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Health Exchanges: Choice Without Hassle and the Heart of Reform

By Brian Schilling

In the heart of Upper Manhattan, a small, nonprofit tutoring center—Operation Exodus Inner City—is bucking national trends by offering its four employees health benefits. This is not just a single take-it-or-leave-it plan, but a choice of 30 plans from five different organizations. The organization doesn't have a human resources staff, there is no state mandate that requires Exodus to offer benefits of any kind, and no, the company didn't just hit the lottery. How is the rich menu of benefit options possible?

The answer is HealthPass, a health exchange offered in and around New York City since 1999. "Before HealthPass, we offered a single plan," said center director Matthew Mahoney. "It basically eliminated the hassle factor involved with offering health benefits and it's flexible enough so that we can contribute whatever amount we can afford and the employee pays the rest:"

Choice Without Hassle
HealthPass is what is known as a health exchange, essentially a way for individuals and small employers to purchase health insurance with a wide range of plan options, unlimited flexibility in terms of employer contribution, and virtually zero administrative hassle. That last factor is significant. In New York, HealthPass handles all the administrative issues normally involved in working with a plan—eligibility, enrollment, education, member advocacy, billing—and makes offering a choice of plans exceedingly simple.

Health exchanges are a hot topic, and are at the center of the new health care reform law. While key provisions establishing state-run exchanges may not take effect until 2014, it now seems certain that exchanges will factor into the nation's health care future as a way of expanding access and choice to millions of Americans.

Though no more than a dozen exchanges are thought to exist nationwide, their appeal on both sides of the political aisle is not hard to understand. Notable successes among the handful of existing exchanges include:

  • helping companies and employees select plans that are right for them;
  • reducing administrative costs by streamlining marketing;
  • establishing mandatory minimum benefit levels;
  • negotiating with insurers for the best possible rates; and
  • helping facilitate the implementation of Massachusetts' individual insurance coverage mandate.

HealthPass was formed in 1999 with a little over 1 million dollars of seed money from the city of New York, with the hope that the investment might help more New Yorkers get coverage. Currently, more than 35,000 people are enrolled; 17,000 have joined since 2008. As plan offerings expand, word spreads, and comfort levels grow, further growth is expected, says Laurel Pickering, executive director of the New York Business Group on Health, which helped establish HealthPass.

The exchange is marketed and sold exclusively through brokers, many of whom consider it the go-to option for small employers who want to offer more than a single plan.

"It's not uncommon for groups to have one person who needs plan X because her doctor isn't in any other network and another person who insists on plan Y because it allows a particular drug in the formulary," said Juan Franco, a broker with the Fiduciary Intermediary, an insurance agency. "I tell them about HealthPass and the response is frequently, 'That seems too good to be true.' They're not used to having options."

Brokers' commissions for enrolling employers in the exchange are about 6 percent of the premiums (including the broker's and general agent's commissions), which is the same commission that would be paid for selling an employer any single plan. Enrollees tend to be happier, says Franco, and the exchange gives him the opportunity to promote other benefits offered through the exchange, such as dental, life, and accidental death and disability—products most small employers would never consider.

Among the members of HealthPass are the five employees of the New York Business Group on Health. "We have five employees and each of us has a different plan that best suits our needs and our budget," notes Pickering. "That would be impossible without the exchange. But because we work with HealthPass, the administrative end of things is essentially limited to writing a single premium check. HealthPass does everything else. Without HealthPass, I expect we would offer a single plan."

Each of the 30 plan options offers different choices in terms of deductibles, copays, networks, and formularies. Cost, of course, plays a key role too. Each employee picks the plan that works best for his or her budget.

Most participating employers don't have a dedicated human resources staffer. "And because of HealthPass, they really don't need one," said HealthPass Executive Director Vince Ashton.

HealthPass recently added an advocacy program to its menu of benefits. The advocacy program helps members deal with claims issues that arise when members mistakenly go outside of networks or fail to get proper preauthorization. The exchange also just hired its first director of public policy, a position Ashton hopes will give HealthPass a greater voice in state and federal discussions about the future of health care.

How Much Does It Cost?
Participating employers have complete discretion about setting contribution levels they can afford. That flexibility is important. "We have some employers that contribute $400 a month toward benefits and some that contribute $100," says Ashton. "The employee decides which plan to spend that money on: the $783 a month plan or the high-deductible plan for $215 a month. It's whatever works for the employer and the employee."

HealthPass operates as a taxable not-for-profit and supports itself on the 3.5 percent of participants' premium dollars that go to the exchange. Ashton is quick to note that the 3.5 percent is essentially invisible to members. The money is built into the community-rated premium for handling administrative processes that either goes to a health plan (when a person joins it directly) or to HealthPass (when they join through the exchange). That revenue is enough to cover the cost of 20 employees and expenses. HealthPass says it is not defined by revenues or profits. "Our mission is to extend high-quality health coverage to New York's small-employer market," says Ashton. "But the bottom line matters to us, too. We're proud to have been revenue-positive since 2004."

Community Rating
"One of the things that makes HealthPass work in New York is that community rating is mandatory for the small-employer market," said Pickering. In New York, community-rating laws mean that health plans must offer the same rates to all employers with fewer than 50 employees. New York is currently the only state in the country that has a pure community-rating requirement (meaning rates can't vary based on any factor), but 11 others require some form of community rating and two of those states have thriving exchanges, as well.1

"Community rating means there's no reason for employers with sicker-than-average employees to flock to HealthPass," said Pickering, referring to what is commonly called "adverse selection" in the industry. "Employers can get the same rates and coverage themselves, regardless of the health of their employees. They would just have to do a lot more work to manage those benefits if they did it outside the exchange."

