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Wary, but Intrigued, Health Insurers Eye a Plunge into the Exchanges

By Jane Norman, CQ HealthBeat Associate Editor

July 13, 2011 -- The health benefit exchanges set to begin operation in 2014 represent a lucrative new $60 billion market in which insurance companies will battle for millions of new customers, says a new report on a survey of health insurance executives and consumers.

Much of the attention on the health benefit exchanges has revolved around their structure and how fast states are moving to set them up, given the deadlines. But the PricewaterhouseCoopers analysis instead looks at a market that's being born and the opportunities it presents both for business and for people new to health insurance who will be covered through the exchanges.

"In the race for members, insurers must first understand these new customers," says the report. "And they need to start now." The analysis projects that 97 percent of people who will enroll in the exchanges don't currently have health insurance, mostly because they can't afford it. Many don't yet understand what an exchange is.

A proposed regulation on health insurance exchanges issued by the Department of Health and Human Services was a sign that the launch of the exchanges is not that far away.

States under the health care overhaul law (PL 111-148, PL 111-152) must have their exchanges ready for HHS approval by Jan. 1, 2013. But the proposed regulation also provides for the agency to issue a "conditional approval" if a state needs to work on information technology and contracting activities beyond Jan. 1.

More than half of the 153 executives surveyed by PricewaterhouseCoopers said their firms will want to sell policies in the individual or small group exchanges, or both. A third are considering it but are undecided. Many insurers may be worried about the design and setup of the exchanges, but at the same time feel like they can't afford to opt out, the survey authors say.

An estimated 12 million Americans will be choosing health insurance policies—mostly online—through the exchanges in 2014, "in a new, tightly regulated marketplace where choice will be king," the report says.

By 2019, that number will grow to 28 million, according to Congressional Budget Office estimates. An estimated $60 billion in premium revenue in the exchange market in 2014 will grow to $200 billion five years later as more people find out about the subsidies.

"Insurers will compete head-to-head for individuals who will be required to buy their product but be able to comparison shop like never before," the report says. "This is a far cry from today's world, where nearly all workers—except federal employees—have few choices of health plans."

It will also require a change in sales approaches for the individual market, toward a more retail-oriented approach and personalized marketing. Insurers will have to earn the loyalty and respect of consumers who will have the power to choose among many companies and products, the authors say.

Of those executives who say their companies are interested in selling in the exchanges, 37 percent said they are not in the individual market now, and 20 percent are not in the small group market.

Concerns Remain

The biggest worry among insurance executives is about adverse selection, or that they will enroll disproportionate shares of the sickest and most high-cost individuals. They are also concerned about technology, and about any plans by states to restrict the types of plans that can be included in exchanges. Just 10 percent of the executives surveyed favored the so-called "active purchaser" model in which a state spells out standards for plans, the report said.

Many of the new enrollees will not have much experience in buying insurance. A PricewaterhouseCoopers survey of 1,000 adults, separate from the executive survey, found that 82 percent of the people in income groups eligible for exchange subsidies did not know they might qualify.

The survey of executives also seemed to confirm fears among brokers and agents that their jobs are in jeopardy because of the law. Insurance executives said they expect 20 percent fewer health policies will be sold by insurance brokers when the exchanges go into effect.

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