The Danya Institute and Central East Addiction Technology Transfer Center Network are pleased to present this regular series of orignal articles on trends in the field of behavioral healthcare. Our latest article is an in-depth look at health exchanges by special guest author Douglas Canter.
Health exchanges promise sweeping change
Congress enacted the Patient Protection and Affordable Care Act in 2010. “There is a lot of uncertainty,” says Kansas Insurance Commissioner Sandy Praeger, who chairs the Health Insurance Committee of the National Association of Insurance Commissioners.
At its core, the 900-page Affordable Care Act expands health insurance coverage and indirectly attempts to control costs in essentially four ways. It increases income eligibility for Medicaid, the federal-state insurance program for the poor (the expanded Medicaid coverage is now optional for states in light of the June 2012 Supreme Court decision affirming the law). The Act also requires certain individuals and businesses to purchase health insurance or face tax penalties or fines. It provides tax credits on a sliding-scale to individuals within specified income ranges and subsidizes their insurance through periodic payments to insurers in order to reduce co-payments, such as deductibles. The Act also mandates the creation of state health exchanges, in part, to facilitate a restructuring of the market for health insurance.
On December 14, 2012, ten states notified the Department of Health and Human Services of their intent to create state-specific versions of the mandated exchanges. According to the Department’s website, a total of 19 states now have either submitted applications to establish their own state exchange or have had their applications to do so conditionally approved.
State exchanges are coming beginning January 2014, whether or not states create their own versions. As an alternative to a state-designed exchange, a state may choose to accept the default federal model or create one of a number of possible hybrid versions called partnership exchanges. Each version of the state exchange presents possible consequences for stakeholders – insurance carriers, health care providers and patients – as states and the District of Columbia move toward the January 1, 2014 implementation date.
For people whose incomes fall within the eligibility range for federal tax credits and cost sharing – about $11,000 to $44,000 for an unmarried individual – implementation of exchanges will likely increase their access to insurance because the tax-credit and cost-sharing subsidies will make insurance economically more feasible. Subsidies generally apply to people with incomes between 100 and 400 percent of the federal poverty level – a benchmark that increases based on the number of people in a household – and who meet the other qualifications.
Come 2014, consumers likely will face a different kind of insurance-buying experience. More people will begin to deal with a set of comparable plans and core services offered through online exchanges. As explained in a December 2011 report prepared by the National Academy of Social Insurance and funded by the Robert Wood Johnson Foundation, each state exchange has “two overarching responsibilities” – as an online marketplace and as a clearinghouse for insurance plans sold into that market.
Exchanges are supposed to provide a one-stop virtual shopping place with easy-to-understand platinum, gold, silver and bronze insurance comparability rankings of health insurance plans. The Act also requires that exchanges provide a standard format for presenting plan options to consumers; web access to comparative plan information; a toll-free consumer-assistance hotline; and various reporting requirements. The Act contemplates a greater degree of quality and price transparency to enable consumers to better compare plans. Think of how a car buyer can now look up the dealer inventory price online.
In the short-term, the cost of insurance will likely go down for patients whose health status, medical condition, or claims’ experience is poor and go up for generally healthy patients. According to a May 2011 summary of the law prepared by the National Association of Insurance Commissioners, under the Act insurance carriers may only vary premiums based on age, tobacco use, geographic area and whether coverage is for an individual or family. Thus, the cost of insurance will likely go down for someone in a traditional risk category unrelated to those covered risk factors. Similarly, expanding the pool of insured people, which normally reduces costs, might have the opposite effect to the extent the expanded pool reflects a disproportional percentage of people in a higher-risk group.
In the long-term, the Act contemplates that health care costs will become lower for everyone as a result of greater competition and better quality care. According to December 10, 2012 responses to frequently asked questions prepared by the Department of Health and Human Services, “The Introduction of Exchanges and the insurance market rules in 2014 will help promote competition based on quality and cost since consumers will have an unprecedented ability to compare similar products from different issuers and will be assured the right to purchase these products, regardless of their health condition.”
Some commentators have similarly argued that exchanges with lots of insured people and a number of competing insurance carriers will be able to exercise market leverage and reduce health care costs.