The Plan Perspective
Pickering says that health plans participating in the exchange approached it initially with a mix of interest and caution. They were interested in the exchange as a marketing vehicle to get new members, but cautious about what the claims experience might be. Since then, caution has given way to interest. The initial slate of 20 coverage options has grown to 30 and other major carriers have shown interest in participating. Pickering hasn't seen claims data for the HealthPass membership, but she notes that not a single plan has dropped out of its own accord.

"We're very pleased with our experience working with HealthPass," said Ilene Margolin, senior vice president for public affairs and communications at Emblem Health, one of the participating plans in the exchange. "The nice thing about enrollees that come to us through HealthPass is we know they had options but chose us. We look forward to being a partner with HealthPass in the years ahead."

While exchanges are still rare, HealthPass is not alone. Exchanges in Massachusetts and Connecticut are healthy and growing.

Connecticut Business and Industry Association's Health Connections
One of the nation's oldest exchanges is in Connecticut. Since 1995, the Connecticut Business and Industry Association (CBIA), a nonprofit 501(c)(6), has run its own exchange, CBIA Health Connections. In many ways, the CBIA exchange is similar to New York's HealthPass. Like HealthPass, Health Connections helps organize the market and provides employers with a central source of information about health benefits. The exchange also selects among participating plans and plays an active role in structuring benefits options.

The CBIA exchange enrolls roughly one-fifth of the small-employer market in Connecticut, about 75,000 people. It is operated as a for-profit subsidiary of its nonprofit parent, but like the New York exchange, its goal is not to maximize revenue.

"We established Health Connections to help bring some order to the market for health coverage in Connecticut and as a service to our members," said Phil Vogel, CBIA senior vice president and manager of the exchange. The recipe for success, according to Vogel, is choice without hassle—the same formula that works in New York. "We offer participants a choice of plans and a choice of budgets and we handle all the administrative functions for them. They basically are in charge of writing premium checks and telling us who is eligible. We do everything else."

The Connecticut exchange is roughly double the size of its New York counterpart. Size is important—a large and constantly growing pool of covered individuals is more likely to mirror the claims experience (i.e., the risk) of the population as a whole. That, in turn, makes it an attractive pool for an insurer to cover since it's easier to predict the cost of the pool's medical care in the future. To ensure that Health Connections keeps growing, the exchange works through brokers to recruit new employer groups. Connecticut's exchange is open to employers ranging in size from three to 100 employees.

CBIA Health Connections operates with a staff of around 30 employees, which includes sales, customer service, and information technology staff.

Massachusetts' Health Connector
Massachusetts—the only state in the nation where every resident is required by law to obtain health insurance—is home to an exchange of a very different sort. The Massachusetts Health Connector is an independent public entity that was created in 2006 as part of the legislation that made health insurance mandatory for state residents. The idea was straightforward: extend insurance to everyone in the state by requiring individuals to get coverage and set up an exchange to make it easier and more affordable for them to do so.

"We're essentially an electronic insurance store that makes it easy for people to shop for coverage," said Executive Director Jon Kingsdale. As an independent state agency, the Massachusetts Health Connector Authority is also responsible for a number of related, regulatory functions, such as: establishing minimum required benefits, setting penalties for individuals who fail to obtain coverage, managing an appeals process, processing subsidy payments, selecting participating plans, and negotiating rates.

The Connector offers two types of coverage, subsidized and unsubsidized. Commonwealth Care, the subsidized program, is for low-income residents. About 175,000 individuals are enrolled in this program, 70 percent of whom pay no premiums. The other 30 percent pay on a sliding scale. The exchange negotiates with participating plans to buy coverage for these individuals in roughly the same fashion in which a large employer might buy coverage for its employees.

The Connector's unsubsidized program, Commonwealth Choice, is the electronic insurance store Kingsdale referenced earlier. It is open to any state resident and covers about 25,000 people, almost all of whom are individual purchasers rather than employer groups. The Connector selects plans and determines benefits, but each plan sets its own rates, which must be the same whether an individual enrolls through the Connector or on their own through a broker.

The exchange is also taking some initial steps to promote quality. It required a plan new to the program to earn accreditation from an independent group before allowing it to participate in the exchange. It also highlights plans believed to be of high quality, based on performance scores in areas like immunizing children, care for people with diabetes and asthma, and self-management of blood pressure and cholesterol.

Support for the initiative is high and growing. Nearly 97 percent of state residents now have insurance. About three-quarters say they view the exchange positively; the same percentage of employers back the effort. One reason for the broad support is the exchange has held premium increases to about 5 percent annually.

Health Exchanges, Looking Forward
Though health exchanges feature prominently in the reform legislation, there is still no precise definition of exactly what an exchange is or should be. What is certain is that every state will be required to establish an exchange by 2014. Will Massachusetts' state-sponsored Health Connector be the model? Or should exchanges be separate from any regulatory authority? Other topics that require examination include changes needed to accommodate the individual market, the powers exchanges should have to control premium costs, determining which insurers would be allowed to participate, whether exchanges would supersede state law on issues such as required minimum benefits, and the inclusion of brokers' fees.

Look for state legislatures to debate these and other exchange-related issues over the next year or two. Regardless of how those debates play out, it's clear that the process of buying health coverage for small employers and individuals will change.



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