The Need for Private Exchanges to Co-Exist with Public Exchanges

Last week, I had the opportunity to present at the American Health Insurance Plans’ (AHIP) “Exchange Conference” in Washington, D.C.  In a panel session entitled, “Understanding the Exchange’s Front Office Operations,” I was joined by several panelists to talk about key issues that must be addressed to ensure expanded coverage of the uninsured under the Patient Protection and Affordable Care Act (PPACA).  

One of PPACA’s primary goals is  to create “public” exchanges that will assist individuals, families and small employers to purchase health insurance and, for those with incomes between 133–400% of the federal poverty level (FPL), to have access to premium and cost-sharing government subsidies. As I pointed out in my presentation, however, PPACA’s public policy goals will not be achieved unless “private” exchanges are allowed to co-exist with PPACA’s public exchanges. 

Exchange Models

As a result of PPACA’s timeline, many states are now pondering how the “public” exchanges will be governed and operated. PPACA requires that the state-based exchanges be operational before 2014, but also allows states to adopt different types of exchange models. [1]

Prior to PPACA’s adoption one year ago, two differing examples already were in operation. The Utah Exchange is housed in a state agency, has a staff of two persons, and runs on a very small budget. The Utah Exchange is known as an “all comers” model because it accepts any insurance carrier that is licensed in the state of Utah. 

In contrast, the Massachusetts Exchange is run by an independent not-for-profit, has a staff of 38 and operates on a much larger budget. The Massachusetts Exchange is often characterized as an “active purchaser” model because it attempts to demand a higher value for its members in part by limiting carrier participation and coverage options.

The good news is that PPACA does promote state flexibility; the bad news is that many states are leaning towards the more restrictive public exchange models like Massachusetts, which could hurt the private insurance market, cost more money than expected and ultimately undermine PPACA’s goal of expanding meaningful coverage to millions of Americans. 

The Need for Private Exchanges

At the Exchange Conference, I pointed out the importance of private exchanges co-existing with public exchanges if PPACA is to meet its public policy goals. Private exchanges offer services to the various individuals and groups, but are not run by the government. 

Over 100 private exchanges are in existence today and cumulatively represent more than one-third of most insurance carriers’ distribution efforts. BenefitMall is one example of a private exchange that is the largest distributor of small group coverage in the U.S. 

The mid-Atlantic region also offers an illustrative example of a public/private exchange model that works very well, which was a by-product of Maryland’s small group reforms adopted over a decade ago. In Maryland and the surrounding states, multiple private exchanges serve as intermediaries working with brokers to help underwrite 625,000 policies in the state. BenefitMall proudly serves as one of these intermediaries offering a comprehensive sales and administrative services to dozens of carriers with over 500 health plans through a brokerage network of 20,000-plus agents. 

Through its private exchange model, BenefitMall does more than support the sales and enrollment process. It also provides on-going eligibility determinations, payment coordination, renewal support, tracking of local purchasing trends, among other services through its best-in-class technology and Broker networks. 

I also believe private exchanges such as those in Maryland need to co-exist with public exchanges to ensure a “healthy” and effective health insurance system. In terms of meeting PPACA’s goals, private exchanges will help public exchanges to:

• Extend coverage to more Americans
• Promote a stable and vibrant insurance marketplace
• Reduce unnecessary government expenditures
• Help maintain the right equilibrium of insurance risk pools between insurance markets
• Empower real choice of quality-based health insurance coverage options
• Promote informed decision-making

To read more about these principles in a BenefitMall Issue Brief, click here[GC1] . 

Unfortunately, several states and national experts have expressed interest in positioning public exchanges as the only insurance source for individuals and small businesses. This would be a big mistake. Moving in such a direction will not work and could create a health insurance meltdown. Only by offering private exchanges alongside federal or state-funded exchanges can we maintain a viable, dynamic marketplace that allows consumers access to the most cost-effective options that meet their individual needs.

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In my AHIP presentation to insurance executives and many future exchange administrators, I closed by reminding the audience that it is important to know your customers and to make sure that “post sales” needs and services are fully addressed.  The goal simply is to “build an insured customer for life” whether they are in a public or private exchange. Part of the magic formula is to leverage systems that already exist and are time-tested. BenefitMall is one such example proven. 

Stay tuned for further thoughts and developments.