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Off-exchange dreams

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State and federal agencies are spending a fortune to create and market the public exchange system. Health insurers and drug store companies are marketing it. Hospital company executives are promising securities analysts they will push uninsured patients to sign up.

Assurant Health is selling qualified health plan (QHP) coverage through 16 exchanges (up from none last year) during the first Patient Protection and Affordable Care Act (PPACA) individual health insurance open enrollment period. UnitedHealth is selling QHPs through 23 exchanges (up from four a year ago).

At press time, the public exchanges and their QHP issuers seemed to be getting the second annual PPACA open enrollment period off to a smooth start. Consumers could enter information through an automated system, most of the time, and get intelligible answers back, most of the time. As of Dec. 3, the public exchange QHPs had brought in about 760,000 paid 2015 enrollees, according to Applications for coverage starting Jan. 1, 2015, were not due until Dec. 15, and the open enrollment period was set to run until Feb. 15, 2015.

The respectable performance of the exchange system has raised disquieting questions in the minds of traditional health insurance producers. For instance, if the public exchange system can “ditch the glitch,” will insurers keep issuing individual policies outside the exchange system after 2015?

See also: PPACA 2016: How will exchanges pay their way?

Can ordinary producers stay in the game? If ordinary producers can stay in the game, how?

The first modern exchanges were the “health insurance purchasing coalitions” (HIPCs.) Health producers had an easy way to beat the HIPCs: Wait for them to implode.

The HIPCs usually attracted business by offering small groups, individual consumers or both access to health coverage without medical underwriting, or with only limited medical underwriting. Low-risk customers would soon leave to get cheaper coverage elsewhere.

Many of the most complicated and controversial provisions in the PPACA commercial health insurance rules — such as the ban on use of personal health information in decisions to issue coverage, the ban on use of personal health information other than age and tobacco use in decisions about the price of coverage, the standardized essential health benefits (EHB) package, the coverage metal level system, and the mysterious “three R’s” risk management programs — exist at least partly to make the existence of a long-lasting health insurance exchange actuarially feasible.

Vermont and the District of Columbia have tried to add a defensive layer by requiring issuers of all new individual and small-group major medical coverage to write the coverage through their public exchange systems — even when the buyers are using brokers. But one reason why there are so many defenses, and such complicated defenses, is that the HIPCs had such a long, rich history of failure.

Here are seven reasons why the individual market players outside the public exchange system may still be able to outmaneuver the new PPACA HIPCs, or at least carve out a lucrative, stable market of their own — reasons why this may be the start of a rebirth of the off-exchange individual health insurance market, at least in states that let the off-exchange market continue to exist.

1) The market has nowhere to go but up

The individual health market had some appeal for independent health insurance agents and brokers, but it’s been ailing for years. Enrollment in employer- sponsored group plans has shrunk, but U.S. employers were still providing coverage for about 169 million people, or 53 percent of the total U.S. population, in 2013, and Medicaid and the Children’s Health Insurance Program have been covering a rapidly growing percentage of Americans under the age of 65.


The share of people depending on individual insurance for coverage fell to only 11 percent, down from 14 percent in the mid-1970s. In 2012, only 3.6 percent of U.S. residents were counting solely on individual health coverage, according to Census Bureau figures.

The individual market faced the risk that only people with severe health problems would bother to apply for coverage and pay for it. Efforts to tighten application reviews, and reviews of claims filed by relatively new enrollees, led to the widely publicized policy rescission wars in California. Insurers may have won many of the rescission battles in the legal courts, but they had a tougher time in the court of public opinion.

Issuers tried to limit risk by clinging to coverage exclusions left over from earlier medical insurance epochs, such as exclusions for maternity coverage and for mental health services. Some carriers continued to take the individual market seriously, but many national players left it, and the producers in the market have complained for years about falling commission levels.

2) Low income households

The PPACA public exchange system is designed mainly to appeal to low-income consumers who had a hard time paying for individual coverage on their own even before PPACA came along.

The PPACA public exchange system can offer some subsidies for consumers who earn from 250 percent to 400 percent of the federal poverty level, but the subsidies for the consumers in that income bracket are not worth much. Most of the consumers who get significant exchange subsidies are earning less than 250 percent of the federal poverty level. Few of those consumers could afford to pay for their own major medical coverage before the exchange system came to life.