There is a lot of speculation about the effect of the Act on health care costs. Exchanges represent a central feature of the market reform contemplated by the Act, which policy-makers hope will lower health care costs in the long-run. The impact of exchanges in combination with other provisions of the Act on providers may be mixed, with some seeing expanded utilization and, thus, potential economic benefits, while others – most others – feeling the price pressure on health costs from a more competitive market.
The Act requires that all plans offered in individual and small-group markets, both inside and outside of state exchanges, offer a core set of essential benefits that compare to the benefits typically provided by employers. The inclusion of mental-health and substance-abuse-disorder services within the definition of essential health benefits, might expand the number of people who can afford such services. But all providers, including those providing services that the Act defines as essential health benefits, will continue to face cost pressure.
The impact on carriers will be complex. Carriers will have to restructure their business models based on newly created insurance markets. Greater competition, essential benefits, broader coverage for higher-risk individuals, a limit on profit percentage relative to claim reimbursement and quality-of-care expenditures all will drive market changes. This market restructuring will likely lead to cost-efficiency efforts and consolidation.
“Insurance carriers will be competing with hospitals and big HMOs,” according to Dr. Jack Epstein, an internist with a solo practice in the D.C. Maryland suburbs. “Where there are strong, well-capitalized providers, they will start to dominate the marketplace,” he says.
Dr. Epstein sees the effect of the Act as “trying to sweep all the independent [medical] practice community into an organized system, preferably one organized vertically.” For example, local D.C. area hospitals will have an incentive to acquire substance-abuse treatment counselors and other types of behavioral-health and substance-abuse providers in order to offer a wide range of medical services.
Dr. Epstein believes health plans eligible for sale into exchanges will receive compensation from premiums that are established more like those of Health Maintenance Organizations today. He explains that premiums for HMOs are established by market pressure for a set of defined services. This contrasts with premiums under what he calls “indemnity plans,” which are based upon an historical cost-of-service plus administrative fees. This shift can reduce health care costs by imposing greater discipline in medical care decisions, and it can improve quality of care, he says. “Once you know outcomes, you can measure performance and can start to talk meaningfully about quality.”
The Act establishes a series of reporting obligations that create metrics for improved care. According to the May 2011 summary of the law provided by the National Association of Insurance Commissioners, all non-grandfathered insurance plans must submit annual reports to the Department of Health and Human Services demonstrating whether the plan implements activities that improve health outcomes, prevent hospital readmission, improve patient safety, reduce medical errors and promote health wellness. In addition, insurance carriers must report premium-to-loss ratios to the Department. Carriers also must rebate excessive premiums to consumers – as measured by a percentage of the premium spent on clinical services and activities that improve health care quality.
States face a number of policy and program questions in connection with exchanges. Their decisions regarding the type of exchange model raise a fundamental question about state control. Accepting the federal model would mean the federal government would assume the responsibility for ensuring that the exchange fulfills the requirements of the law. Yet, it also would mean less state control to fashion an exchange that reflects local markets and needs.
If a state goes to the federal model, “one concern could be giving up some authority over its Medicaid program in the future, potentially,” Commissioner Praeger says. Exchanges must “provide a seamless, user-friendly system” for determining individual eligibility for one of a number of potential health plans, according to the 2011 National Academy report. These eligibility decisions impact complicated relationships between various health insurance programs, such as Medicaid and the new, optional Basic Health Plan. At the very least, these state decisions create cost consequences for qualifying individuals. But they may also affect the cost of premiums for people purchasing insurance from private carriers through an exchange.
For example, according to some analysts, a state’s decision regarding the type of exchange might implicate issues of whether to accept the expansion of Medicaid, the federal-state program for the poor; or to establish a Basic Health Plan. The Basic Health Program, which is optional for states under the Act, applies to a limited group of people. Some of whom (with incomes between 133 and 200 percent of the federal poverty level) would otherwise qualify for subsidized insurance in connection with the Act’s purchase mandate (people with incomes between 100 and 400 percent of the Federal poverty level).
The federal government and states have been working on exchange implementation issues. For example, the Act requires that the federal government create a hub to support data sharing between relevant state and federal agencies. The software necessary to perform the contemplated system operations already exists, according to Commissioner Paeger. Yet, she admits, “There are still issues. It will be complex.”
Douglas Canter is a Washington, DC energy attorney and local freelance writer.