What exactly will the new insurance exchange offer?

A year from now, state residents will have a new marketplace for buying health insurance — think of it like a virtual store for health plans. And the policymakers at work developing the rules for the market are facing a key question about how much discretion to use in determining which health plans it will sell.

Put another way: How selective should the shopkeeper be about what products stock its shelves?

Should it be a boutique, able to be choosy and empowered to negotiate with the insurance companies before agreeing to sell their products? Or should it be more of a superstore that offers any product that meets its pre-established standards?

Some consumer advocates want the “store,” known as the health insurance exchange, to have significant authority to determine which insurance products it sells. They say it’s critical for customers that the exchange be able to affect the price and quality of the health plans it offers, with the power to negotiate rates and discretion to refuse to sell certain policies.

“I think most advocates would agree that we would like to see the exchange be active in negotiating rates with the participating carriers, to the extent that we can do that,” state Healthcare Advocate Victoria Veltri said.

But others, including those who will run the exchange, say it’s more important to be sure there are enough products to sell in the store in the first place. Setting too many requirements could discourage insurance carriers from offering products through the exchange, leaving consumers with fewer options and potentially undermining the new marketplace’s ability to attract customers, they warn.

“We have to do everything, particularly in the first few years, to encourage the health plans to participate,” Exchange CEO Kevin Counihan said. “And in my experience, the way to do that is to establish a playing field which they will be willing to come in, offer their products on our shelves,” and promote innovative models that could improve care and cut costs.

The exchange’s board of directors is expected to vote on the question at its meeting Thursday.

Unknowns in the market

Part of the challenge in the decision is that there are still many unknowns about the exchange and how federal health reform will change the broader insurance market in 2014, when many of its provisions take effect.

Among other things, it’s not clear how many people will buy coverage through the exchange, or how many insurance carriers will want their plans sold through it.

Anyone who qualifies for a federal subsidy to pay for coverage — those who earn less than 400 percent of the poverty level (up to $92,200 for a family of four) and don’t get coverage through their jobs — must buy insurance through the exchange to get the subsidy. By contrast, individuals who don’t get subsidies and small business owners will have a choice of buying insurance through the exchange or on the outside market. Exactly how many people buy coverage through the exchange, and how sick or healthy that population is, will have a significant affect on how attractive the pool of customers is to insurance companies.

The federal law sets new standards for all health plans, but the exchange authority can set additional requirements for plans it sells. It can also use discretion to decide whether to sell certain insurance products, rather than accepting all plans that meet its standards.

The exchange staff recommended taking the latter approach — serving as more of a clearinghouse, in which any plan that meets the exchange’s overall standards could be sold in the new market.

Members of two advisory groups voted against that recommendation at a meeting last week. Their vote was purely advisory, but signaled dissent.

In response, the exchange staff revised its recommendations. The new version recommends against directly negotiating rates or denying insurers the necessary certification to sell in the exchange based on rates. But it would give the exchange the right to not offer a plan if its rates are outliers, and would have the exchange require carriers to submit information on how they will “attempt to better coordinate care and control costs, improve chronic illness management, reduce medical error, or otherwise promote health care delivery and payment reform for the benefit of the consumer.”

An insurance boutique?

Those who favor having a more selective marketplace say the value of the exchange relies on its ability to offer affordable insurance products, and it should use every tool available to control costs. Being selective, and negotiating rates, they say, will be key for containing prices for individuals and small businesses, which tend to pay more than large employers that can negotiate rates.

“What we wanted was the exchange to actively negotiate on our behalf, the way employers do,” said Ellen Andrews, executive director of the Connecticut Health Policy Project. “They don’t give us 500 choices. They pick the best deal.”

Andrews said she’s not worried about having too few insurers offer products on the exchange, but said that if that happens, the exchange could choose not to negotiate and just offer all the plans. But it should have the authority to negotiate, she said.

Having fewer plans sold could turn out to be helpful for consumers, Andrews said, if it means they’re good choices, rather than many options of varying quality that could lead to confusion.

“Making decisions about something as complex as health insurance is very overwhelming and scary for people, and the harder you make it to make a decision, the fewer people who will,” she said.

Andrews cited Massachusetts, which established an exchange as part of its 2006 health reform law, as a model for savings from negotiations. One portion of that state’s exchange, which serves people receiving subsidized coverage, saw premium hikes that were on average half the rate of those in the commercial market in 2010, and saved an estimated $16 million to $20 million through competitive bidding.

Or a broader selection?

Those with reservations about that approach say the exchange’s success will rely on getting enough insurance plans and customers to participate. And they say being too choosy about what plans can be sold from the start could backfire.

“You don’t have a store without manufacturers, without products,” Jon Kingsdale, a consultant to the exchange told members of two advisory committees at a meeting last week. Kingsdale previously served as executive director of Massachusetts’ exchange authority.

At first, it’s unlikely the exchange will have much leverage to negotiate with carriers, he said, and its ability to do so in later years will depend on whether the exchange can attract a wide customer base. By law, insurers can’t charge different rates for a plan depending on whether it’s sold through the exchange or in the outside market, and Kingsdale said insurers will have little incentive to meet higher standards or negotiate over rates to sell in the exchange if it will only bring them a small chunk of customers.

Counihan, who worked in Massachusetts’ exchange, said that state’s experience is not a direct parallel to what Connecticut is building. Massachusetts operated two exchanges; the savings occurred in the one for people getting subsidies, which he said was a known population that made rate negotiations more feasible than Connecticut’s pool, which has many more unknowns and will include both subsidized and unsubsidized customers.

The Massachusetts experience suggests that people want broad choices, and tools to help them decide which plans will give them the greatest value, Counihan said, although he acknowledged that those tools are not yet especially effective.

“We have to get customers in that buy products that they want to buy, not just products that somebody thinks they should buy,” he said.

Even without negotiating rates, plans sold under health reform will be different than those sold in the past, he said, because the law sets new standards for all insurance plans. Those include requiring them to cover “essential” benefits, prohibiting men and women from being charged different rates, and spending at least 80 percent of premium dollars on health care or quality improvement activities.

He said the model for selecting which plans are offered could evolve once more is known about the exchange, although advocates are skeptical about the likelihood of making changes once the structure is established.

The exchange board of directors is scheduled to meet at 9 a.m., Thursday, in room 1A of the Legislative Office Building in Hartford.

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