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Standards Open Exchange Doors for Qualified Health Plans

At the most recent meeting of the California Health Benefit Exchange board, Executive Director Peter Lee hefted a 263-page tome about qualified health plans in one hand, for effect, and then set it down on the table with a plop. 

“The qualified health plan issue,” Lee said, “is a big issue.”

Big in many ways: Health care reform experts have said the health plans participating in the exchange are crucial to its success.

Andrea Rosen, staff counsel for the Department of Insurance who is on loan to the exchange, helped write the hundreds of pages of rules, requirements and standards that describe just how insurers can participate in the exchange, set to open for business in January 2014.

“This exchange is tasked with being an active purchaser, unlike many other states,” Rosen said. “So we face the question: What should the proper number and mix of plans be, that are available through the exchange?”

Charles Bacchi, executive vice president of the California Association of Health Plans, said his organization is still in the process of evaluating the qualified health plan guidelines.

“It is clearly ambitious. And it’s a health policy roller coaster, where every rider is going to have simultaneously different reactions to what they read,” Bacchi said. “The exchange is a great opportunity for us to help implement health care reform, and which plans are selected is, of course, very important.”

‘We Want To Avoid Gaming’

The exchange wants insurers to participate and wants to allow some flexibility for those health plans to alter benefit design. But at the same time, Rosen said, the exchange needs to keep a lid on the way insurers offer coverage plans.

“We want to avoid gaming,” Rosen said. “For instance, the gold and platinum plans are likely going to be the heavier users and the sicker population. So if you were a health plan that wanted to maximize return, you might just come in and offer silver and bronze. And then we wouldn’t have anybody in there to offer platinum and gold.”

“Adverse selection” has long been a buzz phrase for the exchange. It is often mentioned as one of the reasons for the failure of California’s PacAdvantage, a small group purchasing pool — similar in concept to the exchange — that ended in 2006. (PacAdvantage initially was known as the Health Insurance Plan of California, then was renamed as Pacific Health Advantage. It ran for 13 years.)

The push and pull between the health plans’ need to earn money and the exchange’s need to ensure a level playing field for all consumers has been a central theme in the planning process, according to Richard Scheffler, a UC-Berkeley economist.

“Actuaries worry about risk selection,” Scheffler said. “They never get fired if they have a policy that costs too much, but if they have a policy that costs too little, that’s when they lose business. So they have a particular kind of bias. They don’t worry about efficiency in the market, it’s not their problem. They don’t worry about affordability, that’s not their problem. They worry about risk selection.”

It’s up to the state — and more specifically, the exchange — to make sure coverage is affordable for everyone, he said.

“In 1999, health insurance in California cost 10% below the national average. And in 2011, it cost 10% above the national average,” Scheffler said. “The number one thing we need is affordability.”

Rosen couldn’t agree more. “The exchange has an obligation to offer every single coverage tier throughout California,” Rosen said. “Plans want to have ability to innovate, and we are allowing limited customization.”

Seeking Balance of Regulation, Options

Scheffler said the exchange has to strike a balance on a number of levels. In particular, he said, exchange board members need to be cognizant that the exchange can’t make all the plans exactly the same.

“We can let more carriers in, right at the start,” he said. “You don’t want to overregulate the market.”

Bacchi said that’s one of his major concerns.

“I would just point out that, while there’s been a cautious and prudent approach on the minimum standards for QHPs, the exchange has a very ambitious plan for health plan design,” Bacchi said. “As a result, there’s not a lot of variables or factors that are going to differ between plans offering coverage within this exchange. That’s a big deal.”

Bacchi said the exchange has to be careful not to over-restrict the market and not to ask for too much. “Setting higher standards or new standards,” he said, “will only increase costs for the exchange.”

Offering incentives for healthier lifestyles or disincentives for bad habits are examples of possibilities if the market is not too strictly confined, Bacchi said.

“Tobacco rating and wellness incentives should be considered,” Bacchi said. “We’re not saying they should be done, but they should be on the table, as we look to 2014. Arbitrarily knocking them off is presumptuous, without giving them a close look.”

That could be problematic, according to Anthony Wright, executive director of Health Access California.

“The more you allow changes in benefit design, the more you risk adverse selection,” Wright said. “Wellness incentives can be a back door to adverse selection. If one plan offers free gym memberships, who’s going to take advantage of that? The healthier people. So plans could target those people.”

Lee said the exchange board welcomes feedback on all of the staff recommendations for determining qualified health plans.

“These are all preliminary recommendations,” Lee said. “There are a lot of recommendations, but they are preliminary.”

The final recommendations are expected to be completed by Aug. 23 when the exchange board meets.

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