While the Patient Protection and Affordable Care Act (PPACA) is sometimes shortened to the “Affordable Care Act” or ACA, the act has few features that will make insurance more affordable. Government studies and industry experts have indicated that strict coverage mandates, limited premium classifications, community rating, added benefits, single risk pools, and price compression will raise premiums more rapidly than if the ACA had never been passed.
The development of exchanges, both government and private exchanges, are part of an evolution that will change the way insurance is sold and bought. It is a new way of connecting products with customers. Government exchanges are likely to be used mainly by those qualifying for a federal subsidy. The standards and restrictions on government exchanges are likely to attract poor risks and high cost claimants. The government exchanges will use government paid “navigators” rather than independent licensed agents. The government exchanges and navigators are not expected to offer supplemental products, life insurance or other products and services.
Private exchanges may be the free market solution to real cost control and lowering the number of uninsureds. With 40-50 million uninsureds, the traditional agent distribution system for insurance is not working. About 60% of the uninsured are under age 35. Studies conducted in Georgia by the Center for Health Transformation Uninsured Working Group showed that 35% of the uninsured could afford insurance but did not know it. Another 40% needed lower cost options that were not available to them either because insurers emphasized high premium products, or because existing state laws or legislative mandates increased premiums and favored insurers over consumers.
Many uninsureds work for a small businesses that do not offer insurance. They may be self-employed, part-time, or doing contract work. In most cases, the need is for individual insurance, not group plans. Selling single policies can be time consuming with little financial rewards for an agent. Many potential individual sales are halted at the kitchen table when in the process of completing an application issues arise that could cause a declination. Information derived by an insurer during the underwriting process is typically fed into an industry association called the Medical Information Bureau. That information is shared across companies and a declined health application could have ramifications for future applications of life insurance, disability coverage and other forms of insurance.
Private exchanges are developing that will offer individual and group products that emphasize wellness and treatment compliance for those under medical care. PPACA requires insurers to “community rate” their products. That is, individuals or small groups will not get direct credit for healthy activities. New entities are forming that will likely attract healthy individuals and the less healthy members interested in getting better. Developing private health cooperatives, captive mutual companies, and new insurers may be unencumbered by an existing unhealthy membership or a current business model that limits attracting customers willing to be engaged in healthy behaviors.
Healthcare consumerism is more likely to emerge through private exchanges than government exchanges. Private exchanges will provide a transition from employer-based insurance to individual-centered or consumer-centered insurance. In theory, both large and small employers will be able to purchase health insurance through the private exchanges, and their employees can choose an individual health plan from those offered by participating insurers.
Time will tell. We are in the beginning stages of a major market revolution. We already know that government exchanges as originally promised for small groups have been delayed one year until 2015. As private exchanges come on line, I believe each will be a little different and offer varying levels of products and services. For awhile it will be a “wild west” show. Ultimately, the success and failure of each exchange’s product and distribution model will lead to consolidation and better products, services, convenience, help, and information for the consumer. In the end, more product competition and price transparency will lead to more citizens being insured and lower insurance costs will prevail. This is the way free markets create successful products and services that consumers want to buy.
