Will There Be Health Benefits Exchanges by 2014?
Despite advice from most free-market analysis, some Republican governors are executing the Patient Protection and Affordable Care Act (PPACA) by establishing Health Benefits Exchanges. These governors dislike PPACA, but they believe that exchanges can be vehicles for more choice than the federal law anticipates.
But I think that the real news is how much difficulty states that want to implement PPACA as fast as possible are having. Take California: “We want to be the lead car,” California Health & Human Services Secretary Diana Dooley told POLITICO in January, shortly after the state became the first in the nation to pass legislation allowing it to set up a health exchange. POLITICO reporter Sarah Kliff visited the Golden State four months later and found a stalled and discouraged effort. According to Kliff, governor Jerry Brown is more focused on filling a $25 billion hole in California’s budget than setting up the health reform’s new programs: “The Health Exchange Board only held its first meeting in April, and sweeping cuts to Medicaid threaten to undermine the public insurance program meant to serve as the foundation of the federal reform law.” Kliff quotes Peter Long, CEO of the Blue Shield of California Foundation, complaining that: “You can’t be the lead car when you take three months off.”
Preparing for a forthcoming speech, I researched pro-PPACA states such as Colorado, Oregon, and Rhode Island. None have managed to get exchange-enabling legislation signed by their governors (as of writing).
Furthermore, folks who estimate the costs of Health Benefits Exchanges are concluding that they will be more expensive than advertised. In an article that ran on April 26 in POLITICO Pro (which is by subscription), Kliff wrote:
Utah Exchange: Low-Cost Model Or Loss Leader?
Utah likes to tout the leanness of its health exchange, a free-market establishment that the state says runs on the shoestring budget of $500,000 — a particularly remarkable number compared to the $40 million budget of the Massachusetts exchange. But Utah’s feat is less impressive when you consider this: the main Utah health exchange vendor has operated at a loss on the contract. “We’re not that far away from this being profitable,” says Rich Gallun, CEO of health technology vendor bswift, which has the largest contract with the Utah exchange. “As long as the state of Utah was committed, that opportunity in itself would make the investment worthwhile. Beyond that, if we can help make Utah a success, we’re confident that other states will follow”
So, there you go: Mr. Gallun appears to be using Utah as a “loss leader” (in Ms. Kliff’s words) and hoping that profits will come from state exchanges that will become future clients. Another pro-exchange management consultant estimated that 15 percent of employers enrolled in exchanges were previously not offering health benefits. The flipside is that 85 percent of them were offering benefits. This is what we call “crowding out” and its remarkable that it happened in the Utah exchange, which has no subsidies!
Triple Tree, a mergers & acquisitions boutique specializing in health-care deals, has written a research note concluding that it will cost about $6 billion to establish exchanges, and $2 billion in annual operating costs thereafter. “TripleTree believes that implementation is fraught with costs, technical challenges, and sustainability issues that are neither recognized nor acknowledged, much less understood.” And these are dealmakers who do business with enterprises who hope to profit from exchanges!
If I were a betting man, I would not expect very many Health Benefits Exchanges to be up and running by January 2014, even if PPACA survives its challenges.
Interesting post, John. Most people have no idea what is involved in a heath insurance exchange.
Agree with Jeff. These people have no idea what they are doing.
Aren’t there already systems that allow you to go on line and purchase insurance? Why do we need an exchange?
Governor signed Colorado exchange bill in big ceremony at local hospital.
Isn’t e-health an exchange, operated with private money and no federal subsidies.
Thanks, Linda Gorman: One exchange down, many more to go! (Gov. Hickenlooper signed the bill on June 1, the day after I submitted this entry.)
But signing a bill is a long way from operating an exchange. Imagine if the government changed the mortgage-interest tax deduction so that you could only claim it if you bought your house from a state-based housing exchange.
Imagine the politician who asserted that such an exchange would increase choice!
Great analogy, John.
A very pessimistic view at best. Mr. Goodman needs a dose of optimism sprinkled with some accurate information.
