In an effort to control health insurance reform locally, Utah has recently started the Utah Health Exchange. Depending on your perspective the idea of our state government starting the Health Exchange may bring thoughts of excitement for possibly better health solutions or it may bring thoughts of disgust from the government sticking their nose and money into the health care arena. People and employers are hoping for cheaper, better health insurance options yet most are unaware of the Utah Health Exchange’s specifics. Let’s address it here.
The Utah Health Exchange is currently for individuals and small-group employers (2-50 employees) with expansion to large-group employers projected for 2012. I will be referring to the small-group market.
First, let me explain the basics of the Utah Health Exchange. The Exchange has an employer apply to be a part of the exchange. The employer states the dollar amount they will contribute to an employee’s health insurance. The employees complete health applications that are underwritten by two insurance carriers (possibly a third if the first two disagree) to come up with an agreeable risk-adjustment factor for the employer group as a whole. The employees then get to choose a health plan from multiple plans choices from multiple insurance carriers – currently three carriers: SelectHealth, BlueCross BlueShield, and Humana. There are two third-party administrators, bswift and HealthEquity, who coordinate data, applications, risk adjustments, financial transactions, premiums and commissions. The employer gets one bill from HealthEquity. HealthEquity coordinates the premium distribution to the insurance carriers.
Make sense? Good. Here are points you should know or think about.
As it is a good possibility that the Federal Government will implement some type of health exchange, Utah decided to get a state run exchange in place to try and avoid a nationally controlled exchange coming to our state. I commend the state for looking ahead and trying to avoid federal control in an exchange.
Currently there are only 3 insurance carriers participating in the Exchange. There are over 9 insurance carriers to choose from outside of the Exchange. Chances are there will be more than 3 in the Exchange in the future, but I have doubts that all the insurance carriers will jump in to participate unless the Exchange becomes a booming success. Also, the insurance carriers offer more plans outside of the Exchange then inside it.
While there are fewer choices of insurance carriers and plans, the individual employee has a lot more choices in their health insurance. Instead of waiting to hear what plan their employer has chosen for them, in the Exchange the employee will be able to choose what insurance plan fits their needs and budget the best.
Using the Exchange causes more work (or work time lost) for the employer. The time to apply to the Exchange is similar to applying to an individual insurance carrier. But, the employer cannot easily know what each employee’s coverage is to help with any questions or issues or even know what all the plan options are for a new employee. Also, the employee will now need a lot more help and time in choosing an insurance plan because there are many more to choose from. This could increase “insurance” time for the employee and reduce “work” time.
The Exchange increases the need for an insurance broker’s help. Each employee will need to know their options and be able to have an expert to talk to. Also, the employer most likely will not want to try and keep up on all plan options for new hires or changes each year. A professional, knowledgeable insurance broker will be key for employers using the Exchange. Since I am an insurance broker, I am all for this.
If a husband and wife each have an employer using the Exchange they can combine the contribution amounts from each employer to choose one plan between them. This is a nice benefit for families, but it will only be helpful if both employers are actually using the Exchange.
The Exchange will not work well for employers with “special needs”. By “special needs” I mean employers cannot do a management carve-out, cover 1099 contracted employees, and the Exchange has strict limitations on covering employees who live out of state. Any employer with any of these needs, or something else out of the ordinary, will not find the Exchange a friendly place to get insurance.
The Exchange could reduce costs associated with underwriting. Currently a new health group’s applications will be sent to many or all of the insurance carriers to underwrite and come back with their best premiums. This means there may be 9 insurance carriers underwriting the same applications. Through the Exchange their will be 2-3 carriers underwriting each group, thus possibly reducing the overall time and cost spent on underwriting. This could help to bring costs down slightly – only slightly though. In order for this savings to happen there will need to be many more carriers joining the Exchange. With only 3 carriers currently participating there is not going to be any significant cost savings through underwriting.
The Exchange could increase costs associated with underwriting & application time. If am employer decides to apply for coverage through the Exchange but also wants to apply to the other insurance carriers outside of the Exchange cost/time will most likely be increased. First, the Exchange requires a different application then Utah’s Universal Health Application that can be used outside of the Exchange. Thus there will be extra time for the employer and employees to complete two different applications. Second, if an insurance carrier participating in the Exchange, let’s say SelectHealth, gets applications in the Exchange to underwrite and also gets applications to underwrite outside of the Exchange, they will be underwritten separately. Thus, instead of saving underwriting time it could increase underwriting time.
While underwriting costs can be reduced through the Exchange, there will definitely be extra administrative costs associated with using the Exchange. Most notably is the need to use 2 third-party administrators to handle coordination of data, applications, risk adjustments, financial transactions, premiums and commissions. Since these administrators were not necessary outside of the Exchange and they are necessary inside the Exchange there is no doubt that administration costs will be increased.
Here is what I believe is the biggest consideration of the Exchange. Where is the significant, long-term cost savings? Administration costs increase and underwriting costs decrease. I have a hard time seeing that a potential underwriting savings is going to out-weigh the absolute extra administration cost. Regardless of the other pros and cons of the Exchange, I want to see significant cost/premium reductions.
One last note: if you are interested in using the Exchange for your business’s health benefits and have not already applied, you have missed your window until April 1 (next projected open enrollment period).
Please share your thoughts, concerns, comments, or questions below.