Tag Archives: health insurance exchanges

The State of the Nation’s Private Employer Exchanges: Crazy!

I’m not talking Patsy Cline’s “Crazy” or even Gnarls Barkley’s “Crazy”—I’m talking Peter-Frampton-re-release-the-same-song-and-get-totally-different-results kind of crazy!  In 1975, Frampton released “Show Me the Way” on his album Frampton, and no one cared.  The song was re-released in 1976 on the album Frampton Comes Alive—and topped the charts in both the U.S. and U.K. In Wayne’s World, the song was described as “required listening for all suburbia.”  It’s all marketing, baby!

What does this have to do with private exchanges? Most are just a re-release of technology that has been part of benefits administration enrollment for years.

The following is a short list of “new” capabilities and requirements that are typical for a private exchange:

  • Defined employer contribution, instead of defined benefit.
  • The ability to connect electronically to insurance carriers.
  • Decision support tools, to help determine employees’ best options.
  • Support for core insurance products such as medical, dental and vision.
  • Support for voluntary insurance products such as life, disability and accident.
  • Support for multiple insurance carriers (although some exchanges are single-carrier).
  • HRA and Section 125 pre-tax support.
  • Premium processing and billing support.
  • Support for insurance plan comparison and other employee shopping tools.

Nearly every function defined as “new” for a private exchange is not new—these functions have been part of group benefits administration systems for over a decade.  As I’ve said, the “new” private exchanges are 95% marketing hype and 5% enhanced decision support.

I have attended dozens of conference breakout sessions, read articles, talked to “private exchange” vendors and seen countless demos. The only word I can use to describe the whole group private exchange world is “crazy” — wonderful, “Show Me the Way” kind of crazy.

Given that we’ve been there and done that with the technology in the private exchanges, I can offer some informed observations about how they will play out as employees use them to select coverage under the rules established as part of Obamacare.

–It would be very difficult to move to an Expedia-type shopping model for employees’ insurance. Insurance carrier requirements for participation and underwriting through private exchanges make the disintermediation of the health insurance broker less likely than the disintermediation of the travel agent.  Few exchanges are even talking about vendor participation. It takes years to develop benefits administration systems simply because of the inherent complexity of insurance. A good technologically and customer service driven health insurance adviser is worth her weight in gold, and will continue to be.

–While Health Sherpa has been described as a somewhat functional equivalent to healthcare.gov, that claim is, well, crazy. Health Sherpa—although a great idea—has no ability to process eligibility, enrollment, carrier connectivity or anything required in a true benefits enrollment or exchange platform.  Health Sherpa is a clean front end for displaying plan options and rates but has no back end to support the followthrough required by the carriers or the federal or state governments.

–Recently, the president invited executives from a few of the nation’s top tech companies to the White House for a highly publicized meeting.  Why?  What do Yahoo and Amazon know about health insurance exchanges, enrollment, eligibility and carrier connectivity?  Exactly nothing!

If the president wanted more than a photo op, why didn’t he call Rich Gallun or Don Garlitz from bSwift or ask my company, benefitsCONNECT, to join the discussion? Between us, we accurately and electronically process many millions of enrollments—completely eliminating the need for paper. Either company could have saved this country hundreds of millions of dollars and produced a public exchange for Obamacare that actually works.

There’s actually one thing that’s new about private exchanges: While benefits administrations systems have become somewhat standardized, if you’ve seen one private exchange—you’ve seen exactly one private exchange. They are all different, from their front-end requirements to their back-end requirements.

As I said, it’s a craaaazy world we live in.

When Leaders Don’t Lead on Medicaid

The big debate across the states over the expansion of Medicaid only deals with half of the equation.

The first half of the equation is political: who gets added to the entitlement rolls and who doesn’t. Wisconsin’s Gov. Walker, for example, decided to: turn down federal funds for expanding coverage; add 80,000 adults who are below the poverty line; and move some 70,000 residents who are above the line to the new federal exchange and subsidies.

But Wisconsin, like other states and the federal government, has ducked the rest of the issue: the staggering cost increases. Medicaid expenses, for which the states pay about 40% and the feds 60%, are crowding out funding for just about every other priority: K-12 education, the university system, environmental advances and economic development.

It’s the same story on health costs at the federal level. Medicaid, Medicare and the health bill for federal employees are the biggest driver of the crushing federal deficit. One recent secretary of defense said the department spends more on health costs than on weapons.

The void in the debate is the deafening silence on how to get the costs under control, with the exception of cutting people off the rolls.

It’s especially sad because there are solutions. Leading-edge employers in the private sector have put together a new business model for the delivery of health care that drastically lowers costs while improving health. Their best practices are applicable in the public sector, as some units of local government have discovered to great advantage.

