Seek higher volume to balance lower margins in new exchanges

NATIONAL REPORTS-It's likely that most major health insurers will participate in the insurance exchanges that must be up and running in each state by 2014 under the Patient Protection and Affordable Care Act (PPACA), experts predict. And most states are likely to set up their own exchanges rather than let the federal government do it.

The exchanges and new insurance rules could foster greater competition and force insurers to operate more efficiently and transparently.

"I believe larger insurers are going to need to be part of the exchanges from a sheer volume perspective," says Maureen Fahey, the national healthcare reform leader for KPMG. "They'll have to balance a lower-margin, higher-volume book of business that's consumer driven. It's a new paradigm."

"We want to make sure we offer opportunities for consumers to continue to purchase the kind of plans they want to buy today," says Donna Zimmerman, senior vice president for government and community relations at HealthPartners, a not-for-profit health plan and health system based in Bloomington, Minn. "As the government sets up the exchanges, it should think about mechanisms to allow those plans to continue to be sold."

The state-based American Health Benefit Exchanges and Small Business Health Options Program Exchanges are central features of PPACA. Every state, or group of states, must offer an exchange so individuals and small businesses of up to 100 employees can select from an array of plans. Lower- and middle-income individuals and families will receive a subsidy to buy coverage through the exchanges. Larger businesses will be able to buy through the exchanges beginning in 2017.

The federal Office of Personnel Management (OPM) must contract with insurers to offer at least two multi-state plans in each exchange, one of which must be not-for-profit. Federal grants will be available to start not-for-profit consumer cooperative plans, which will qualify to market in the exchanges.

Requiring insurers to sell the same standard packages both inside and outside the exchanges lessens the incentive for insurers to sell solely outside the exchanges, says Sara Collins, vice president of the affordable health insurance initiative at the Commonwealth Fund in New York. They won't be able to sell leaner packages to attract younger, healthier customers.

Except for grandfathered plans, products sold both inside and outside the exchanges must conform to four standard benefit designs with different cost-sharing levels; a separate catastrophic package will be available to people aged 30 and under.

Walton Francis, principal author of Checkbook's Guide to Health Plans for Federal Employees, which helps federal workers navigate the Federal Employees Health Benefit Program (FEHBP), says launching the new exchanges by 2014 is entirely doable. States can follow the existing exchange models of the FEHBP, Massachusetts Health Connector, Medicare Advantage and Medicare Part D. He worries, though, that the standard benefit packages required by the new exchanges will be too rich-and expensive.

"The imperative will be to cover more and keep copayments and coinsurance low," he says.

Francis also is concerned about whether insurers will see the exchange risk pools as broad and viable, allowing them to set their premiums appropriately. He cites the Massachusetts experience, where some people have defied the mandate and bought coverage only after getting sick.

"If plans think they'll be forced to operate at a loss, they won't bid, or they'll pull out," he says.

That scenario could happen, he says, should the courts strike down the reform law's mandate mechanism as unconstitutional.