• What will consumers make of health insurance exchanges?

    I and many others lament that the new health insurance exchanges won’t be operative until 2014. Millions of uninsured Americans need help now. It’s heartbreaking that so many need to wait.

    In part, exchange implementation was delayed to hit ten-year budget targets valued by moderate and conservative Democrats. Yet implementation was delayed for other reasons, too. Elected officials and policymakers understood that there will be a myriad of political and administrative challenges—not to mention various administrative glitches–as the new exchanges come online. Behind closed doors, many Democratic office-holders were happy to see these challenges and glitches put off beyond the 2012 presidential election.

    The challenges and glitches won’t arise because the Affordable Care Act was poorly crafted; they will arise for other two reasons, called to mind by a recent story in the conservative webzine Daily Caller. First, one must implement really complex regulatory and assistance policies across fifty states. And because health reform is the centerpiece initiative of a Democratic president, it will be implemented in a politically polarized environment that will permit few administrative fixes. That’s a reality of American politics.

    Second, we don’t exactly know what millions of Americans who will participate in the new exchanges will think about the insurance they will secure. Exchanges will be a balm for the medically uninsured, previously-uninsured people, and for many others paying high administrative costs and (perhaps) extra premiums due to health difficulties in the individual and small-group market. If you wonder whether this is a real problem, visit the cancer ward of any large public hospital.

    The economic and political calculus will be more complicated for millions of others: people now gambling by going without coverage, relatively healthy people (especially those under 30) who will now pay community-rated premiums to support coverage, millions of others who may pay a bit more in premiums because they will be purchasing a richer package of coverage that will actually cover an essential package of care in the event of costly illness.

    Myles Miller, writing in Daily Caller, highlighted these issues in a recent story, pugnaciously titled: Obamacare architect: Expect steep increase in health care premiums. Last year, officials in Wisconsin, Minnesota, and Colorado hired Gorman Actuarial and noted MIT economist Jonathan Gruber to help examine the impact of ACA on health insurance markets. Drawing on a Powerpoint presentation prepared in Wisconsin, and companion pieces for Minnesota and Colorado, Miller writes that these reports “offer a drastically different portrait in 2012 from the one Obama painted just 17 months ago.”

    These Powerpoints are worth reading alongside Miller’s original story. Not surprisingly, Miller focuses on the politically unpalatable findings:

    During his presentation to Wisconsin officials in August 2011, Gruber revealed that while about 57 percent of those who get their insurance through the individual market will benefit in one way or another from the law’s subsides, an even larger majority of the individual market will end up paying drastically more overall.

    The Daily Caller’s Miller underplays more favorable findings. On average, the financial benefits to those whose premiums will decline are larger than the changes for those whose premiums will rise. After accounting for affordability credits, average premiums fall in each state.

    As Gruber notes by email, “ALL of this analysis refers only to those who were already buying nongroup insurance.  It completely ignores the enormous reduction in premiums for people who were shut out of the market because they were sick.”

    Miller’s piece also exemplifies the partisan divide in its limited discussion of the uninsured. The word “uninsured” occurs once, in a quote from Gruber. Yet all three Powerpoints note dramatic declines in the ranks of the uninsured and the large average financial transfers to households that join the new exchanges. In Wisconsin, the ranks of the uninsured are projected to drop by 65%, (340,000 people). The corresponding projections for Colorado and Minnesota are 55% (480,000 people) and 58% (290,000 people), respectively. I didn’t see household finance numbers for Wisconsin. The average estimated financial impact of the exchanges in Colorado was $790 per family. In Minnesota, the comparable improvement is $500 to $700 per household.

    Gruber adds an especially interesting wrinkle, noted in an email to the Daily Caller he graciously forwarded to me:

    CBOs analysis did not account for states folding their high risk pools into the exchanges, but in each of these three states that happens. So for example in Minnesota this is about a 15% rise in rates, which explains most of the increase. But it is important to remember that states are currently spending a lot of money to support these high risk pools (more than $100 million in MN).  If this money were instead directed to the exchanges, it could greatly reduce any premium impact [from] merging in the high risk pools.

    Once again, those high risk pools bring mischief in health reform. These pools include highly- concentrated groups of individuals with costly and complex health concerns who may be quickly folded in the new exchanges, even as these exchanges incorporate millions of uninsured and other participants entering from the small-group and individual insurance markets.