Here are some proven, audited, beyond-debate cost-cutting moves that could be made with Medicaid plans:

  • Consumer-Driven Health Plans (CDHP) — Indiana has received a waiver from the Obama Administration to install Health Savings Accounts and to set higher deductibles for Medicaid recipients. Such CDHP plans cut costs by 20-30%. School districts and counties have deployed HSAs, as has Indiana for state employees and Purdue. Medicaid is rife with utilization abuse, because of an absence of such incentives and disincentives.
  • Reference Based Pricing (RBP) — CALPERS, the giant California pension fund that buys health care for 1.3 million members, has installed caps on procedures, such as $1,500 for colonoscopies and $30,000 for joint replacements. It’s easy to pay twice those maximums or more. But why do it? Why not RBPs for Medicaid? Note: A good number of providers have accepted the maximum prices.
  • Medical Homes — Another 20-30% can be cut from medical costs by offering proactive primary care. Many companies have set up on-site clinics to provide holistic care and keep people out of expensive hospitals. Why not set up medical homes where there are concentrations of Medicaid patients? Primary care is a lot less expensive than specialty care, the main offering of large hospital corporations. It’s also less expensive by far than care from emergency rooms, to which Medicaid entitlees often default. Obamacare provides some funds for community health centers, so there is a start for such medical homes.

The biggest problem for introducing aggressive and innovative management into Medicaid dynamics is the joint ownership of the program by federal and state governments. Differing agendas produce stalemate in most states. And, in the void, the costs scream upward.

Gov. Walker turned down the new federal dollars for a larger Medicaid program because of skepticism about the long-term availability of federal dollars. The soaring, unsustainable cost increases give substance to his position.

But his worry should be redirected to the costs. His concerns could be mitigated if the overall charges were sharply reduced.

He would look presidential if he followed the lead of private sector payers. That, again sadly, is in the political arena, so he probably wouldn’t get a federal waiver from the Obama administration for innovations, even if Indiana did.

Who loses in the managerial paralysis, when leaders don’t lead? In the case of Medicaid, it’s the taxpayers and poor people.

Do The Health Exchange Delays Matter?

Almost every morning, we hear about another problem with the Healthcare.gov website.  The Obama administration has committed to fixing the problems by Dec. 1, but the delays will still cause problems that we should be considering.

Each carrier or health plan that developed rates for the exchanges developed rates that would apply for 2014.  Although the initial enrollment period could extend past Jan. 1, most carriers assumed that a significant portion of the enrollment would begin no later than then. Rates for 2014 are based on projected claims for the full year.  This projection reflects health-care inflation, in addition to many other key assumptions.  A complete 2014 claim period would be centered on July 1.  Any delays in enrollment would push back the center date.  For example, a 10-month period ending Dec. 31 would be centered on Aug. 1.  Because health-care costs rise as the year progresses, a delay in enrollment would increase the cost of the average claim, even though the monthly rate paid by the person buying the insurance would remain the same. Assuming an illustrative annual rate of 8% increases in health-care costs, there would be about a 0.64% per month understatement in projected claims being paid by carriers.  Because anticipated margins in exchange rates likely fall in the 2% – 4% range, delays in enrollment can significantly lower projected margins.

Beyond the inflationary impact of enrollment delays, there is a strong likelihood that the delay may lead to a bias in the average morbidity or health status of the enrolled population.  Individuals with the best health have the least need to enroll in the exchanges.  Therefore, one might expect healthier individuals to be the slowest to enroll.  The individual mandate penalty may appear small compared with the premium for even the least expensive bronze coverage. Delays in enrollment would likely have an adverse impact on the health plan’s assumption for average morbidity under the program, because a disproportionate share of the less healthy individuals will be enrolled into the exchanges.  In other words, the pool of people being covered through the exchanges will be less healthy than insurers expected when they set rates. With margins at just 2% – 4%, a small swing in morbidity would eliminate a carrier’s margin independent of the inflationary impact.

Issues related to the demographic mix of the population that insurers assume will enroll add to the potential problems. Since health-care reform has limited the rate variation by age to a 3:1 maximum, rates for older individuals have been reduced while younger individuals pay a subsidy.  In reality, the actual costs by age exhibit a higher ratio, probably closer to 4:1 or 5:1.  If younger individuals delay enrolling or don’t enroll at all, rather than pay to subsidize older individuals, carrier margins are expected to deteriorate even more.  For each 10% proportionate reduction in enrollment by those under age 45 compared to that assumed in rate development, margins are reduced by about 1.1 percentage points.  A proportionate reduction of 20% could eliminate most, if not all, of a carrier’s margin.

A less obvious concern to some, yet perhaps even a more important issue, is the impact of the delays on the 2015 rates on the exchanges.  Without delays, the rates for 2015 will be based on a very limited experience base, probably just the first quarter of 2014.  With delays, the rates will be based on even less.  In light of the delays, the 2015 rates will be based upon projections of 2014 rates, continued uncertainty, and confusion about actual financial results in 2014.  Unexpected losses will force carriers to increase future rates to make up deficits. 

Bottom line:  The delays matter and, if not carefully managed, will create serious financial implications in 2014 and subsequent years.

Built For Reform: Third Party Administrators And The Affordable Care Act

The Affordable Care Act (ACA) is considered the most significant, albeit poorly written, law that Congress has passed in the last 50 years. As regulators devise the details needed for the law to be fully implemented, unprecedented new administrative and compliance burdens are looming for employers. Independent Third Party Administrators (TPAs) have decades of experience guiding employers through the pitfalls of government rules and requirements. This expertise makes independent Third Party Administrators invaluable to employers trying to mitigate the impact of health care reform.

