By John Reichard, CQ HealthBeat Editor
November 1, 2010 -- As state officials wake up to the fact that they'll really have to hustle to create the insurance exchanges required by the health care overhaul law, the views of colleagues in states such as California that have gotten off to a fast start may help focus their thinking.
So what does California's experience thus far suggest? Among the lessons from a recent forum on the subject: If possible, get outside advice to help with the highly technical process of creating an exchange; be careful how you pick its board; make it easy for the public to understand what the exchange is doing, and spur the kind of competition that is going to make premiums affordable.
On Sept. 30, California became the first state in the nation to pass a law creating an exchange under the health care overhaul law.
Jennifer Kent, an aide to Republican Gov. Arnold Schwarzenegger, told the Oct. 21 forum sponsored by the California Healthcare Foundation that it would have been really scary if people in her office had "sat down and drafted something on our own. We needed expertise."
So California's exchange planners decided to draw on experiences from throughout state government and got help from outside foundations that "stepped up and helped provide a lot of talent and skill," Kent said.
"The main decision point right off the bat was, do we go with a governmental entity or a nonprofit" to run the exchange, she said. The overhaul law allows either approach—but California chose the former. Government "is transparent in a lot of ways," she said. And it "has to conduct its business in the public."
But the board overseeing the exchange couldn't be cumbersome, she said. "Large boards, while they may make a lot of people feel really good to be able to sit on them ... are not necessarily nimble." California also decided that board members had to have experience with purchasing health care, running public programs, and designing benefits. Board members "need to actually know what they are doing, and they needed to have operated in this area before," Kent said.
The board also must "operate within the funds that they have, which are going to be limited at this point to the federal grant awards that are available, to the assessments that will be on the premiums, and to any generous, nonprofit foundational money."
Avoid Conflicts of Interest
In addition, "there can't be a conflict of interest." It would be to everyone's detriment if a board member sat through the first contracting phase and then promptly went to work for a health plan that was just awarded a contract, she said, adding that the state forbade exchange managers from being employed by the insurance industry for a full year after leaving the exchange.
The state also sought to avoid an overly cumbersome regulatory process because the board was going to have to work quickly to get the exchange operating by 2014. It decided to rely on emergency regulations to get things moving quickly.
But Patrick Holland, a consultant who previously served as the chief financial officer of the exchange created in Massachusetts under that state's overhaul law, said the process should ensure lots of dialogue with health plans in order to create an attractive marketplace. "The overarching goal that we have in Massachusetts was to try to work with carriers, do it in a very transparent way," he said.
"You're running a business. You're trying to have people come to the exchange, to buy health care."
Scott Bain, a consultant who advised the California Senate Committee on Health, noted that the overhaul law also gives states the decision of whether to merge the individual and small-group markets into the same exchange. California chose not to blend the two "in part because we didn't know the impact of premiums on small employers and individuals if we did merge those markets."
Concern for Bad Risks
California has had considerable experience with exchanges already. In the early 1990s it created the Health Insurance Plan of California, an exchange for small businesses operated by the state government. It ultimately failed because it became a dumping ground for bad risks.
But Richard Curtis, president of the Washington, D.C.-based Institute for Health Policy Solutions, predicted that wouldn't happen under the new exchange.
Curtis noted fears that exchanges won't bring in enough good risks because penalties are weak under the law for violating the mandate that requires individuals to carry health insurance. But a government-sponsored reinsurance plan and "risk corridors" will help pick up health costs of plans socked with bad risks, he noted.
And people who want to get federal subsidies will have to do so through the new exchange created under the overhaul law, Curtis noted. That feature will draw a "large population with a broad degree of risk," helping to make the new exchange very different from the one operated by the state in the 1990s.
Jon Kingsdale, former executive director of the exchange in Massachusetts, emphasized the advantages of an exchange despite the complexities involved in their creation. Now, an insurance shopper might spend half an hour or more on the phone with a single insurer getting answers to a dozen questions about its coverage. Then he or she would have to do the same thing all over again with other insurers "with a different set of products that aren't comparable."
"And by the end of the day, if you were a really diligent consumer, you'd have pages and pages of notes on noncomparable products with noncomparable answers and indecipherable notes." But with the Massachusetts exchange a shopper enters a few pieces of data on a website and gets apples-to-apples comparisons of three to five insurance options. Kingsdale said "you can look at the premium differences and who's in which networks and make an intelligent choice about a $10,000-$15,000 purchase decision in a matter of a half hour."
John Reichard can be reached at [email protected]