    Miller’s piece rather crudely frames health reform from the perspective of its political opponents. It still raises important points. The political and perceptual issues it raises are fundamental in health reform. Millions of people will join health insurance exchanges. Most will be relatively healthy. They will see certain relatively small and immediate things, such as contraceptive coverage and clinical preventive services. They will not (yet) experience chronic illness and thus the resulting interactions with their insurer. They will pay slightly less or slightly more for a richer, more transparent and secure package of health coverage.

    Will they perceive and value the improved actuarial value of this insurance? Two years ahead of time, it is impossible to answer this basic question.

    • A nitpick: I don’t think it’s quite accurate to say exchange implementation has been “delayed,” insofar as that implies 1) that implementation isn’t ongoing in many states, and 2) there is a switch that states will flip in 2014 that could’ve been flipped in 2013 or even 2012 if only there were more good-faith actors at the helm. The reality is that this is a pretty fundamental redesign of: the way states administer their health (and, potentially, other human services) programs, the sometimes-antiquated IT infrastructure holding it all together, the ways in which they interact with consumers, and their relationships with plans and carriers in their individual and small group markets.

      In addition to all the state-specific policy decisions that need to be made (aligning with all the other delivery system/payment/access work they’re doing, HIT work under HITECH, exchange design options, etc), there are real practical questions, like whether the nation’s IT vendor community is up to the task of simultaneously bringing nearly every state’s IT systems into the 21st century in the next two years. This is part of the logic behind CCIIO’s scramble to come up with a federal-state partnership model in which states can initially handle a more limited set of exchange functions as they’re able, with the federal exchange picking up the slack–though what state of operation the federal exchange will be in come 2014 also remains an open question.

      You touched on the “myriad of political and administrative challenges” but it’s worth emphasizing the enormity of the challenges the exchanges (and their link to Medicaid) are posing for both the states and the feds. Whenever I see it suggested that the “delay” is primarily a budgetary gimmick, I feel the need to point out that 2014 would be a stretch even if everyone involved were trying their hardest to make this work (which they obviously are not–the political challenges you noted) and 2012 or 2013 just would not be within the realm of possibility. It’s a heavy lift.

    • Very astute comment. Point taken. I would note, though, that Medicare was up and running with astonishing speed within a year or so–and desegregated southern hospitals, to boot.

    • Part D was surely in the heads of those counseling for 2014

    • For once I am well qualified to discuss a technical issue.

      I sell health insurance in Minnesota.

      I am also a participant in the Minnesota High Risk Pool, after leaving a job and then having a heart attack.

      What Gruber is describing is pretty much the New Jersey and New York scenarios of 20 years ago. Those states went to guaranteed issue, and tto different degrees of community rating, and premiums skyrocketed in the individual market. Several articles in Health Affairs and in Heritage told this story in detail.

      This was not supposed to happen again, because a mandate would bring in all the healthy young lives.

      I am having trouble bringing Gruber’a paper up in a PDF format, so I am going to withhold some comments until I have read it.

      But what the summary sounds like is that the sheer expense of the high-risk persons (plus the mandate for lower deductibles and ;’free’ preventive care) is going to drown out the impact of any mandate.

      So what this comes down into practical terms is this:

      a younger working person who is now uninsured will either join the exchanges and spend several thousand dollars a year, even efter tax credits…………..or he will stay uninsured, pay a fine, and be no better off than he is today in terms of fearing bankruptcy from illness.

      If this is the result, no wonder the Democrats have lost the working class!

      Bob Hertz,
      The Health Care Crusade

      • I did have a chance to read Gruber’s paper. It is more nuanced and balanced than Miller’s article suggests, which is not surprising.

        I am still disappointed that anyone will be made worse off by the ACA.
        (other than insurance company executives)

        Let me be specific.

        A family of four earning $50,000 will be expected to pay about 6-7% of their income for a qualifying policy. That comes to about $3,000 or $250 a month.

        Now if the family is currently paying through the nose for doctor visits and meds because they are uninsured, then the ACA will be a blessing.

        However if the family is paying nothing now, then $250 a month is a real hit.

        Plus, even the policy they get for $250 will have some deductibles and coinsurance.

        Paying $100 a month or more in fines to stay uninsured is a real hit of a different kind.

        We are perilously close to the cure being worse than the disease.


        This is not the sort of family that we should be putting into the crosshairs of health care reform.

        It would be better to either expand Medicare to younger ages, with an income-based deductible, or expand Medicaid even more than we are expanding it now.

        Either of these approaches gets money from all of us, which I favor.

        The designers of the Exchanges certainly had a good goal, which was to relate health insurance to income. However, doing this through the private insurance industry has been problematic throughout the last 30 years.
        The current Exchange seems at times like the triumph of hope over experience.