Building a new marketplace
State panel works toward deadline for health benefits exchange
- April 29, 2011
Health insurance companies in Virginia are trying to thread a needle these days. They are working to meet the demands of their current customers while also trying to figure out the direction of health-care reform.
The first task is fairly easy to understand. Many employers soon will be shopping for the best price and benefits on their health-care policies. The second task, however, is harder to grasp because details are still scarce. The state is working against a January 2014 deadline to implement a health benefits exchange (HBE) as part of the federal Patient Protection and Affordable Care Act, even while Attorney General Ken Cuccinelli is asking the U.S. Supreme Court to strike down parts of the law. (A federal district judge in Virginia already has ruled in his favor.) The result, says Jeff Ricketts, regional vice president at Anthem Blue Cross and Blue Shield in Richmond, is that “right now, our current employer clients are fairly confused. They’re wondering if this exchange is going to be good for them or not.”
For the next few months, however, neither Ricketts nor anyone else can provide much guidance. Virginia has decided to move ahead with developing its own health benefits exchange, rather than have the federal government design it. HBEs already exist in California, Massachusetts and Utah. They will provide a way for individuals whose employers don’t offer health insurance or who work for small firms (fewer than 50 full-time employees in 2014 and fewer than 100 employees in 2016) to purchase insurance at more competitive rates.
The exchanges also will play a role in the health-care reform law’s expanded Medicaid pool, extending coverage to those who earn up to 133 percent of the federal poverty level. There are about 550,000 enrollees in the Medicaid managed-care plan now; somewhere in the range of another 270,000 to 425,000 Virginians will become eligible, says Doug Gray, executive director of the Virginia Association of Health Plans (VAHP).
A lot of details need to be worked out quickly. Virginia’s early legislative schedule compresses the timeline because the General Assembly must approve the HBE plan design in its 2012 session, allowing time for the federal government to review and approve it so that it’s ready to operate on Jan. 1, 2014. That means the state’s recommended implementation plan and proposed legislation need to be ready by October for General Assembly consideration next January.
Spreading the risk
In August, Gov. Bob. McDonnell appointed a 24-member Virginia Health Reform Initiative Advisory Council, chaired by Virginia Secretary of Health and Human Resources Dr. Bill Hazel. That panel, which in December presented a report on health-care reform in Virginia (see related story on page 47), is “an example of those states which have recognized that as much as they may have political quarrels, it’s not worth throwing the baby out with the bath water,” says Larry McNeely, health-care-reform advocate at the U.S. Public Interest Research Groups in Washington, D.C. “The idea of having a competitive marketplace where small businesses and consumers can pool their buying power is fundamentally a pro-consumer idea.”
John McInerney, health-policy director at The Commonwealth Institute for Fiscal Analysis in Richmond, says the HBE option can be good for the uninsured. “The nongroup individual market is not working, and the small-group market is struggling. Less than 40 percent of small businesses with 50 or fewer employers offer health coverage,” he says. In addition to providing consumers an option for getting affordable coverage, Virginia’s HBE, if designed correctly, also could remove administrative burdens that keep some small employers from offering health insurance, he says. “Many small businesses want to offer health insurance, but it’s too expensive or the administrative burdens are too great.” An estimated 11 to 16 percent of Virginia’s population is uninsured, and about 6 percent of Virginians purchase their own insurance on the individual market.
By allowing small businesses and individuals to pool their numbers, they can spread the risk, the way large employers do. But there are lingering questions: Who will sign up? What will the benefits look like? How will premiums offered through the HBE compare with the private market? And who’s overseeing the HBE? “If you have only very small businesses or only a few employees sign up, then the premiums can be very high,” McInerney says. McNeely adds that three factors will determine the ultimate success of an HBE: its management, its negotiating strength and the quality of the patient experience.