A Brief History Of The Third Party Administrator Industry
Most employee benefit plans are highly technical and difficult to administer. Those complexities gave birth to the Third Party Administrator industry.

While there are reports of a Third Party Administrator operating as early as 1933, the modern Third Party Administrator concept is rooted in servicing mostly pension plans codified in the 1946 Federal Taft-Hartley Act. Such plans are typically comprised of several employers whose employees belong to a single union.

By the late 1950s, there were also a few Third Party Administrators specializing in servicing medical plans sponsored by single employers. The industry boomed after the enactment of the Employee Retirement Income Security Act of 1974, as employers began exploring the option of self-funding when traditional insurance coverage failed to meet their cost expectations. Today, the administration of self-funded medical plans is the primary line of business for many independent Third Party Administrators.

Employers that self-fund assume the financial risk of paying claims for expenses incurred under the plan. Medical, dental, vision, and short-term disability plans, as well as Health Reimbursement Arrangements (HRAs), can all be part of a self-funded program.

Most employers sponsoring self-funded medical plans purchase stop loss coverage to limit their risk. An insurance carrier becomes liable for the claims that exceed certain pre-determined dollar limits.

The Value Of A Third Party Administrator-Administered Self-Funded Program
Employers can choose to administer their self-funded plans in-house. However, few have the experience to do it well. Considering the heavy penalties for regulatory non-compliance, self-administration is generally ill-advised.

Some insurance carriers offer Administrative Services Only (ASO) contracts to employers that wish to self-fund but rely on the carrier to do the paperwork. Unfortunately, most insurance carriers have benefit administration systems that are too inflexible to accommodate the unique plan designs that are the hallmark of self-funding. In addition, they are more attuned to the legal requirements applicable to fully insured products, which differ dramatically from those for self-funded plans.

Insurance carriers may assume financial risk under an Administrative Services Only contract by providing the stop loss coverage. Conversely, Third Party Administrators are not risk-taking entities so they are clearly in a position to act in the best interest of the plan and its members.

The independent Third Party Administrator industry was built on change. Never having settled for the “one-size-fits-all” approach of the fully insured model, independent Third Party Administrators maintain sophisticated information technologies that adapt easily to new demands, as well as professional staff accustomed to responding to regulations that continually reshape employee benefits in profound ways.

Independent Third Party Administrators usually provide a broad range of à la carte services to self-funded employers: plan design, claims processing, placement of stop loss coverage, case management, access to networks and disease management, wellness, and utilization review vendors, eligibility management and enrollment, subrogation, coordination of benefits, plan document and summary plan description preparation, billing, customer service, compliance assistance, ancillary benefits and add-ons such as Section 125 plans, consulting, and COBRA and HIPPA administration. Independent Third Party Administrators are best at customizing their services and plans to suit a client’s specific needs including benefit philosophies, demographics, risk tolerance, and compliance requirements.

A fully insured arrangement cannot compete with a thoughtfully designed, Third Party Administrator-administered self-funded program. Employers that self-fund enjoy increased financial control, lower operating costs, flexibility with plan design, a choice of networks, detailed reporting of plan usage and claims data, and effective cost management.

The Challenges Of The Affordable Care Act
When small employers (those with fewer than 50 full-time equivalent employees) offer health benefits, the coverage is usually fully insured. However, self-funding has gained momentum among small employers.

In 2014, large employers (those with 50 or more full-time equivalent employees) will be subject to the Affordable Care Act’s “pay or play” requirements. A large employer must offer its full-time employees (working at least 30 hours per week or 130 hours total in any given month) and their children minimum essential coverage that is affordable and provides minimum value. Otherwise, the employer will be subject to a penalty if any of its full-time employees obtains health coverage through a Health Insurance Exchange (now called a Health Insurance Marketplace) and is certified as eligible for a premium tax credit.

The premiums for fully insured coverage are expected to rise significantly due to the Affordable Care Act imposing an annual fee on most insurers, modified community rating in the individual and small group markets, and expensive mandates for essential health benefits. Self-funded plans are exempt from these requirements. In addition, while Affordable Care Act requirements will likely inflate insured premiums, stop loss premiums remain competitive (even for small employers).

Self-Funding As A Strategy For Overcoming The Affordable Care Act’s Challenges
Depending on size, employers must make important decisions about managing the costs associated with health care reform. They can provide coverage or not provide coverage (and possibly pay a penalty), reduce hours, eliminate jobs, or find a way to offer a cost-effective and compliant plan.

Independent Third Party Administrators are the experts at self-funding. A Third Party Administrator can custom design a high quality, Affordable Care Act-compliant, self-funded program that a small or large employer can offer at a controlled cost. For employers looking for flexible solutions to manage costs while continuing to recruit and retain talented employees, a Third Party Administrator-administered self-funded program with medical stop loss coverage is a viable solution.