Let’s take the metrics for the Utah Health Exchange. There are more than 100 small business currently enrolled in the exchange and nearly 30% (not 15% as Goodman states) were not offering coverage to their employees. In addition nearly 25% of the employees enrolled in the exchange did NOT have any commercial health insurance prior to enrolling in the exchange. Not bad considering these same employees were previously uninsured or on Medicaid (tax payer dollars).
While Mr. Goodman is correct about bswift taking a loss on this project, I commend bswift for being visionary and reform minded. The Utah Health Exchange is projected to have well over 1,000 small business enrolled by January 2012 and will then be profitable and self sustaining.
The Utah Health Exchange is not without flaws and there is always room for improvement. However, Utah’s defined contribution exchange is attracting the attention of reform minded leaders from across the country and has been overwhelmingly well received by Utah’s business community.
Utah’s approach was a low cost private sector solution that is gaining momentum and providing health insurance to those who were previously uninsured. I would say that is a positive outcome.
Dan, thanks for your comment. (I believe that you have confused “Goodman” with “Graham” because Dr. Goodman has not commented on this post.)
Your data undoubtedly comes from the May 30 Deseret News (http://tinyurl.com/3cfd9ce), which reported 100 plus small businesses with 1,035 employees and a total of 2,985 enrolees (including both employees and dependents). Only small businesses with 2 to 50 employees are eligible.
Back of the envelope calculations using data from the Bureau of Labor Statistics and the Census Bureau tell me that Utah has about one million private-sector employees, of which 20 percent – at the most – work in enterprises with 2 to 50 employees. That’s 200,000 people – a participation rate of one half of one percent.
And that’s after over half a year of marketing the new, improved exchange. Somehow, I doubt the bankers who underwrote the LinkedIn IPO are chomping to get a piece of this one!
The only reason to cheerlead the Utah exchange is if you are looking forward to the tsunami of subsidies that will wash through the PPACA Health Benefits Exchanges.
An unsubsidized health-insurance exchange makes little economic sense – for reasons that I think I’ll leave for a full blog posting.
Well, establishing an exchange IS difficult.
However, correct me if I am wrong, but I can see where the Republican governors are not going to defer action until there is resolution in the courts over the constitutionality and conflicts with state laws/ constitutional amendments. Simply, doesn’t PPACA include provisions that require HHS to step in for states that do not have a credible exchange structure designed by early 2012? The specific provisions authorize HHS to make a determination on or before January 1, 2013 that the state is not going to have an exchange in operation by January 1, 2014 or has not taken the necessary actions to comply with federal standards for the operation of the exchange or the required insurance market reforms.
If you are a Republican governor, chances are you would prefer to hedge your bets on who will prevail in the current litigation over constitutionality and conflicts with state laws/constitutions.
What Republican governor would take a chance on inviting this federal government in to run your state’s exchange?
But, forget about everything else. Consider that the state based exchanges will have massive taxpayer-financed subsidies – see KFF’s illustration at: http://healthreform.kff.org/Subsidycalculator.aspx
How do you tell citizens of your state who earn < 4X the federal poverty level that you were not prepared to deliver the taxpayer-financed subsidies of thousands of dollars? In particular, how do you tell workers of companies with < 80 employees who are most likely to consider dropping coverage as part of a shift from a defined benefit process (offering health coverage with company financial support) to a defined contribution process (pre-tax IRC 125 contributions coupled with an IRC 105/106 Health Reimbursement Arrangement for the cost of coverage).
Looks pretty irresistible…
What am I missing?
I don’t understand the whole mess but I wouldn’t put all my eggs in this mess until alot more has been worked out about crosing state lines for the programs availablity. This is a nightmare with no way out.
The unfortunate tone of this article and posts are that they pursue an all or nothing approach. Exchanges are by nature facilitators of market forces (i.e. competition, increased information, choice). The Obama administration would like to use them to drive subsidies. It seems to me that rationale Republicans who are willing to compromise could devise models that are more acceptable to the right rather than throw up their hands and invite a Federal exchange into their states. What am i missing?