Thursday, April 08, 2010

Health Insurance Exchange [Updated & Bumped]

[Originally posted 3/28/10 - please scroll down for update]

One of the more curious questions about health insurance reform addresses issues about the health insurance exchange that is supposed to be in place by 2014. The purpose of the exchange is to provide open information on plans, benefits and rates in an online format. Consumers will be able to review plan options and rates then pick a plan and sign up from the comfort of their home. At the Exchange, multiple health insurance companies will "compete" for their business, which is supposed to lead to lower premiums.

That's the line we have been fed. The truth is, given the constraints placed on carriers who will be allowed to compete, what we will get will bear little resemblance to the final product.

HR 3590, also known as the Patient Protection and Affordable Care Act can be viewed online for those who want to breeze through the 906 page document. This PDF version is in searchable format which makes it easy to find sections on provisions such as the Exchange.

In truth, the general structure of the exchange is no different from what consumers can find online now at a number of sites. Notable differences in the Exchange vs. current sites include the following.

FUNDING.—There is hereby appropriated to the Secretary, out of any funds in the Treasury not otherwise appropriated, $30,000,000 for the first fiscal year for which this section applies to carry out this section. Such amount shall remain available without fiscal year limitation.

This seems to indicate that, if the $30 million is not enough the Treasury can print more money to fund it as needed. Ongoing expenses after the first fiscal year use the same language.

The Exchange will be a governmental agency or a nonprofit entity.

It is unclear if the participating carriers must be nonprofit entities or not. If so, the number of carriers will be limited. In Georgia the bulk of the nonprofit organizations offering health insurance are regional HMO's.

The idea of the exchange is to promote competition and introduce lower cost plans. The truth is, there will be fewer plans, less competition and higher premiums. A few states already have their own version of Obamacare and in each of those states there are only a handful of carriers offering a handful of plans and premiums in those states are outrageously high.

If you like, go online and compare health insurance rates and benefits in your own state to places like New York, Maine, Massachusetts and Vermont.

Yes, that Massachusetts.

The one that has Romneycare and also sent a Republican to Washington to fill a seat held by the Kennedy family for over 50 years.

Of course if you buy a plan through the Exchange you will be entitled to a taxpayer subsidy if your family income is less than 400% of the FPL (federal poverty level).

It will be interesting to see how long the individual subsidies stay in place. Subsidies for small employers that do not currently offer group health insurance, but decide to do so will receive subsidies but those subsidies are slated to end in 2015. What happens when the subsidies stop?

I probably don't have to draw a picture . . .

As mentioned earlier, the current format of online health insurance exchanges are not terribly efficient. The costs of running such operations is quite high and their customer service staff are usually low paid novices.

If the new Exchange is staffed by government employees the pay scale, and benefit structure will far exceed the pay and benefits for existing exchanges. As for the quality of the staff, think of any other government run entity and you have your answer.

Policy's sold by current exchanges have very high acquisition costs vs. those that are initiated by independent agents. Retention rates are also much lower than agent driven blocks of business which makes these ventures less profitable for carriers.

There is no reason to believe the new Exchange will be any different.

So here is a thumbnail sketch of the health insurance Exchange of the future. Online offerings of a handful of high priced products from a limited number of carriers. If these Exchanges are staffed by government employees the ability to interact with a human will be limited to non-holiday weekdays during regular business hours only. Service will be comparable to calling the Department of Motor Vehicles, Social Security Administration or the U. S. Postal Service.

Will someone explain to me why folks are looking forward to this brave new world of Obamacare?


"The Massachusetts Division of Insurance recently disapproved many of the premium rates proposed by insurers. The decision does not apply to CeltiCare.

The ruling pertains to plans effective April 1, 2010 and later. It also applies to all distribution channels, including the Health Connector.

With the exception of CeltiCare, insurers must withdraw their Commonwealth Choice plans until they recalculate their rates to comply with the ruling. CeltiCare offers coverage in the Greater Boston area

Think that's scary?

How's this:

"Insurers are required by law to issue and renew policies for small employer groups and individuals and families."

To which I would reply "or else what?"

Stay tuned.

Bob's response.

Well, if you have to ask . . .

Apparently there are fines for non-compliance.

Fines, or lose money writing at last years rates. Hmmmmm, tough choice.
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