The remaining players in the off-exchange market may be in about as strong of a position to compete for consumers with incomes over 250 percent of the federal poverty level — aka, the consumers who have been in the commercial individual health insurance market all along — as they were before 2014.

3) Positive side effects

The PPACA commercial health insurance rules that apply to off-exchange coverage could make selling off-exchange policies easier — especially to the higher-income, better-educated consumers who can afford to buy coverage outside the exchange system.

See also: Overall private health insurance use rises.

In the past, producers had a hard time getting some high-income prospects through insurers’ medical underwriting screenings. Those prospects had to apply for coverage from an insurer of last resort, or apply for a state high-risk pool program. Many states had risk pool program waiting lists. In some states, including California, the risk pool coverage came with low annual benefits limits.

Today, producers can help clients apply for off-exchange individual coverage without having to spend years studying what local insurance underwriters think about obesity, high blood pressure or a history of lung cancer.

4) The public exchange system continues to annoy insurers, producers and consumers

Some state-based exchanges use “active purchaser” strategies to prod QHP issuers to offer better, cheaper plans. Those exchanges may end up with solid plan menus but shut out big, popular insurers.

Even exchanges that open their menus to all willing insurers may impose rules and fees that scare off insurers.

Cigna, for example, is participating in only a few exchanges.

Coventry, a carrier acquired by Aetna, is participating in many exchanges, but Aetna itself is participating in only a few, in part because managers believe that some insurers drove 2014 premiums down to an unsustainably low level.

Broken umbrella

Similarly, some state-based exchanges want agents and brokers to jump through many hoops to get certified as exchange agents. Agents run into certification system error screens once too often and give up.

5) The public exchange system encourages price-based “spreadsheeting”

Some exchanges — one example is Rhode Island’s Health- Source RI — do a good job of helping consumers compare plans based partly on factors other than price, such as the number of primary care providers in the network and the copayment for in-network specialist office visits. Other exchanges make comparing plans based on any factors other than price and metal level difficult.

Insurers want a better chance to show why their policies offer the most value for the premium dollar. High-income, well-educated clients want to see that they’re getting coverage that actually works, not simply avoiding the PPACA “shared responsibility” penalty to be imposed on the uninsured as cheaply as possible.

6) Doctors may prefer to see patients who have traditional coverage, with traditional provider network arrangements

Insurers may use narrower networks for the exchange QHP plans than for traditional plans, and reimbursement rates may be lower for the exchange QHP enrollees.

The California Medical Association has been encouraging insurers to address that issue by using plan names that warn physicians whether the physicians are seeing traditional plan enrollees or QHP enrollees.

7) Players in the off-exchange market can make sure consumers get comprehensive protection

The PPACA exchanges run by the U.S. Department of Health and Human Services (HHS) and some state-based exchanges have strict rules that limit exchange agents’ ability to cross-sell.

See also: GAO: How well do exchange plans serve kids?

That might prevent agents from using the public exchange programs’ cachet to sell snake oil, but it also might block agents and insurers from offering consumers desperatelyneeded disability insurance, life insurance and long-term care insurance products.

Private exchanges, and producers operating outside the public exchange system, can offer clients whatever protection products the clients seem to need. Off-exchange dreams

8) All exchanges could soon be private exchanges, anyway

Congress used PPACA to set up a government- run exchange system because that was the most politically practical approach at the time, but future presidents may object to the idea of running an Amazon. com for health insurance. A president who is overseeing a war with a foreign nation will want to focus on overseeing the war, not answering questions about exchange enrollment website glitches.

Meanwhile, organizers of private exchanges are using the PPACA commercial health insurance rules and the PPACA public exchange marketing buzz to expand their reach. Accenture Health has estimated that 3 million people enrolled in coverage through private exchanges in 2014. That number may grow in 2015 — and increase more rapidly if a future Congress privatizes the public exchange system.

So, sure, the public exchange system is looking new and shiny, and at least steady enough to stand up against a soft breeze. Health insurers and customers are just as eager to squeeze out the costs involved with paying the middlemen — you — as they ever were.

But, at this point, PPACA has not actually made paying for health care any simpler, or created a system consumers can use to wave away individual and family health insurance problems. Until that magic wand comes along, consumers and insurers will find they still need knights like you to ride to the rescue. 


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