Lessons From the Utah Health Insurance Exchange
Health insurance exchanges are key to the success of health care reform. In fact, unless they succeed, most of health care reform will fail as well. This is because they are the portals to affordable health insurance for people who otherwise would find it difficult if not impossible to obtain. Under the Patient Protection and Affordable Care Act (PPACA), state-run health insurance exchanges will also provide access to health insurance subsidies for those who qualify and state run health insurance for people too poor to afford any insurance at all.
The insurance exchanges mandated for each state by the PPACA call for 5 specific plans offered by any number of insurance companies. People who qualify for government-provided health insurance subsidies and small businesses will use the Internet-based insurance marketplace to purchase insurance for themselves, their families, or their employees. The self-employed, unemployed, and others who are working but not insured by their employers will also purchase insurance from the exchange. .
Despite their apparent advantages, health insurance exchanges have poor track records historically. At least 20 have been set up at various times across the country only to fail. Today there are just two, one in Massachusetts, another in Utah. Both were initiated before the passing of the PPACA; but the Massachusetts insurance exchange is essentially the same as the model mandated by the PPACA. Unfortunately, as we’ve previously written, the Massachusetts Connector Exchange, as part of that state’s health care reform program, has also resulted in the highest and fastest rising health insurance costs in the country.
The Utah Health Exchange offers an alternative approach to the Massachusetts and PPACA model; and it merits looking at. To begin with, the major stakeholders in the health care reform measure, actively participated in crafting Utah’s exchange. Physicians, hospitals administrators, insurance carriers and brokers, employers, and others formed groups and offered recommendations. When conflicts arose between these interests, they were worked out. It was a long and intense process; but the resulting health care reform legislation passed by an overwhelming bi-partisan majority with solid public support.
Like the PPACA plan, Utah’s insurance exchange is an online central market place. However, the path to achieving this differed markedly from the one Massachusetts and the PPACA followed. For one thing, legislators determined that reform would come in separate stages with honest evaluation at each step. As a result, only a limited number of small businesses would participate initially, allowing adjustments to be made without serious industry disruptions. (Because over 60% of Utah residents are employed by small businesses with most unable to offer their employees insurance, they became the initial focus.)
Instead of the more commonly used defined benefit plans in which the employer chooses employee insurance plans, Utah chose a defined contribution plan, where the employer gives the employee the dollars to purchase the insurance he or she needs. This approach benefits both the employee and the small business owner. The employer is released from the time-consuming job of choosing and managing benefit plans for his employees, a major boon for the time-strapped small business owner. Moreover, small business owners can better manage their expenses, knowing exactly what they’ll be spending on employee insurance.
For the employee, the defined benefit contribution offers even more benefits. Not only can people choose the plan they need, if a spouse works for employers in the exchange, they can combine their employer contributions. Unlike the defined benefit plan, the employee, not the employer, ‘own’ the plan. This means employees can keep it if they switch to another employer participating in the exchange, making these plans portable (one of the holy grails of health insurance reform). And there’s more: Utah worked with the Internal Revenue Service to define employee purchase of insurance in a way that would allow the employees’ share of the cost to be paid with pre-tax dollars.
As might be expected when major and complicated changes have been made to a process, significant problems surfaced when the limited insurance exchange launched. Changes had to be made in how risk was calculated to make policies cheaper. The application form, deemed too complicated, was simplified; and the site navigation improved. To offer more needed assistance, a 24-hour online call center was implemented and a “paycheck optimizer” tool was added to show how much insurance coverage will cost, co-pays and deductibles included.
The improved Utah Health Exchange will be launched in early November with insurance coverage starting January 1, 2011. This time all small businesses with 2-50 employees are encouraged to join and over 600 employers have expressed interest to do so. Participants will choose between 60 plans offered by 4 insurers. Larger businesses are interested as well but won’t be included until the next phase.
Although Utah’s exchange is still in process, their innovative approach can provide lessons for the states who must begin soon to implement their own exchanges. Among them are these:
> Invoke stakeholders heavily though out the process, making it a bottom up rather than a top down approach
> Consider the unique factors and needs of the state
> Implement in small stages with honest evaluation embedded in the process
> Collaborate with all stakeholders to solve the inevitable problems
> Study the successes and failures of the Massachusetts and Utah exchanges
> Resist a lock-step approach to the federal mandates in favor of arguing for what might work best on a state level
This is especially true for California. As the first state to begin the process, California’s actions will be followed closely. With 10% of the population, California’s health exchange promises to be one of the largest, with an estimated 2-4 million people using it to purchase health insurance. With that many people depending on it and as an example that states will follow, California can’t afford to make mistakes.