There’s a carrot and a stick built into the health-reform law. It provides subsidies for lower-paid employees, available on a sliding scale for those earning between 133 and 400 percent of the federal poverty level. But those subsidies are available only for employees who purchase through the exchange. Anthem anticipates this is where the biggest changes will occur, particularly among businesses covering two to nine employees. “We’ll see a lot of shifting from the traditional group plan to the group plan in the exchange or to the individual plan within the exchange in this category,” Ricketts says.
Businesses with more than 50 employees are subject to the “play-or-pay” provision. If they don’t cover a portion of their employees’ insurance premiums, they must pay a nondeductible $2,000 penalty per employee.
On its face, paying the penalty could represent a significant savings over current employer contributions for employee health premiums. But the bottom line impact can’t be assessed by such a simple formula. “Offering health insurance is a huge tool to keep employees,” says Ricketts. “It would be difficult to drop insurance coverage and not raise employees’ salaries.”
Of the employers that Anthem has surveyed, 87 percent believe they’ll continue to offer insurance benefits to employees. The larger the firm, the less change Anthem expects to see. “In fact, we believe there might be some uptick in the 25- to 50- or 51- to 100-employee businesses, which aren’t offering health benefits now,” he says. “They might decide that if they’re going to have to pay a $2,000 penalty, they might as well create goodwill and attract new employees by offering insurance.”
The expectation is that the HBE will make it simpler for companies to offer health insurance benefits to employees. In the traditional market, the complicated decision of choosing health benefits from a wide range of options falls to the human resources department. “The exchange will take some of the complication away by offering fewer, standardized benefit packages. You may be able to choose between chocolate, strawberry and vanilla, but not all 37 flavors,” Ricketts says.
One benefit already excluded from Virginia’s exchange is abortion services. In April, McDonnell amended a bill passed by General Assembly to ban private insurers participating in the exchange from covering abortions. The original bill allowed the state begin to setting up the exchange. The legislature upheld McDonnell’s amendment.
A new payment model
Meanwhile insurers are branching out into different kinds of payment arrangements. In March, Roanoke-based Carilion Clinic and Connecticut-based health insurer Aetna announced plans to collaborate in an accountable-care organization (ACO), a new payment model in which Carilion Clinic would be rewarded financially for the outcomes — or results — of a collective patient pool. ACOs, mentioned in the health care law, represent a shift in the way health care is paid for in this country. Rather than paying fees for every service provided, an ACO requires coordination among doctors, hospitals and insurers to provide cost-effective and appropriate care.
Carilion Clinic began laying the groundwork for this in 2006 when it adopted the integrated clinic model, instead of being a network of hospitals. Carilion has invested more than $100 million in an electronic medical records system to coordinate patient care and communication throughout its system of more than 600 physicians and eight nonprofit hospitals. “The collaboration with Aetna is one part of this continuing effort toward ever more accountable care,” says Dr. R. Wayne Gandee, Carilion’s chief medical officer. “With this collaboration, we now have the opportunity to have a role in designing health-care delivery vehicles for patients.” He notes that Carilion employees will be switching to an Aetna plan shortly. Carilion and Aetna also hope to have some kind of co-branded health plan, at least for the expanded pool of Medicaid patients, later this year.
Ultimately, it may not be the HBE that most affects larger employers but other portions of the health-care law, such as ACOs and underwriting changes that take effect in 2014. Those changes state that insurers cannot charge higher premiums for patients with serious medical conditions. “That sounds great, but the flip side is that we’re going to have to charge everyone more,” says Anthem’s Ricketts. “Small employers with primarily young, healthy people may see significant increases when they have to go with that average.”
The big question now is what the essential benefit will look like — in other words, what package of health-care services will be offered through the exchange. Until that’s identified, it’s not possible for participating insurers to attach any real cost figures, says VAHP’s Gray. Will the General Assembly and lobbying groups be able to resist requests to add benefits to the basic package? Just as important, will the benefits be robust enough to attract people, especially as the state can opt in 2017 to make the HBE available to larger employers? As Gray says, “If we build it, will they come?” It will be a difficult balance, he says. “You can’t build it too modestly if you want to attract more people. But if you build it too grandly, it’s going to cost a lot more.”