3M Health Information Systems
Can the health insurance exchanges be stabilized? Yes, by giving insurers more options
Medicare beneficiaries are constantly bombarded with mail, emails and advertisements from insurers encouraging them to buy a Medicare supplemental insurance policy. It seems odd that there is such an aggressive and competitive market for supplemental insurance when the Medicare population contains a disproportionate share of the sickest and most expensive patients. Why does the supplemental insurance market thrive, yet health exchanges nationwide are seeing a mass exodus of insurers despite an exchange population that is on average less sick and requires less expensive care than the Medicare supplemental population?
To bring stability to health insurance exchanges and continue to provide individuals with multiple—and competitive—coverage options, we need to understand the reasons for the success of the Medicare supplemental insurance market and apply those lessons to create a cost-effective and sustainable insurance market in the exchanges.
Volume, pricing and cost containment
What makes the Medicare supplemental insurance market and the exchanges so fundamentally different?
For insurers that join health exchanges, profitability depends on two factors: Whether they’re able to enroll a sufficient number of relatively healthy individuals to offset higher costs for sicker individuals, and/or if they’re able to effectively control costs for the services provided. Despite penalties for not having health insurance and even with premium subsidies under the ACA, the exchanges have had difficulty enrolling a sufficient volume of young, healthier enrollees to offset the costs of sicker enrollees. For these healthier individuals, the premiums, deductibles and coinsurance amounts are simply viewed as too high. Cost containment then becomes the primary means for an insurer participating in an exchange to be successful, but without a sufficient volume of enrollees, insurers will be unable to negotiate favorable prices with providers, leaving them limited ability to control costs.
By contrast, Congress has given Medicare the economic power to establish prices. Unlike the contractual relationship between private insurers and providers, which is highly influenced by negotiating skill and bargaining power, Medicare is not required to negotiate with providers. Instead, Medicare has the legal authority to set payment levels that are fair and sufficient to cover provider costs, so that providers delivering efficient, high quality care have a reasonable expectation of sustaining services to the public without fear of bankruptcy.
The Medicare supplemental insurance market works because private insurers are able to leverage Medicare’s ability to impose reasonable prices for services, thereby bringing predictability and price stability to the Medicare supplemental insurance marketplace.
Adding predictability, cost control
Using Medicare supplemental insurance plans as a starting point, one option for creating a cost-effective and sustainable insurance market in the exchanges is to allow commercial insurers to offer an exchange policy that adheres to all Medicare coverage and payment rules—essentially, an expanded version of what already exists in the Medicare supplemental insurance market.
How would a Medicare adherence policy work?
- A commercial insurer would agree to cover all services covered by Medicare (essentially providing a definition of essential benefits).
- The insurer would pay providers at Medicare price levels.
- Providers that take Medicare assignment would be required to accept the Medicare fee-for-service prices for any commercial insurer on the exchange offering a policy that adheres to Medicare coverage and payment rules. Those providers that do not take Medicare assignment would be paid on the same basis as providers that are out of network for Medicare.
- No insurer on the exchange would be required to offer a Medicare adherence policy. It would be strictly optional.
- The premium level for a Medicare adherence policy would be set by individual commercial insurers.
- A commercial insurer could offer any policy options that now exist in the Medicare supplemental market, including community rated, issued age-related and attained-age related policies. They could also offer some of the 10 standard Medicare Select policy options which includes a high deductible plan (capped $2,200 for 2017).
Can a Medicare adherence plan option truly help save the health exchanges? In our opinion, yes. It’s an attractive product for insurers because it creates a marketplace option with more predictability and price stability, thereby providing for greater cost control. It could also lead to significant premium competition as insurers may begin offering benefits beyond the standard Medicare coverage requirements to attract more enrollees.
Some may view this proposal as a step toward a single payer system, but offering insurers the option to adhere to Medicare payment rules with premium levels under their control is not a step toward a single payer system. Instead, a Medicare adherence option simply gives the insurance market more flexibility and price stability as well as allowing individual insurers to take advantage of the administrative simplification associated with compliance with the well-established Medicare payment rules. Indeed, insurers in the Medicare supplemental market are already complying with Medicare payment rules. A requirement to comply with Medicare payment rules is an approach Congress has already applied to the Medicaid program. State Medicaid plans are required to provide services within an upper payment limit that is equal to the amount Medicare would have paid for the same services.
Preserving the exchanges
Can insurers begin to offer these exchange-based Medicare adherence plans now? Yes, but they can’t require providers to accept Medicare payment amounts. Essentially all this proposal does is require providers to accept the Medicare payment amount for any insurer in the exchanges that offers a Medicare adherence policy. The infrastructure is already in place to implement a Medicare adherence option with virtually all providers and most insurance companies capable of administering payment under Medicare rules.
A Medicare adherence policy option brings benefits to all segments of the healthcare industry. Insurers will be able to offer lower-premium options with much greater predictability and price stability, making it possible to attract additional enrollees. Providers providing services to an individual in a Medicare adherence plan in an exchange will see significant administrative simplification, and while they may not be enthusiastic about accepting Medicare payment amounts, the alternative is more uninsured patients and the associated collection and bad debit issues. Individuals purchasing insurance on the exchanges will have lower-cost policy options with a clear definition of what services are covered and premiums will be more affordable, making it more feasible for uninsured individuals to purchase health insurance. And at the end of the day, offering a Medicare adherence policy option will make it easier for insurers to stay where we need them—in the exchanges.
Richard Averill is a principal at The Hesperium Group. He was formerly the senior vice president for Clinical and Economic Research at 3M Health Information Systems and continues to serve as senior healthcare policy advisor to the company.
Richard Fuller is an economist for the Clinical and Economic Research Group of 3M Health Information Systems.