As the states begin to focus in earnest on the details of the reform law’s new insurance exchanges, they’re facing pressure from consumer advocates and health care economists to structure the marketplaces as relatively aggressive negotiators that impose consumer protections beyond the federal law’s minimum requirements. State lawmakers and regulators will soon need to begin tackling a raft of programmatic and logistical questions about the exchanges, and many of their answers will depend on more fundamental decisions about the role each state wants its exchange to play.
The reform law sets minimum standards for the exchanges and prescribes their basic roles — namely, certifying that plans meet the new federal standard for a “qualified health plan” and acting as a conduit to help consumers find and compare the policies that qualify. Stakeholders expect that some states’ exchanges will stop there. But they have the authority to go significantly further, thanks to “prudent purchasing” measures that Sen. John Kerry (D-MA) championed in the reform bill. Some consumer advocates are pressing the states to use that authority and view their exchanges as a consumer protection tool. They should not be viewed simply as marketplaces to shop for insurance, advocates argued at a recent meeting of the National Association of Insurance Commissioners.
“While some would have you believe that exchanges should serve simply as clearinghouses to connect consumers and small businesses with health plans – sort of a ‘Travelocity’ for insurance — we believe such a hands-off role would not only set up the exchanges for failure over time, but be a terrible missed opportunity to achieve a more efficient, value-oriented health care system,” Sabrina Corlette, a professor at Georgetown University’s Health Policy Institute, said at the NAIC conference. “The law should be seen only as a floor, and states should be thinking actively and creatively about additional things they could do to create a sustainable insurance marketplace that delivers affordable, accessible and meaningful products to consumers and small business owners.”
Gary Claxton, vice president of the Kaiser Family Foundation, also outlined the case for empowering exchanges to be strong purchasers. Their basic purpose, as articulated throughout the reform debate, is to bring competitive pressures to bear on the often scatter-shot individual insurance market. Because many state markets are dominated by one or two major players, he said, taking on an active negotiating role would be consistent with the exchanges’ fundamental mission.
In addition to travel websites such as Travelocity, the exchanges are often compared to the Federal Employees Health Benefit Plan, which successfully delivers a menu of competing plans to federal workers. But Timothy Jost, a law professor at Washington and Lee University and a consumer advocate before NAIC, noted that the FEHBP is not an especially aggressive negotiator. He said it operates more like the simpler, Travelocity-style concept of the exchanges, setting minimum standards and compiling the various policies that meet them. And it has a decent number of competitors.
Jost contrasted the FEHBP with Massachusetts’ version of an insurance exchange, which has imposed coverage requirements beyond those included in the state’s statutes and has a notably smaller pool of competing plans from which to choose. Jost told Inside Health Reform he has not decided where he stands on the issue of active negotiations by the state exchanges, saying competition and consumer protection are both important.
Health care economist Len Nichols made a similar point during the NAIC meeting. Promoting competition might require more “creativity” than a traditional regulatory mindset, he argued.
“You kind of want insurers to want to play,” he said. “This is not just about shackling them to some tree and hoping they don’t run away.”
Especially rigorous coverage requirements, coupled with the rate-review functions authorized under health reform, could create a disincentive for insurers to participate in a state’s exchange, economists warned. At the NAIC conference, Claxton laid out the case that the exchanges might need strong negotiating power in order to promote meaningful quality initiatives. Consumers do not fully understand such programs, he said, so basic market forces might not be an accurate representation of the demand for effective quality-improvement mechanisms. But he also said an overly ambitious regulatory mindset would be risky.
“It may be wise for exchanges, even if they have authority to actively negotiate with plans, to start slowly and increase their involvement as the market unfolds and as they gain experience,” Claxton wrote in prepared comments. “Such a go-slow approach will likely frustrate some with an aggressive reform agenda or who want the lowest possible prices from day one, but it should enhance their credibility and effectiveness when they begin to push plans for better performance.”
States might be able to mitigate such incidental risks by requiring individual and small-group policies sold outside of the exchanges to meet the same requirements that apply within the structured marketplace. Jost said he believes that would be necessary to prevent adverse selection. But the approach would face opposition from at least some insurers. Cigna — which only does about 1 percent of its total business in the two markets that will have access to the exchanges — urged NAIC members to maximize the choices available both within and outside of the exchanges.
Although the reform law assigns certain tasks to the exchanges, such as certifying that plans meet new federal standards, states have considerable flexibility when deciding whether the exchanges should also have a role in enforcement. Claxton, Nichols and other policy experts recommended against strong enforcement arms within the exchanges, especially if they are set up as strong purchasers. Adding a strong regulatory arm would only make it harder to have the exchanges up and running by 2014, they said, adding that state insurance departments are the proper place for enforcement.
“Regulators focus on plan compliance with legal standards, and they are expected to be neutral arbiters when there are disputes over whether standards are met,” Claxton said. “Exchanges, in contrast, might be expected to try to push participating insurers toward delivering higher value for consumers, which is hardly a neutral stance. Organizations without a clear focus and mandate are not likely to be effective, and ones with conflicting foci are even less likely to succeed,” Claxton added.
Meanwhile, HHS is urging states to move ahead with aggressive oversight of the reform law’s consumer protection provisions, warning that HHS will fill in the enforcement gaps if need be (see related story).
States will face related considerations about where to house their exchanges. Massachusetts established a non-profit board to run its exchange. Utah put its version within the governor’s office, and an earlier effort in California also fell outside of the state’s insurance office. Jost said he does not expect that many states will attempt to combine the two offices, largely because of concern for preserving regulators’ impartiality.
All of these decisions are up to the states, but HHS nevertheless raised all of them — and dozens of others — in a request for public comment that it released last week. The department’s invitation to provide feedback on a wide range of exchange-related issues came less than a week after the NAIC conference. The reform law does not require the exchanges to be in place until 2014 but, as a participant at the NAIC meeting noted, that means states will need to sign contracts for their exchanges in mid-2013 — which means they’ll need to sign those contracts in early 2013, which means they’ll need to put out requests for proposals in 2012. And that means it’s time to start thinking seriously about what they want from their respective exchanges, the participant noted.
HHS will administer a federal fallback in any state that does not authorize its own exchange. — Sam Baker (firstname.lastname@example.org)