Are The Finance Committee’s Health Exchanges ‘Virtually Useless’?

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"Are The Finance Committee’s Health Exchanges ‘Virtually Useless’?"

During the Senate Finance Committee’s mark-up, Sen. John Kerry (D-MA) introduced an amendment that would have allowed the state based insurance exchanges to act as prudent purchasers on behalf of consumers. Kerry eventually withdrew his amendment, but his idea has already been implemented in Massachusetts, where the Commonwealth Care — which offers subsidized coverage to those who qualify — engages in prudent, selective purchasing of insurance. The Care exchange negotiates with plans for lower bids, encourages “plans to form select networks, and exclude plans that do not offer good value and cost-effectiveness.”

Yesterday, the Wonk Room sat down with Jon Kingsdale, executive director of the Commonwealth Health Insurance Connector Authority, and asked him to explain how the Massachusetts exchange lowers costs.

“You have to be selective in the plans that you offer,” Kingsdale said, and suggested that the exchange can choose plans that deliver quality care even more efficiently than a national public health insurance option. The Finance Committee’s bill “really sets up an exchange as what I call an automated yellow pages.” “Literally, any insurance plan that is licensed and meets some basic sort of specifications of benefits would be offered, and yet none of the administrative savings of actually centralizing enrollment, billing, collection etcetera, would actually be achieved through the Exchange.” “It is virtually an automated yellow pages, which is virtually useless,” Kingsdale sad.

We estimate that we’ve done about 6 percent reduction in premiums and saved about $140 million a year on subsidized care for about 180,000 people. Because we’ve been able to a) be aggressive in selecting and setting rules for health plans and b) set up an Exchange that translates the various costliness of their networks into a price that the consumer understands. The consumer doesn’t understand the price of a visit or the price of a procedure, or the price of an x-ray and can’t shop on that basis, but can shop annually for a premium, or monthly. And the trick with the Exchange is to translate the generators of cost and value and quality into a package called a health plan from which consumers have a choice and they have both funding but they are the price differences. And so with that program, we’ve been able to do it and have substantial impact.

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Kingsdale implied that the Senate Finance Committee should limit consumer choice within the exchanges. Focus groups conducted by the Massachusetts Connector revealed that consumers felt that too much choice was “confusing” and “overwhelming.” “Participants expressed a desire a for manageable numbers of plans (e.g. three to four) offered by four to six carriers. In addition, consumers expressed difficulty making plan comparisons under the existing model.” “Instead, consumers preferred for information to be presented in a simple and standardized format that clearly distinguished between different benefit design options.”

The current structure of the exchanges in the Finance Committee represents “the lowest common denominator that will have the least political opposition. But since cost containment always involves political opposition, it will have the least impact on cost,” he said. “Senator Kerry’s amendment would change that into an exchange that would certify health plans as good value, would rank them, and pass the price differences on.”

Transcript:

I could talk about probably the subsidized [exchange] one, it may be of more interest since that seems to be the focus here. And there I think the ability of the Exchange to be a very aggressive or maybe a nicer way to put it, is a prudent purchaser on behalf of its potential market segment, its enrollees, is critically important to exercising some resistance, some market pressure on cost. So we estimate that we’ve done about 6 percent reduction in premiums and saved about $140 million a year on subsidized care for about 180,000 people. Because we’ve been able to a) be aggressive in selecting and setting rules for health plans and b) set up an Exchange that translates the various costliness of their networks into a price that the consumer understands. The consumer doesn’t understand the price of a visit or the price of a procedure, or the price of an x-ray and can’t shop on that basis, but can shop annually for a premium, or monthly. And the trick with the Exchange is to translate the generators of cost and value and quality into a package called a health plan from which consumers have a choice and they have both funding but they are the price differences. And so with that program, we’ve been able to do it and have substantial impact.

You have to be selective in the plans that you offer. In contrast to the Senate Finance Committee, to which his amendment was proposed, which really sets up an exchange as what I call an automated yellow pages. Literally, any insurance plan that is licensed and meets some basic sort of specifications of benefits would be offered, and yet none of the administrative savings of actually centralizing enrollment, billing, collection etcetera would actually be achieved through the Exchange. It is virtually an automated yellow pages, which is virtually useless. Of course that’s the lowest common denominator that will have the least political opposition. But since cost containment always involves political opposition, it will have the least impact on cost. And Senator Kerry’s amendment would change that into an Exchange that would certify health plans as good value, would rank them, and pass the price differences on.

What they need to do, I think, and they haven’t figured this out, is highly incent locally responsive exchanges, state or regional Exchanges. But incent them to be value purchasers. And there is some natural incentive for an Exchange set up to do that and to serve its customers well but it could be captured by others. In our Exchange, 50 percent of the dollars come from the states, so we’re highly motivated to be cost effective purchasers. In the federal formula, 100 percent of the dollars will come from the feds for subsidized care and so I worry a lot about whether there will be an incentive translated down to the states, to resist capture by the industry and promote value for shoppers and consumers.

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