By Ronald E. Bachman, Chairman, Editorial Advisory Board, The Institute For HealthCare Consumerism
The Patient Protection and Affordable Care Act (PPACA) mandates implementation of health exchanges by Jan. 1, 2014. The health reform law requires states to show significant progress in developing health exchanges by Jan. 1, 2013 or risk the federal government establishing a health exchange for the state. Since health insurance has historically been controlled by states and, to the extent PPACA allows, each state wants to develop flexible health exchanges with state-specific unique features. The main questions being studied by most states are:
1. If PPACA is upheld in the Supreme Court as constitutional, are state-based exchanges under PPACA likely to be financially sound self-sustaining entities independent of on-going state appropriations? How might future shifts in political control impact the future of exchanges?
2. If PPACA is found in part or in whole as unconstitutional, are state-based or private exchanges needed and can they be financially viable entities to improve access to affordable health insurance? How might future shifts in political control impact the future of exchanges?
Like any business, health exchanges must perform least two major functions: Intake of customers and output of value-added products and services. On the intake, the concept of health exchanges is to act as a central point of entry for individuals and small groups to purchase health insurance. The idea of exchanges is developing as a potential answer to a problem highlighted by national health reform – a need to increase health literacy and improve the traditional sales/marketing distribution system.
The Effect of Constitutional Ruling
If PPACA is ruled constitutional and the individual mandate stands, individuals will be mandated by law to purchase whatever is allowed by the federal government. The “Intake” of customers will be guaranteed by a universal requirement supported by a penalty for non-compliance and a rewarding financial subsidy for compliance. In addition, a state-based exchange will have the advantage of being the only place of purchase where federal subsidies are granted.
If PPACA is ruled unconstitutional many believe there is little reason for states to invest in developing a state-based health exchange. First, there are many who believe it is unconstitutional for states to mandate insurance. Second, many believe that even if an individual mandate is constitutional at the state level, it is philosophically not the role of state government to implement such a mandate. Third, without a state mandate, a state-based exchange would be at a competitive disadvantage to more information rich private companies with existing clients and the capital to invest in health literacy and consumer sales.
State-based Versus Private Exchanges
If the PPACA individual mandate is ruled unconstitutional or PPACA is otherwise inoperable, the states could still establish a health exchange (e.g. Massachusetts, Utah). Each state must then decide if state-based exchanges are given a monopoly or will compete against private exchanges. Under either approach, the ability for state exchanges to be self-sustaining financially sound business models are likely to fail. As a monopoly, state/federal funds will likely be needed to operate a state-based monopoly exchange (e.g. Massachusetts). As a state-based exchange competing against private exchanges, special competition limiting rules state funds supporting state-based exchanges may be needed (e.g. Utah).
A state-based exchange is unlikely to survive direct competition with private exchanges that offer more health information and support for health insurance purchases. Private exchanges will have the advantage of existing broker, hospital, physician, and other health stake-holders customers. Private companies developing exchange services are providing the exchanges as additional products and services within their existing business portfolios. They are investing heavily in technology, business infrastructure, research and development, marketing, and administrative capabilities.
Changing Pre-PPACA State Insurance Laws
If individuals are no longer federally or state mandated to purchase exchange products and services, states will need to review and revise the products and services allowed under pre-PPACA insurance laws. In most states, significant portions of the citizenry rejected purchasing health insurance as unaffordable or lacking sufficient value.
Without the PPACA purchasing mandate, there is no reason to project that there will be an increase in individuals or groups purchasing insurance. However, if the state insurance laws are changed to allow more affordable insurance, increase access to coverage, improve a porous free market safety net, and focus on lowering the uninsured – then more individuals could maintain and seek coverage without a government mandate.
Potential Futures for Health Exchanges
In spite the fact PPACA is current law, state political ideologies are driving decisions of whether or not to move forward with planning, enabling state legislation, and implementation of state-based exchanges. In some states, the governors are caught in a time squeeze between a belief PPACA will be ruled unconstitutional and their managerial responsibilities to implement the law as it exists or may be ruled as constitutional. The United States Supreme Court will hear arguments in the spring of 2012 with a ruling by July 2012. That leaves little time to meet the federal progress review target date of Jan. 1, 2013.
The judicial, political and market forces are changing rapidly and will affect the ultimate future of health exchanges. The following outlines multiple futures and options to consider.
1. State-based exchange under PPACA - The ability to develop a state-based exchange unique to states seems unlikely. State flexibilities provided in PPACA seem to be illusory. PPACA suggests some flexibility, but other sections of the law makes it clear that any state–based exchange variations will have meet all of the conditions laid out in PPACA. Subsequent discussions with HHS confirm little room for state flexibilities in establishing or operating a state-based exchange.
Option 1: Develop a state-based health exchange. Several states have established advisory committees that are or have produced a roadmap for developing a state-based exchange. Their recommendations may provide a framework for governance, operations & finance, and insurance/marketing. However, do to the many uncertainties in PPACA and regulations to date, the advisory committees have had a difficult time producing a self-sustaining financially sound business model for state-based exchanges.
