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PPACA exchange system: Pricing itself out of your hair?

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Managers of a state-based Patient Protection and Affordable Care Act (PPACA) exchange say skimping on marketing and sales support budgets is a terrible, potentially deadly mistake.

Peter Lee, executive director of Covered California, has made the case for strong marketing and sales support funding in a comment letter sent to Sylvia Burwell, the secretary of the U.S. Department of Health and Human Services (HHS).

The Centers for Medicare & Medicaid Services (CMS), an arm of CMS, recently proposed setting the base user fee at 3.5 percent of premiums in 2017.

A state-based exchange that piggybacked off of the enrollment systems would have to charge 3 percent of the premiums for the services. A piggyback exchange could then charge whatever it wanted to pay for its marketing costs and other costs.

The fee structure implies that CMS think an exchange should spend about 0.5 percent of premium revenue on marketing and sales support, Lee writes.

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“A good risk mix and a viable business proposition for exchanges does not ‘just happen’,” Lee writes. “Insurance must be sold. Selling insurance — which is different than providing a free benefit to a beneficiary, as is the case in most Medicaid programs — requires ongoing and significant investments in marketing and outreach to both promote retention of current enrollees and new enrollment that reflects a balanced risk pool. “

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During the first three PPACA open enrollment periods, the exchange system has benefited from free publicity related to interest in PPACA, and the efforts of enthusiastic volunteers, but, in the future, “the importance of sales and marketing efforts will only increase,” Lee says.

CMS should assume that a public exchange will spend at least 2 percent of premiums on marketing and sales support, on top of the amounts going to pay for technology and the call center, Lee says.

For a look at three reasons Lee gives for why spending on well-designed marketing and sales support efforts pays off, read on. 

Live-human meeting

1. Getting consumers who are not thinking much about health care takes plenty of live-human time.

Making the exchange system so expensive that it has trouble with coverage affordability may be a problem, but spending enough to attract relatively healthy enrollees, who need protection against unexpected catastrophes but are unlikely to need much care in any given year, is critical, Lee says.

Health plan issuers may be complaining about exchange plan claims costs, but Covered California is estimating that its issuers have already reduced their spending on their own individual medical producer compensation costs and medical underwriting costs by about 6.5 percentage points, to about 3.2 percent of premiums. The reduction is due in part to PPACA’s ban on using personal health information other than age and tobacco use in individual product underwriting, in part to sales agent commission cuts, and in part due to a large increase in the number of enrollees who are coming in through the Web, without any sales commission amounts owed, according to Lee’s analysis.

Plans still seem to be spending about 1.6 percent of premiums on payments to agents, “and having fair and adequate compensation for agents is needed given the importance of having in-person or moderated support for consumers,” Lee says.

Certified Covered California now run what amounts to about 600 exchange plan stores on Main Streets across California, and the exchange is getting about 40 percent of its enrollees from the agents, Lee says.

An exchange needs to support those agents with advertising and marketing support, such as efforts to reach consumers who speak languages other than English, Lee says.

Even getting “free” media coverage takes a substantial investment in developing a media relations team, Lee says.

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2. Energetic marketing efforts have had measurable effects on the risk profile of Covered California’s enrollees.

The official HHS standardized risk score for California’s 2014 individual health market is just 1,203, which is the lowest state individual market risk score in the United States, Lee says.

That compares with an average U.S. risk score of 1.6, Lee says.

Because Covered California brought in many relatively healthy enrollees, issuers’ “prices were adequate to cover the risk mix, and some plans even made larger-than-anticipated profits,” Lee says.

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3. Covered California managers believe successful efforts to manage its exchange plan enrollees’ risk profile are helping to hold down costs, and keep coverage attractive to consumers who are not thinking much about health care.

Lee says the California individual market’s relatively attractive risk profile helped to hold an average 2015 premium increases to 4.2 percent.

If the market had ended up with a risk score of 1.6, the average premium increases could have been almost 30 percent, Lee says.

In the rest of the country, higher risk scores led to about $3 billion in total 2014 losses, substantial premium increases in 2015 and 2016, and “uncertainty that will play out for the coming years,” Lee says.

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