The Clock is Ticking for Public Health Insurance Exchanges

The success of Obamacare relies entirely on every state having a health insurance exchange as mandated by the Affordable Care Act (ACA) up and running no later January 1, 2014.

By early 2013, the federal government (via Health and Human Services (HHS)) will make a determination as to each state’s readiness to bring their health insurance exchange online. Lack of readiness by the January 1, 2014 deadline means HHS will take over the implementation and operation of each exchange.

The clock is ticking…

We are following closely the progress that is being made by the states are convinced that only a handful will be ready by the deadline.   Moreover, we question whether HHS will be able to step in and offer their working version of an exchange either, or if that federal exchange will even be legally able to offer subsidized policies.

While we are not prepared to unilaterally conclude that ACA’s exchange deadline won’t be met by any state, a former HHS secretary is equally skeptical.

We want exchanges to succeed and believe they ultimately will (in some form).  Our reviews of the exchange initiatives have included studying the Early Innovator grants and interviewing state policy administrators and vendors selling into the exchange concept.  The amount of work that will need to be done in order to get the public exchanges stood up by 2014 is daunting.

TripleTree’s recent report on exchanges, HIX: An assessment of the complexities and opportunities emanating from the ACA’s public health insurance exchange concept introduces these challenges and some innovative solutions that could emerge as part of the solutions.  Since then however, the planning, procurement and testing are in the early innings; and operational integration is far from reality.   Unfortunately very few states have a demonstrated ability to pull off the kind of implementation prowess needed to come online, on time.

Putting politics and policy aside, there are at least three major challenges that each state will need to overcome (quickly) if the public exchanges have any chance of meeting the 2014 deadline:

1. States need more clarity on what they are building even though many states have RFPs out for technology and have drafted high level architectures.  There is universal uncertainty and lack of guidance from HHS on major issues such as to exactly how payments and subsidies will be processed  or how the carriers will integrate their workflow into the exchanges
2. States lack successful architectural models and commercially proven technical capabilities because there is no working model of an exchange. Those charged with building the models – the Early Innovator grantees – are far from ready, or have dropped out of the program and/or returned their remaining funds.  The often cited Massachusetts and Utah models fall short of the ACA requirements (as do the Medicare exchanges).   And no vendor has a turnkey solution.
3. States need more time – Given the massive scale and complexity of the exchanges and the integration that needs to be done with existing state and federal systems, it will be next to impossible to build an automated exchange as envisioned by the ACA in the next 16 months.

In our report, we also introduced the notion of private entities that may have the acumen and motivation to bring an insurance exchange online by the 2014 deadline.  We speculated that the private exchanges would start to roll-out in the second half of 2011 and even identified some of the likely players that would have compelling capabilities to drive the private exchange concept.

Our research asserted the real opportunities for the private sector to capitalize on the HIX mandate through a market-aligned solution that will have more impact to improve health insurance access than the federal mandates.  We are excited to see and will continue to watch the early launches of the private exchanges and believe the states and public HIX will benefit from modeling their efforts and approaches around the early successes from the private exchanges.

Let us know what you think.

Scott Donahue

Scott Donahue is a Vice President at TripleTree covering infrastructure and application technologies across numerous industries and specializes in assessing the “master brands” of IT and Healthcare. Follow Scott on Twitter or e-mail him at sdonahue@triple-tree.com

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While Obamacare Exchanges Remain Controversial; Opportunities Exist for Commercial Insurance Exchanges

With the seating of the new Congress, much attention has been given to the Republican pledge to repeal Obamacare, or at least their desire to defund major parts of the Patient Protection and Affordable Care Act (PPACA). High on the list of defunding targets are the state mandated health insurance exchanges (section 1311).

The state exchanges are designed to be a marketplace where people not covered through their employers would shop for and purchase health insurance, and if qualified, would receive subsidies.  The PPACA mandates that all states must establish insurance exchanges for individuals to purchase insurance by 2014, or the Department of Health and Human Services (HHS) will establish and run the exchange for the states who aren’t compliant.

The exchanges remain one of the most controversial aspects of the PPACA because of the large unfunded mandates they place on the states, in addition:

• The exchanges are the vehicle for supporting the Individual Mandate (the portion of the Reform Act that requires all US citizens to be covered under health insurance), and because of the very ambiguous rules legislated in the establishment of the exchanges.
• Half of the U.S. State Attorneys General are suing the federal government to block the mandate to implement insurance exchanges, claiming the rules are too ambiguous, that the unfunded mandate will bankrupt the states, and that the mandate is an overreach of federal powers.

The national debate on healthcare and popular sentiment to make health insurance more accessible and affordable has forced the health insurance companies to re-think how they market and sell their products.  As we have spoken about many times in the last year, the health insurance market is at the forefront of a fundamental shift to a retail business model from its legacy wholesale roots.

Despite the public scrutiny being paid to the insurance exchange mandate and congressional risks to rejigger the entire legislation, TripleTree is seeing a much more interesting dynamic forming in the healthcare insurance marketplace – early steps to establish alternative insurance exchange marketplaces by commercial entities.

A commercial healthcare exchange is a private venture between one or more insurance companies and a retailer (such as Walmart), bank, property and casualty insurance company.  It could in reality, include a range of consumer-oriented entity that unite to create a health insurance marketplace.

In the individual and small group market, consumers may find much higher value (and savings) in bundled insurance products (i.e. property, auto, life and health) than they would in singulary buying health insurance in the state dictated and controlled exchange.   Complicating things, this is especially true for consumers that would not qualify for the federal or state subsidies that can only be received if insurance is purchased in the public state exchange.

Today, most property and casualty holders get a discount for carrying multiple policies from the same carrier (e.g. homeowners and auto combined might yield a 15% discount on both policies).   Our research has led to many discussions with property and casualty insurers interested in bundling health insurance though a partnership (rather than direct underwriting).  Their goal?…aggregate and manage a larger share of consumer spend on insurance products.

Similarly, we are aware of large national retailers seeking to implement a proprietary insurance marketplace of as a way of extending a service mix to their customers, building brand loyalty and retaining customers within their own pharmacies.  While some retailers may form single entity partnerships, others see themselves as a marketplace for multiple carriers competing for business.  We anticipate seeing these commercial insurance exchange marketplaces begin rolling out sometime in 2011.

Though these commercial exchanges may not solve the adverse selection problem that the PPACA exchanges were designed to address, they should prove a successful partnership for the retailer and the insurance company that otherwise has difficulty marketing directly to consumers.  While states dither and politics hinder the roll-out of the public exchanges, many forward thinking commercial business recognize the market opportunity to provide a better insurance buying experience and are moving quickly to meet a market need – the way that free economies are supposed to work.

This is a thorny, emotional issue – and our research and sell-side mandates are paying close attention as technology-based solutions emerge.

Let us know what you think and have a great week!

Scott Donahue

Scott Donahue is a Vice President at TripleTree covering infrastructure and application technologies across numerous industries and specializes in assessing the “master brands” of IT and Healthcare. Follow Scott on Twitter or e-mail him at sdonahue@triple-tree.com

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