If everything goes according to plan, 2013 will be the year that exchanges transition from policy to actuality — that means real entities with enrollees, carriers and vendors, and fully functional state and federally facilitated exchanges (FFEs).

As rules are finalized by HHS, health insurers this spring will have the information needed to build and price their products, and by summer, the industry will have a clear understanding of how adverse selection will be averted through the risk adjustment, reinsurance and risk corridor provisions of the Affordable Care Act.

Whether everything will go according to plan, however, is anyone’s guess as we begin what will be the most significant year the health insurance market has seen since the implementation of Medicare and Medicaid.

The CMS Center for Consumer Information and Insurance Oversight (CCIIO) has demonstrated it will be flexible in offering conditional approvals to state exchanges, notes Dan Schuyler, a director at the consulting firm Leavitt Partners who helps guide the firm’s health insurance exchange practice. As an example, he points to the recent conditional approval of Avenue H, Utah’s exchange. Approval of an exchange that is now focused only on small employers “sets a positive tone for states to quickly transition from a partnership or FFE to a state-based exchange,” he tells HEX. “We feel that 2013 will be the year of transition for many FFE and partnership states.” Some states, he adds, will remain firmly opposed to exchanges and the overall reform law.

Despite such flexibility, state exchanges, health plans and enrollees will face obstacles in building the new marketplaces, coordinating with other entities and attracting participants. Industry observers agree that factors such as guaranteed issue coverage, the compression of age-rating bands, the inclusion of essential health benefits (EHB), compliance with actuarial values for metal tiers and participation fees could push coverage costs out of reach of some young and healthy consumers who might opt to stay out of the risk pool.

Eight Big Challenges for Exchanges in 2013

This month, we asked a variety of industry insiders what they thought would be the biggest challenges for public insurance exchanges in 2013. Here is what they see as the most significant issues:

(1) The clock: It’s ticking louder than ever. State exchanges must finalize their qualified health plan criteria soon, but just a few states have gotten that far, says Linda Tiano, a member of the health care and life sciences practice at the law firm Epstein Becker and Green. Following that, health plans will need to create and submit benefit plans and rates to state regulators and get them approved. Finally, the plans and rates will need to be loaded so that consumers can see them when they shop for coverage. “An eight-month turn-around time for new products and rates is aggressive in a normal environment, but when you consider that the plans are still not in a position to submit their benefit materials to regulators — and that all of the plans will be submitting them simultaneously — it raises serious doubts about the ability to complete everything on time.”

(2) Confusion: If the exchanges do launch on time, will they do so with a minimum of problems? asks Robert Laszewski, president of Health Policy and Strategy Associates, LLC. He points to the launch of the Medicare Part D drug benefit and notes that early problems included pharmacies not getting paid and a general sense of confusion related to enrollment. “That was one-tenth the complexity of what states and the feds need to do to be ready for the ACA,” he tells HEX.

(3) Sticker shock and awe: QHPs need to include essential health benefits, many of which aren’t included in low-cost plans today. Moreover, HHS has proposed a 3.5% surcharge for plans that sell coverage through an FFE, and state exchanges are expected to charge similar fees, or more. The expected high coverage costs, combined with low penalties to consumers who go without coverage, makes it likely “that many people who believe they are healthy will not purchase insurance, at least right away,” says Tiano. Health plans will likely take that into consideration in setting rates as well, further increasing the premiums. “Although there will be considerable public pressure to hold rates down, it remains to be seen how high the premiums will be and how many people actually purchase insurance.”

Laszewski agrees and notes that non-grandfathered policies sold off the exchange must be priced the same as those sold on the exchange. “Even after the subsidies, middle-income families and individuals are going to have a lot of premium cost to pay,” he says. And consumers ineligible for subsidies could face premiums that are 30% to 40% higher than what they are now in most states. Young people could see their rates double due largely to age-rating compression. “I think there will be a lot of shocked consumers come October.”

(4) Implementation: Two key implementation issues need to be resolved soon, says Jim Yocum, executive vice president and manager of government markets at DRX, a Los Angeles-based seller of health care comparison tools, technology and data. First is the lack of “a comprehensive coordination of benefits technology infrastructure that can evaluate and recommend how a family’s or individual’s insurance coverage might be spread optimally across multiple federal and/or private health programs,” he says. The second issue is the lack of a payment system or protocols to distribute premiums, subsidies and other fees among and between the carriers and state and federal agencies under the ACA.

(5) Sustainability: Even with billions of dollars being spent on the development of a new insurance exchange marketplace, there are no guarantees that it will attract the millions of consumers needed to ensure its success. The dollars needed to get exchanges off the ground are growing and will continue to increase, warns Christopher Condeluci, an attorney at the law firm Venable LLP, who served as tax counsel for the Senate Finance Committee during the crafting of the health reform legislation. States will receive federal funding to operate the marketplaces only through 2014. After that, exchanges must be self-sustaining, and the cost of keeping the entities up and running will be high. “What happens if a state doesn’t bring in enough members or fees to keep the exchanges running?” Condeluci asks. While some state exchanges might attract enough enrollment, others might not. “So who will foot the bill to keep [the exchanges] afloat? HHS? The states? Health plans?” He points to the District of Columbia, which is eliminating the outside individual and small-group markets to ensure enough volume to fund the exchange (HEX 8/12, p. 5). He notes that there is a legal argument to be made that this is prohibited by the ACA, however.

(6) Awareness: Jason Madrak, director of marketing and communications for the Connecticut insurance exchange, says he wonders what the White House and HHS — as well as outside organizations such as Enroll America — will do to support state exchanges, raise awareness and help promote enrollment.

(7) Provider networks: The exchanges offer health plans an opportunity to expand their geographic footprint. To compete with established players on cost, some health plans might develop lower-cost narrow-network products or restricted panels or maybe risk-sharing, says Jack Rovner, an attorney and a principal of The Health Law Consultancy in Chicago. As enrollment builds, “these issuers can then leverage their larger enrollment into expanding provider network scope at competitive provider pricing,” he says.

(8) Payer-provider-consumer relations: Exchanges could prompt changes in the relationship between health insurers, providers and enrollees, says Rovner. The relationship between insurers and providers “will likely require restructuring to allow for innovative benefit design, more predictable provider pricing, less dependency on fee for service, and greater provider pricing transparency so that consumers may understand the value of their coverage and the true cost of the services they consume,” he says. But he notes that the development of closed panels and tiered or narrow provider networks will place greater pressure on payer-provider relations. “The impact of that strain is a wild card in health reform. It could end badly as it did with HMOs in the ’80s and ’90s, or it could incent providers to innovate their business models away from fee for service toward rational pricing based on quality outcomes, care management, prevention and health maintenance,” he adds.

© 2013 by Atlantic Information Services, Inc. All Rights Reserved.

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