Tag Archive: active purchaser exchanges

Economic pressures of ACA individual insurance market reforms tear at fabric of provider networks

The Patient Protection and Affordable Care Act’s reforms of the individual health insurance market removed tools health plan issuers historically utilized to control costs such as medical underwriting, unlimited annual cost sharing and lifetime limits. That has left health plan issuers one main tool: using the market power represented by their plan memberships to negotiate lower reimbursement rates with providers while maintaining quality of care. Those providers who don’t play along can find themselves left out of provider networks. That naturally functions to narrow plan networks.

The Affordable Care Act permits the standardization of benefits within metal tier actuarial value rating levels. California’s health benefit exchange, Covered California, has opted to standardize benefits to facilitate consumer comparisons of plan benefits and costs. The exchange has also chosen to actively negotiate with health plan issuers and affirmatively select which plans will be included among its qualified health plans (QHP) for a given plan year. In a state as large as California, that gives the exchange real negotiating power given the number of covered lives it can potentially bring to the table. Plan issuers that want on the exchange must reach an accommodation with Covered California on premium rates and providers as well as their own providers — while at the same time convincing regulators their plans offer a sufficient selection of providers.

Striking that balance since the Affordable Care Act reforms began to be felt in 2013 was never easy and could be getting a lot tougher. Something eventually has to give to resolve the economic tension. When a complex system like America’s private health care market is placed under stress, stress fractures first appear at its weakest links and components. Particularly given that the Affordable Care Act has welded shut most of the escape hatches. In this case, it appears to be a rent in the fabric of the provider network, described by the journal Health Affairs (and reported here by The Los Angeles Times). The issue of plan members having difficulty connecting the providers has caught the attention of regulators. (See this recent, in depth Health Affairs policy brief for a detailed discussion. As it should since if the fray grows into a larger tear, it could prove fatal to the Affordable Care Act’s individual insurance market reforms.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

California exchange mulls flexing market power to enforce hospital care quality

California’s insurance exchange is threatening to cut hospitals from its networks for poor performance or high costs, a novel proposal that is drawing heavy fire from medical providers and insurers.The goal is to boost the overall quality of patient care and make coverage more affordable, said Peter Lee, executive director of the Covered California exchange.“The first few years were about getting people in the door for coverage,” said Lee, a key figure in the rollout of the federal health law. “We are now shifting our attention to changing the underlying delivery system to make it more cost effective and higher quality. We don’t want to throw anyone out, but we don’t want to pay for bad quality care either.”

“California is definitely ahead of the pack when it comes to taking an active purchasing role, and exclusion is a pretty big threat,” said Sabrina Corlette, a research professor at Georgetown University’s Center on Health Insurance Reforms. “There may be a dominant hospital system that’s charging through the nose, but without them you don’t have an adequate network. It will be interesting to see how Covered California threads that needle.”

Source: California Insurance Marketplace Wants To Kick Out Poor-Performing Hospitals | Kaiser Health News

State health benefit exchanges aggregate individual and small group health plans and purchasers in order to facilitate a more functional market and make health coverage more accessible and affordable. When they actively negotiate with health plan issuers on terms and conditions for exchange participation as Covered California does, they in effect become super payers relative to providers since they can leverage their market power to establish quality standards for medical care covered by participating plan issuers. Covered California now wants to exercise that power relative to hospitals. That dynamic disrupts the traditional contractual relationship between plan issuers and providers and both are initially reacting to the proposal by telling Covered California to butt out.

Hospitals operate in a market that tends to be oligopolistic in metro areas and monopolistic in less populous areas. In California’s expansive geography, it has a mix of both. Georgetown University’s Sabrina Corlette points up the tension between enforcing quality standards on hospitals and the realities of the hospital market relative to ensuring an adequate number of hospitals exist in exchange plan provider networks. The California exchange has a large degree of purchasing power. But in a market with few sellers and many buyers (plan members in a given rating region), sellers have a natural advantage relative to determining price and quality.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

California exchange models managed competition in individual, small group health insurance markets

At the other end of the policy spectrum, the exchange serves as an “active purchaser” of health insurance on behalf of its clients, the individual consumers. In effect, the exchange seeks to move insurance from a let-the-buyer-beware retail market to a two-stage wholesale and retail market. The first (wholesale) stage uses supply chain management tools developed by corporate buyers of other services, while the second (retail) stage encourages consumers to select from a more narrow range of pre-contracted offerings.

Source: Whither Health Insurance Exchanges Under The Affordable Care Act? Active Purchasing Versus Passive Marketplaces

This article co authored by UC Berkeley School of Public Health economist James C. Robinson, the executive director of California’s health benefit exchange, Peter Lee, and exchange policy staffer Zachary Goldman effectively argues California exchange’s active purchaser role vis health plan issuers embodies the concept of managed competition in health insurance described in this January 1993 Health Affairs article by Alain C. Enthoven:

A sponsor (either an employer, a governmental entity, or a purchasing cooperative), acting on behalf of a large group of subscribers, structures and adjusts the market to overcome attempts by insurers to avoid price competition. The sponsor establishes rules of equity, selects participating plans, manages the enrollment process, creates price-elastic demand, and manages risk selection.

