The Pacific Business Group on Health (PBGH) has had some experience in running a small group purchasing pool. It’s the organization that took over the Health Insurance Plan of California (HIPC), which was renamed the Pacific Health Advantage or PacAdvantage and operated for a total of 13 years, ending in 2006.
That organization was similar in concept to California’s Health Benefit Exchange. A new report from PBGH outlines some of the lessons the exchange might learn from PacAdvantage’s slow demise.
“The biggest lesson is, exchanges are naturally vulnerable to adverse selection,” according to report co-author Bill Kramer, the executive director of national health policy at PBGH. “When the Pacific Business Group on Health took over HIPC, it was inheriting an adverse selection problem. At a certain point, the adverse selection becomes irreversible and there’s no way to get out of it.”
Kramer said that is the number one life lesson for California’s exchange, which is expected to open its operational doors in 2014. The exchange board will need to work closely with the Department of Insurance and the Department of Managed Health Care to monitor insurers and exchange participants and head off inequities in the market.
“There are a variety of ways in which market forces can create an adverse selection problem,” Kramer said. “High-risk people may choose to enter the exchange, and low-risk ones might choose to stay out. People may drift toward one plan or another. Or insurers might offer incentives to attract lower-risk patients.”
The report focuses on Small Business Health Option Programs, or SHOP exchanges. “It will take constant monitoring,” Kramer said. “To the greatest extent possible, you want the market to be the same inside and outside the exchange.”
The five lessons, according to the new report:
- Meaningful consumer choice. This doesn’t mean unlimited choices, but a number of options made a difference in PacAdvantage;
- Adverse selection will remain a concern. People with pre-existing conditions raised the risk in PacAdvantage. That should be less a problem under the Affordable Care Act, which does not allow insurers to deny high-risk patients, but other market dynamics could create adverse selection;
- Adaptability and vigilance. There is not a single answer or factor in monitoring and avoiding adverse selection, so that monitoring must be constant;
- Benefit for health insurers, too. The exchange needs to be attractive to health insurers; and
- The exchange can’t stand alone. For it to succeed, the exchange needs to build partnerships with insurance brokers and other delivery channels.
Adverse selection, which may be the biggest danger to the exchange, according to Kramer, is a complicated issue and can’t be countered by just monitoring insurers.
“You have to look at it without attributing evil intent to anyone,” Kramer said. “Everyone is acting in their own best interests — insurers, participants, everyone — and they can all contribute to a collective problem, unfortunately.”
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