Over the past few weeks, I’ve been talking to people all over the country about health care implementation at the state level -- both the creation of exchanges and the Medicaid expansion. I was reporting a magazine piece (I’ll link when it comes out, but it’ll be a few months -- I’ve been writing for so many online publications recently I had forgotten about this whole paper production and printing thing) and had a lot of interesting conversations with perceptive people about the road ahead. This is the first of several posts on the topic. Some of it dovetails with the discussion at a very useful Health Affairs conference this week. (The June edition of Health Affairs is everything you ever wanted to know about implementation but was afraid someone might actually tell you) so I’ll work that in.
Let’s start with John Bertko and Jon Kingsdale. Bertko is an actuary (disclosure: he’s collaborated with New America in the past) and a visiting scholar at the Brookings Institution. Kingsdale, now a consultant, created and administered the Massachusetts exchange. They wrote an article together “Insurance Exchanges Under Health Reform: Six Design Issues for the States” (here, but subscription required), and I spoke to them separately (Bertko at some length, Kingdale more briefly but he also spoke at the Health Affairs event).
I came away with two main thoughts:
First, building the exchanges requires hundreds if not thousands of technical decisions. Some states will make some wrong decisions. Wrong decisions can make the exchanges not work well, undermining reform. But wrong decisions can also be fixed -- states will need fluidity moving foward, as exchanges will probably require a lot of fixing as we go. (The law requires states to report on their exchanges to the federal government; the federal government in turn will monitor and report on how the exchanges are working. Much tweaking may ensue.)
Second, technical decisions can also be ideological (or political or philosophical, choose your word). Although all exchanges are markets, some will be more market-oriented markets, if you will excuse an imperfect phrase. The degree of regulation, and enforcement, what rules apply in the exchange, what rules apply to plans outside the exchange etc may also give each state’s exchange -- and overall insurance market -- a different flavor.
“The exchanges are the cornerstone of subsidized coverage expansion,” Alan Weil, executive director of the National Academy of State Health Policy, told me in a separate, recent conversation. “If it goes well, you meet the promise of health reform. If not, boy are you in trouble.”
Weil noted, “Insurance regulation is a big deal. For many states it is a very fundamental rethinking about the degree of oversight.” (Weil also wrote for that Health Affairs issue on state to-do lists. Which is a long list, even by working mother standards.)
In their article, Bertko and Kingsdale outline six key decisions. I’m going to quote about one quite extensively to give a flavor of the complexity, and then just give a taste of the other five. Keep in mind that these "design questions" don't even encompass big decisions like whether to merge the individual and small business exchanges, or whether to split a state into different geographic exchanges, whether -- particularly for small or sparsely populated states -- to have two or more states come together to create an exchange etc.
Organization and Governance. Generally speaking, publicly sponsored exchanges will organize markets to help relatively "weak" buyers by enhancing individual choice and streamlining the distribution of insurance. The rationale for government sponsorship is to improve the dynamics found in the private market. However, political involvement raises concerns that an exchange may use the rules to disadvantage private insurers or discriminate unfairly among carriers. Presumably, governance should aim to address these concerns.
If an exchange is to process commercial transactions and attract customers, it should be insulated from political influence and must have access to the business expertise it needs. If it is to achieve policy objectives through tax-financed subsidies and some degree of regulation, it also must be publicly accountable.
This combination of requirements suggests the model of a semi-independent government authority, managed outside the civil service paystructure. The authority would be governed by a board of directors that has relevant expertise; represents a broad political spectrum; is appointed by elected officials; and is held accountable for the stewardship of public funds. This approach would be an obvious choice in the case of a regional exchange, which, as a semi-independent authority, could be governed by appointees from participating states.
And that was one of the less technically dense sections.
Bertko and Kingsdale explain other challenges. For instance there are rating rules --older people can only be charged three times as much as younger ones -- but some “wellness incentives” if not designed and monitored carefully, could create subtle underwriting to select healthy clients. Premiums need to be adjusted for risk selection -- and risk adjustment mechanisms, while technically much better than a few years ago, can ruffle feathers (when exchanges move dollars from one plan to another). Exchanges will have to decide the range of benefit options, and whether they are the same or “actuarial equivalents.” (Think of the confusion in those early months of the Medicare prescription drug plan.) Exchanges will have to decide which and how many plans can participate, and under what circumstances (and, to an extent, this encompasses deciding what rules also apply outside of the exchange). They also have to figure out how many other consumer-friendly gizmos (“physician finders” and the like) to include, and how they can maximize administrative efficiencies in a web-oriented market with electronic payments instead of paper ones. And the exchanges don’t have to just make these kazillion decisions. They then have to monitor them to see that they are carried out. We can expect that plans will be required to cover cancer, for instance. But the requirement is pretty meaningless if the plan doesn’t have more than a couple of genuinely participating oncologists among its providers. Which would be one sneaky way of discriminating against people with a preexisting condition like cancer.
There are also going to be unintended consequences. Bertko and Kingsdale wrote, for instance, that the exclusion of illegal immigrants from the exchanges -- even if they want to use their own money -- may lead to all sorts of problems, beyond the obvious one of still having millions of uninsured people in a new system that depends on high coverage rates to succeed. Checking who is legal and who is not can add a cumbersome layer, which may undermine some of the administrative smoothness the exchanges seek, and possibly create enough headaches that some people will just avoid the exchanges, and buy coverage in the parallel nonexchange market (though subsidies will only be in the exchanges).
And we didn’t even talk about all the new data exchange requirements between Medicaid, the exchange, and federal tax and income information….
The authors conclude:
If an exchange does not attract and serve customers well, it cannot achieve its mission. At the same time, no matter how scrupulously mission-driven and well-managed they are, public exchanges will raise fears of unfair competition among commercial interests. If an exchange succeeds "too well," then it can expect responses from both the market and politicians. Carriers and conventional distributors that view exchanges as a business threat may react by offering new services, efficiencies, or other competitive responses, or they may try political means to diminish the threat. If exchanges can overcome these hurdles, however, they will be a critical force in spreading coverage and stabilizing health insurance markets in the challenging years to come.
Precisely because it is so daunting, a lot of preparatory technical work is going on -- the National Governors Association, the National Conference of State Legislatures, the National Association of Insurance Commissioners etc etc are all helping. Bertko expects to see some simulations before the exchanges open. “A lot of folks will be throwing switches to see what works,” he said.
And, overall, he’s actually reasonably optimistic. “This is not doomed to fail,” Bertko said. “It can almost succeed in spite of itself.” (That doesn't sound like much of an endorsement unless you know how Bertko talks, in which case it's pretty good.)
Kingsdale made one other extremely important point. It is easy to get drawn into the technical morass. But states should step back and figure out the big picture. What do they envision for their exchange? What are they selling? Where do they want to be in a few years? The health reform law is sweeping in scope, “the ground has fundamentally shifted.” States need to figure out how to navigate that new terrain, he said, not get buried in it.