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On the Third Hand: Gaps

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Maybe some of the major Patient Protection and Affordable Care Act (PPACA) battlegrounds will have more to do with the products just outside of PPACA’s reach than traditional major medical products.

My wild guess is that (sorry) PPACA World will at least temporarily be better for poor people and sick people than the current system; that it will be annoying for people like me who now have decent benefits; that it will be horrible for providers and employers because any system we have will be horrible for providers and employers; and that it will be wildly unpredictable for insurers and producers.

One insurer or producer could pick a strategy that seems almost indistinguishable from a competitor’s strategy and end up doing much better or worse than the competitor.

Example: If you can’t compete much based on benefits package, benefit plan design or successful efforts to use careful underwriting to manage risk, and you’re scared to compete aggressively based on price, the distinguishing factors that are left seem to be the size and quality of the provider network; the cleverness of the ads; and, maybe, overall breadth of product offerings.

To me, it seems as if being too wild and crazy about tying the marketing campaign to a plan’s provider network is that using a “narrow, stellar-quality, deeply discounted network” could backfire in a reputation-destroying way, especially if PPACA makes getting in to see the brave, thick-skinned doctors who are still in practice really difficult.

If plan managers try to save money in a small community by including, say, just a few great endocrinologists in the network, and one of the endocrinologist gets fed up with low Medicare and Medicaid reimbursement rates and decides to go into the vending machine restocking business, bye bye 5-star plan quality rating. Hello investigative feature on the local TV news that features the sweetest looking mother with diabetes who ever lived and a terrifying story about how she almost died because it took her almost eight weeks to get in to see an in-network endocrinologist.

Competing based on cleverness of ads seems safer but hard to control. Even if consumers love Healthy Harry, a health plan’s new spokescat, who knows whether consumers will translate love for Healthy Harry into the purchase of the plans Healthy Harry represents. Maybe consumers will just buy stuffed Healthy Harry cats and stick with health insurance from other carriers.

That leaves breadth of product offerings.

One of the famous characteristics of the national health insurance programs outside the United States is that they leave all sorts of coverage gaps, and commercial insurers can make money by filling in the gaps.

Japan, for example, has a government-run major medical insurance program, but the program covers only 70 percent of the cost of non-catastrophic care.

Aflac Inc. (NYSE:AFL), a U.S. company, has created a large business by selling supplemental products, such as cancer insurance, in Japan.

In the United States, it looks as if PPACA could dramatically expand the gaps in health coverage for the sorts of people who already have coverage.

Many people who have good group health benefits have plans that pay either 80 percent or 90 percent of the cost of in-network care once the enrollee has met the plan deductible. 

PPACA will use the threat of a new “shared responsibility” penalty (tax) to push employers with 50 or more full-time employees to offer a minimum level of coverage. An employer can avoid the “play or pay” penalty by providing an employee-only plan that covers at least 60 percent of the actuarial value of a standardized “essential health benefits” package.

In theory: The “bronze is fine” provision should simply help the workers who now lack coverage get coverage. Few of the employers that provide the “gold level” and “platinum level” in-network benefits that most group health plan enrollees now enjoy face any legal requirements to provide health coverage. They provide the coverage of their own free will.

But many employers with generous benefit plans are looking for ways to cut benefits costs, and it seems as if one easy way to do so would be to adopt the “bronze is fine” philosophy. They could ease the sting of the move to bronze by keeping their dependent benefits options, and maybe by adding health savings account (HSA) programs. Maybe they could justify going bronze by saying the move will help them pay for health coverage for workers who now have no group health benefits.

Meanwhile, many health insurers and other insurers will be looking for ways to make money with products outside of PPACA’s rigid, complicated underwriting, benefits mandate and rate-review requirements.

So, on the demand side, you might have a lot of employees who’ve been used to platinum-level benefits who are getting used to the look of bronze.

On the supply side, you might have a lot of insurers that would like to sell PPACA-free products.

PPACA specifically exempts disability insurance, hospital indemnity products, medical indemnity health insurance products, critical illness insurance products, and other supplemental health insurance products.

It just seems as if this is a great time for health insurers to be thinking of what they could do with the PPACA-free products already on their shelves, and the PPACA-free products that they could add in the next few years.

That thought came to mind today when I was reading an e-mail about Aflac’s new voluntary hospital confinement indemnity policy.

Today, that kind of policy seems to be a nice niche product. A year from now, maybe that kind of product will be a much bigger deal.

In 2014, major medical insurers and their producers will be trying to set themselves apart in a PPACA World system that makes it hard for plans to set themselves apart.

On the one hand, in PPACA World, one way insurers and producers can set themselves apart may be to make sure that they offer packages that combine major medical insurance with convenient, one-click, one-bill access to products that can make bronze-level employer coverage simply the foundation for a platinum-level, PPACA-World-compatible personal health protection program.

On the other hand, the insurers and producers that try to create those convenient, one-click packages may face the kinds of regulatory obstacles that Medicare supplement insurance sellers now face when they sell products that fill in too many traditional Medicare product gaps.

“Patients with too much coverage use too much care!” program managers thunder.

On the third hand: There might be a pretty big difference between the size of the “skin in the game” needed to make consumers responsible for health care shoppers and the size that causes significant hardship for consumers. Platinum-upgrade sellers ought to be able to find a middle between filling gaps in bronze-is-fine coverage and causing patients to move into their primary care providers’ waiting rooms.

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