As the authors note, the Patient Protection and Affordable Care Act creates basic standards for health plans in terms of defining required covered services, actuarial value and annual out of pocket maximums. But to realize the full benefit of managed competition, they appear to assert that health benefit exchanges must function as demanding and exacting wholesale purchasers of health plans in order to achieve maximum comparable selection and value for their retail customers. By aggregating purchasing power for insurance buyers, the exchanges help balance out market power between buyers and health plan issuers in a market that due to high entry and operating costs tends to be oligopolistic.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

California exchange undertakes review of November ballot measure calling for prior approval of individual and small group health plan premium rates, cost sharing

California’s health benefit exchange marketplace, Covered California, is undertaking an analysis of the potential impact of a November 2014 ballot measure that would institute prior regulatory approval of individual and small group health insurance rates. The initiative statute, titled the Insurance Rate Public Justification and Accountability Act, would subject these rates to an initiative statute ratified by voters in 1988 that placed most types of property/casualty insurance under prior rate approval regulation.

An outline of the analysis raises various questions as to how prior approval will jibe with Covered California’s annual schedule to select and finalize qualified health plans (QHPs) to be sold through the exchange and on what terms and conditions within Covered California’s standardized benefit framework. Under the schedule, health plan regulators review QHPs and their coverage terms and conditions in a two month window in the late summer and early fall for QHPs effective January 1 of the following year. But the scope of that review does not give regulators the final word on what plans can charge for premiums and out of pocket costs.

The ballot measure would afford California’s elected insurance commissioner that oversight authority as well as the authority to hold hearings to obtain public testimony. The Act would overlay federal regulations issued under the Patient Protection and Affordable Care Act at 45 Code of Federal Regulations (CFR) 154 authorizing federal and state regulators to jointly review (or the federal Department of Health and Human Services alone if a state opts out) small group and individual rates and require health plan issuers justify rate increases of 10 percent or more per year.

Both Covered California as an active purchaser exchange and regulators negotiate final QHP rates, which also affect plans sold outside the exchange since plans must offer the same plans both inside and outside the exchange marketplace. If approved by voters, the November ballot measure would increase the negotiating leverage of the insurance commissioner, who could opt to hold up rate approval pending a public hearing. That could potentially complicate Covered California’s annual QHP negotiation and approval process (and by extension its marketing and enrollment functions) and result in some plans being withdrawn before they take effect the following January if their premium rates and cost sharing are deemed excessive by the commissioner and disapproved.

In addition, since the underlying cost trend of annual health insurance rate increases has generally exceeded 7 percent in recent years, most if not all proposed plan rates would trigger a provision of the proposed law that allows the public and consumer groups to request the commissioner to hold a public hearing to determine if rate increases at or above 7 percent would result in rates that are unfair, discriminatory or excessive, introducing the prospect of further delay before the rates could be used. Further complications could come under a provision in the ballot initiative creating a transition period where plan issuers could hit the reset button and issue new plans that the commissioner could opt to exempt from prior rate approval provided they use rates in effect on or before January 1, 2014.

Proponents of the measure — including the current insurance commissioner — are likely to downplay the issues raised in the Covered California operational analysis. They will likely argue that premium rates are a matter between the plans and consumers (and not the exchange) and plans are responsible for ensuring they are using only approved rates and refunding any excess rates. However, if premium rates and cost sharing for the next to lowest cost silver actuarial value plan are involved in a lengthy challenge and hearing process, it could seriously affect the exchange marketplace since advance premium tax credits are keyed to that plan.

While a majority of states require prior approval of rates in the individual health insurance market (California is in a minority that employ a “file and use” scheme) according to this Kaiser Family Foundation chart, a half dozen states including California have state-based health benefit exchange marketplaces that actively select QHPs and negotiate with health plan issuers according to this Kaiser Family foundation compilation. Of those six states, all are prior approval states except California. Covered California’s analysis should undoubtedly examine how those state-based exchanges navigated their states’ prior approval regulatory schemes for plan year 2014.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Limited tax subsidy could diminish market power of active purchaser health benefit exchanges

An underlying economic principle of the health benefit exchange marketplace that kicks off this fall with open enrollment for 2014 is demand aggregation in the individual health insurance market.  Individuals and families who would otherwise have no negotiating power with health plan issuers will be able to pool their purchasing power via the government-chartered purchasing mechanism of the state exchanges. That power will be strongest in those states – California, Oregon, Massachusetts, New York, Oregon, Rhode Island and Vermont according to an April 1 Kaiser Family Foundation compilation – that have opted to be “active purchaser” exchanges.  Those exchanges will act as gatekeepers, using an actively managed competitive selection process to determine which plans will be offered on their exchanges — and which will not.

As voluntary markets, neither health plan issuers nor individuals are required to transact individual coverage through the state exchanges.  Therefore to help concentrate the purchasing power of individuals in the exchange marketplace, the Patient Protection and Affordable Care Act provides for subsidies in the form of advance tax credits applied toward plan premiums to create incentive for individuals and families not covered by employer or government-sponsored plans to purchase coverage through the exchanges.

Those subsidies are not offered for individual coverage sold outside state exchanges. And as I recently blogged, the subsidies are unavailable to those earning more than 400 percent of the federal poverty level.  Those individuals and families would have little incentive to purchase coverage in the exchanges, thus reducing the exchanges’ potential purchasing power relative to health plan issuers and by extension, their ability to bargain with plans for lower premium rates.

Going forward, it will be interesting to see how this policy manifests in states with active purchaser exchanges.  Will it lead to a bifurcated individual market where plan issuers offer products exclusively outside the exchanges aimed at a higher income demographic such as high deductible, health savings account compatible plans?  Or plans that bundle pre-paid direct primary care with insurance to cover high cost care?  (Such plans would likely also have sold in the exchanges since the Affordable Care Act specifically recognizes them as qualified health plans eligible for sale through the exchanges.)


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

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