Option 2: Let the federal government develop the exchange.There are many factions in states that do not believe states should spend money or resources to establish the exchange when PPACA provides that the federal government will do so if the state does not. The time, state expense, and minimal state flexibilities do not justify the state’s involvement. In this scenario, the federal government will develop an exchange for the state. It is uncertain who will bear the cost of this development. It is possible HHS will charge states a fee for building a federal exchange.
2. State-based exchange under PPACA without federal support – In a number of potential scenarios, PPACA mandates could continue to exist, but political power shifts to an alignment dedicated to dismantling and/or repealing PPACA.
Option 1: Defer developing a state-based exchange. Without PPACA federal clarity and supporting subsidies, the state-based health exchange business model is unlikely to be self-sustaining. The state-based exchange will duplicate private exchanges that offer more consumer information on more products.
Private companies are actively engaged in developing consumer/agent product information. Private exchanges are going beyond the health information. They are developing consumer support for health, life, disability, long term care, and other products.
Option 2: Develop a state-based exchange. In this scenario a state-based health exchange would have difficulty operating. Even if PPACA is ruled constitutional potential power could shift to dismantling PPACA. The lack of clarifying regulations, reduction or elimination of exchange subsidies, and other “slow down” procedures would threaten the financially viability and consumer value of a state-based health exchange.
3. State-based exchange without PPACA - Private exchanges are developing consumer information on a broad range of products including: health, life, disability, long term care, and other coverages. Without PPACA mandates and government subsidies, there are limited opportunities for expense reduction, market efficiencies or other potential value-added services offered by a state-based health exchange versus the private exchanges under development.
Option 1: Defer to private exchanges. Without the PPACA mandates, there is no need for states to develop what is already being developing by many private companies. Private companies are actively engaged in developing more consumer/agent product information and health literacy resources than proposed by most state advisory committees.
Option 2: Create a state certification process to identify the private exchanges providing full-service information on insurance products, pricing, coverages, provider networks, hospitals, physician, and agent credentials. The state insurance commissioner should establish the criteria for such certification.
Option 3: Encourage the development of state-based private exchanges by providing state grants for market analysis and planning. Assist private exchanges with a state partnership to link Medicaid and SCHIP eligibility certifications.
Option 4: Develop a state-based health exchange. States with a health exchange advisory committee should require them to produce a roadmap for a state-based exchange without PPACA. States will need to determine what market controls or restriction will need to be placed on competing private exchanges. As a result, it is important for states to develop an acceptable self-sustaining financially sound business model for the exchange. In many states, there is likely to be little public support for developing an exchange without the federal PPACA funding subsidies.
Scenario Planning
A four quadrant scenario planning tool is useful to identify the environment within which a state-based Exchange will operate. The financial viability is significantly challenged in most of these potentials. It is important for states to plan for the many outcomes from the judicial challenge and potential shift in political control. It is in these potential scenarios that states will be need to take the lead in health insurance reform and determine the proper role for government versus free-market solutions.
Along the horizontal axis:
1. “Some Control” means political control over regulations and budgeting sufficient to maintain or diminish but not expand or repeal PPACA.
2. “Total Control” means a political alignment capable of expanding or repealing PPACA.
3. “Political Alignment A” represents a political coalition that seeks to pass legislation and regulations that expand PPACA and make any needed technical corrections.
4. “Political Alignment B” represents a political coalition that seeks to repeal PPACA legislation and dismantle existing regulations.
The eight sections marked with a “State star” indicate scenarios where private exchanges are developing and state-based exchanges are of questionable value. In these scenarios, health reform will move to states. States will need make a determination for developing a state-based exchange, defer to the development of private exchanges, or assist in the development and expansion of private exchanges.
A detailed video presentation on health exchange scenario planning is available at:
Conclusion
The United States Supreme Court’s decision on the constitutionality of PPACA and the elections of 2012 and beyond will ultimately determine the future and purpose for developing a state-based health exchange. Until it is clear, most states are likely to defer development of state-based health exchanges. The business uncertainties and the lack of evidence that states can develop a unique value-added state-based Exchange further support the need for delay.
State advisory committees can play an important role by advance planning. If by June 2012 PPACA is ruled constitutional and states can outline: (1) a self-sustaining business model, (2) show that that under PPACA states can develop a flexible Exchange rules that benefit its citizens, and (3) prove that a state-based Exchange is needed, then a special session of the state legislatures could be called during the summer of 2012 to further consider the advisory committee recommendations.
If by June 2012 PPACA is ruled unconstitutional and the PPACA mandates are inoperable, developing a state-based health exchange seems an unnecessary and some argue is an unconstitutional act by the state. There are a number of initiatives states could take to support the development and expansion of private exchanges. The developing private exchanges may be better positioned to develop financially sound business models that offer value added products to consumers, insurance brokers, hospitals, and physicians, who are already their clients purchasing other products and technologies.
