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Think Tank

How Active Should Exchange Be in Defining Market?

When California first envisioned its reform-inspired health insurance exchange, state officials had three basic options in designing the exchange:

  • As a market definer and organizer, in which the exchange becomes the market;
  • As a purchaser, in which the exchange selectively contracts with insurers; or
  • As a clearinghouse in which the exchange acts as a platform for all plans offered by all issuers.

California chose the middle path, creating an exchange that will act as a discerning patron of plans.

At its meeting this month, the exchange board will consider some of the details about how to define that discernment.

A new issue brief from the Pacific Business Group on Health urges exchange board members to play an active role in promoting the quality and affordability of health care in California. Rather than acting as a passive online clearinghouse with a variety of plan options, PBGH urges the exchange to establish quality standards for plans and useful tools to help consumers pick the plan that is right for them.

In essence, PBGH is urging the exchange, as it navigates the middle road, to lean more toward the first option as market definer and organizer.

We asked stakeholders how the exchange should steer down this path.

We received contributions from:

How SHOP Exchange Can Best Serve Small Business

California’s small businesses sustain our state economy. And these dynamic companies run the gamut, which means their health care options should, too. 

Fortunately, the California Health Benefit Exchange is already working to design the Small Business Health Options Program, where small businesses will soon get some relief from skyrocketing health care costs. As the exchange board builds this new marketplace, there are a few things to consider.

The SHOP must offer a wide enough selection of plans to meet all kinds of companies’ needs. A computer manufacturing firm in Silicon Valley will likely want a very different benefit package than a restaurant down in Carlsbad.

But that doesn’t mean small businesses want an electronic bulletin board that lists every insurance product from every carrier. Naturally, small business owners and their employees want a range of choices — but not a bewildering stock of options they’ll have to pick through tirelessly before finding the right fit. The exchange needs to take an extra step and help small employers identify high-value, high-quality coverage options.

For this reason, the exchange must exercise its authority to act as an active purchaser. Like large companies and government agencies, an active purchaser can negotiate with insurers.

SHOP can foster competition by setting standards insurers and health care providers must meet to sell their products. This should compel them to deliver affordable, quality health care. Another way to help small employers get the most bang for their buck is by giving them and their employees rating information on quality, cost and enrollee satisfaction, as large employers do now.

Once the exchange has established these standards, its work is far from over. Past experiences have indicated exchanges cannot remain static. Successful ones focus on customers’ needs and adjust to changes in the market. Active purchasers are consistently more robust than other models — as long as they’re able to stand up to competition with the outside market.

With all SHOP has to offer, it’s no surprise California small employers support it. Only 32% of them offer insurance, according to opinion polling by Small Business Majority and Kaiser Permanente. But when they learn about the exchange opening in 2014, the percentage who say they’re likely to offer jumps to 44%.

It’s time to give entrepreneurs some relief. California’s exchange must ensure every dollar is spent wisely, so that small businesses can maximize savings and invest in creating jobs for Californians.

'Important Fork in the Road'

We are at an important fork in the road. In the next few months, the California Health Benefit Exchange Board will be making important choices about the design of the exchange for individuals and small employers. These decisions will affect not only the exchange’s direct beneficiaries; they potentially could drive the future of health care in California.

The board has already endorsed a vision that includes improving the “health of all Californians by assuring their access to affordable, high quality care.”  Note the use of the word “all”; the board is taking on the task of being a catalyst for improvement throughout our state’s health care system. Affordability is key; without it, millions of people will not be able to afford access to good quality care. This is the right focus, and the board now has the task of determining how to achieve this vision.

The exchange’s preliminary recommendations — to align with private sector purchasers, collect health plan performance information, require health plans to promote better care, use value elements in health plan selection and advance wellness — will contribute to improve affordability and value. We believe the exchange should include the following design elements to achieve its vision:

  • Consumers need meaningful quality information for individual physicians and hospitals, not just for medical groups and multi-hospital systems. The exchange should explicitly include the provision of doctor- and hospital-level quality information in its roadmap.
  • Consumers also need information on cost of services to make the right choices. The exchange should require its participating health plans to report information on the cost of services as well as the quality of their participating providers.
  • Like other purchasers, the exchange should hold plans to a high performance bar. That said, it is also important to encourage new entrants into the market that have innovative models for improving quality, expanding access to care and reducing cost. The exchange should lower barriers to entry for new plans by establishing interim transitional standards for plans that do not have established performance data.  Renewal of participation for these plans should be contingent on meeting full standards within a reasonable period of time.

If the exchange board adopts these recommendations to turn its vision into reality, California will have taken a major step down the road toward an affordable, high-quality health care system.

Decisions Now Could Determine Exchange Success

By being the first state to form an Exchange following the passage of the Affordable Care Act, California demonstrated considerable leadership. 

The Exchange Board and staff have been hard at work putting all the necessary pieces in place to ensure people can get coverage beginning Jan. 1, 2014. But, the decisions the exchange leadership makes in the next year could determine its ultimate success.

The exchange must implement a well-executed marketing campaign to make sure customers are aware of this new health care marketplace. The enrollment system must be seamless, efficient and user-friendly so customers face no barriers to purchasing coverage. But, at its very heart, it must offer highly attractive and affordable products (i.e., health plans) that will drive a few million Californians to buy coverage through the exchange.

The exchange board is on the cusp of making one of its most important decisions — selection of and contracting with the health plans that will be available to enrollees through the exchange.

