Opinion: For exchange, harsh reality about to hit the fan

By Francis M. Miller
A lot of water has flowed under the health care bridge this summer.
The VA Hospital project is still mired in controversy. Kiewit, one of the world’s premier construction companies and the builder of the T-REX I-25 project, which they brought in under budget and on schedule, was continually molested by VA officials seeking to add amenities.
Before this fiasco is over we could have rebuilt every hospital along the Front Range.

Francis M. Miller

Francis M. Miller

The second big revelation this summer is that Connect for Health Colorado continues to die from a thousand self-inflicted cuts. This organization is now at the mercy of its IT vendor, CGI. Yes, that’s the same vendor the federal government fired. There is hope that the new system will roll out two weeks before open enrollment and solve all the exchange’s problems. But, these problems go well beyond the computer system.
The exchange, in its pursuit of revenues, has designed a call center operation that is an incredibly expensive, labor-intensive operation. Guess who the exchange farmed the call center out to? