Fensholt, “What Now for Health Reform”, Lockton, 2010.

Richard Foster, “Estimated Financial Effects of the Patient and

Affordable Act”, Centers for Medicare & Medicaid Services, April

22, 2010.

Paul Ginsburg, “Getting to the Real Issues in Health Care

Reform”, The New England Journal of Medicine, November 11, 2009.

Helen A. Halpin and Peter Harbage, “The Origins and Demise of the

Page 42: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 42 | P a g e

Public Option”, Health Affairs, Volume 29, No.6, June 2010.

Richard Hamburg, “Principles for Incorporating Health and

Prevention into Health Care Reform”, Trust for America’s Health

October 2009.

John Hoff, “Implementing Obamacare: A New Exercise in Old-

Fashioned Central Planning”, the Heritage Foundation, September

10, 2010.

Douglas Holtz-Eakin and Michael J. Ramlet, “Health Care Reform is

likely to Widen Federal Deficits not Reduce them”, Health

Affairs, Volume 29, No.6, June 2010.

Kaiser Family Foundation, “Staying on Top of Health Care Reform:

An Early Look at Workforce Challenges in Five States”, September

2010.

Jon Kingsdale and John Bertko,”Insurance Exchanges under Health

Care Reform: Six Design issues for the States”, Health Affairs,

Volume 29, No. 6, June 2010.

Ezra Klein, “Let the States Experiment Now”, The Virginia Pilot

(Norfolk, VA), 2010.

Kathleen Koster, “5 ways GOP Might Untrack Health Reform”,

Page 43: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 43 | P a g e

Employee Benefit News, November 2010.

Jennifer Liberto, “Undoing Health Care Reform: Not So Easy”, CNN

Money, November 3, 2010.

James Morone, “Presidents and Health Reform: From Franklin D.

Roosevelt to Barack Obama”, Health Affairs, Volume 29, No.6.

The Massachusetts Health Insurance Connector Authority, “Report

to the Massachusetts Legislature, Implementation of the Health

Care Reform Law”, Chapter 58, 2008.

Kavita Patel, “Health Reform’s Tortuous Route To The Patient-

Centered Outcomes Research Institute”, Health Affairs, Volume 29,

No. 10, 2010.

Thomas Reinke, “Will the Employer-Based System Collapse”, Managed

Care, July 2010.

Andrew Sisko, Christopher Truffer, Sean Keenhan, John Poisal,

Kent Clemens, and Andrew Madison, “National Health Spending

Projections: The Estimated Impact of Reform through 2019”, Health

Affairs, Volume 29, No. 10, October 2010.

Theda Skocpol, “The Political Challenges That May Undermine

Health Reform”, Health Affairs Volume 29, No. 7, July 2010.

Page 44: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 44 | P a g e

Judith Solomon, “Health Insurance Connectors Should Supplement

Public Coverage not Replace It”, Center on Budget and Policy

Priorities. January 29, 2007.

Timothy Stolzfus, “Health Insurance Exchanges and the Affordable

Care Act: Eight Difficult Issues”, the Commonwealth Fund,

September 30, 2010.

Towers Watson, “Health Care Reform Bulletin”, 2010.

U.S. Department of Health and Human Services, “Health Insurance

Exchanges: State Planning and Establishment Grants”, September

30, 2010.

U.S. General Accounting Office (GAO), “Private Health Insurance:

Cooperatives Offer Small Employers Plan Choice and Market Prices”

March, 2000.

Alan Weil, “State Policymakers’ Priorities for Successful

Implementation of Health Reform”, The National Academy for State

Health Policy, May 2010.

Wicks EK and Hall MA, “Purchasing Cooperatives for Small Employers:

Performance and Prospects, the Milbank Quarterly, Volume 78, No. 4, 2000.

Page 45: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 45 | P a g e

Willis North America and Diamond Technology Consultants, “The Health Care Reform Survey”,

November, 2010.

Richard Alonso-Zaldivar, “Employers Look at Health Insurance Options”, Washington Post,

October 24, 2010.

Page 46: Implementing Exchanges that Enhance Choice, Affordability, and Coverage

Implementing Exchanges that Enhance Choice, Affordability and Coverage 46 | P a g e