Defining the requirements for a health plan to be considered as a qualified health plan (QHP) is the first step in this process, followed by the actual selection of plans that will offer coverage in the Exchange.

The standards for QHPs should result in consumers having choices in health plans. They should initially rely upon California’s existing, robust consumer protections, require state licensure and use national quality standards to ensure patients receive quality care.

The Board has indicated that it intends to selectively contract with health plans that have become QHPs. Under this policy, the most cost-effective, timely and consistent approach in selecting health plans is to ensure that any health plan or insurer applying to offer coverage must meet the consumer protections, quality and legal standards in California law and regulation. This provides the exchange with the greatest flexibility to contract with health plans while ensuring exchange customers benefit from the state’s regulatory oversight and standards.

California has some of the most extensive health plan regulations in the country, offering important consumer protections — all of which the exchange can rely upon when selecting health plans for the exchange. For example, regulators’ review of rate filings, laws requiring robust networks of providers and rules surrounding timely access to providers are some of the consumer protections plans already meet.

Also, aligning exchange criteria with current regulatory and legal standards will offer consistency between health plan policies offered through the exchange and those sold commercially, which is required through the Affordable Care Act.

California health plans have kept pace with the ever-changing medical care needs of the Golden State’s diverse population by developing a wide array of plans and benefits.

Today, they are the backbone of the state’s medical care system and essential to its safety net for those in need. Together, all the state’s health plans provide comprehensive coverage for about two out of every three Californians.

The potential of the California Health Benefit Exchange is great — millions of Californians will have the opportunity to use a government subsidy to purchase health coverage through this new exchange marketplace.

California health plans are a key partner for the exchange to create a successful marketplace, and it is vital that they draw upon our extensive experience in attracting consumers amid a highly competitive marketplace in order to reach the shared goal of providing high-quality, affordable health care to millions of additional Californians.

Rare Opportunity To Reshape Market, System

Rarely does an opportunity present itself to reshape the health insurance marketplace and delivery system. The California Health Benefit Exchange has such an opening, and should take it. Even if only one-third of some three million Californians eligible for health insurance coverage from the exchange enroll, that will be one million people — the same number of members CalPERS (California Public Employees’ Retirement System) has. That would make the exchange the second- or third-largest health insurance purchaser in the U.S., just behind the federal government. That’s a lot of negotiating muscle to leverage its market power for better ways to deliver care, foster better health and bend the cost curve in the health care system.

The exchange is on the road to wisely exercising its power as an “active purchaser.” California’s authorizing legislation, AB 1602 by Assembly Speaker John Pérez (D-Los Angeles), which Consumers Union strongly supported, in fact requires the exchange to foster competition by “selectively contracting with carriers so as to provide health care coverage choices that offer the optimal combination of choice, value, quality and service.”

The exchange can effectively carry out its role by creating understandable consumer choices and laying the groundwork for sorely needed delivery system reform. In so doing, the exchange needs to closely monitor to ensure innovative steps enhance consumer well-being, and do not discriminate or lead to adverse selection. Some such steps have proven effective, such as removing copayments for drugs for those with chronic conditions to foster adherence to needed drug regimens that improve health or removing copays for generic drugs. And transparent quality and safety information has been shown to move the marketplace. Existing quality measures are a starting point; the exchange should improve upon the measures over time.

The exchange can stimulate delivery reforms through its criteria for “qualified health plans” and contractual requirements; by standardizing products; and by displaying cost and quality information in a way that can help drive the marketplace. Systemic reform won’t happen overnight, but our exchange’s sheer magnitude, along with parity requirements for products inside and outside the exchange, provide the right conditions to start to cure some of our health system ills.

Of course, its first priority must be getting millions of eligible Californians enrolled in affordable health plans. But in the longer term, the exchange should become a national model for delivery system reforms that improve individual consumers’ health and slow the unsustainable cost spiral. California cannot afford to pass up this golden opportunity.

Four Keys to Successful Exchange

A key element of the recently upheld Patient Protection and Affordable Care Act is the development of state-run health insurance exchanges. These exchanges will play a crucial role in significantly expanding the number of people insured and in providing universal access to affordable health care coverage.

Here are four things that will clearly help make state exchanges successful.

  1. Through their pricing, marketing and health plan offerings, state exchanges will appeal every bit as much to individuals and small groups who do not qualify for subsidies or tax credits as they do to those who qualify for these incentives. By being inclusive to all individuals, exchanges can attract the type of balanced enrollment that will allow them to be a sustainable force in the market.
  2. As we’ve seen from experience in the private exchange marketplace, working with brokers is key. It is the broker who already has existing relationships in the market and who knows the territory. As it is today, the brokers, more than anyone else, can provide information and unbiased recommendations purchasers need to make well-informed decisions as well as service for routine issues and serious policy interpretations. With many changes taking place, the broker’s role and value is more important than ever.
  3. The most successful exchanges are those that are simple for all involved. For consumers, that means a Web portal that is easy to navigate and fully transparent in providing the information individuals need to pick a health plan that fits their needs and budget. And for employers, that means ease of administration, a single point of contact and supporting tools that make their jobs easier.
  4. Last year the California HealthCare Foundation outlined three potential directions states can take in creating an exchange: a “price leader” that focuses on affordability and low premiums; a “service leader” that provides one-stop shopping with broad choices and superior customer service; or a “change agent” that focuses on long-term system reform and innovation. Rather than following just one of these models, the most successful exchanges will most likely incorporate many of these elements in their design, remembering always that exchanges are all about providing people with choice and flexibility.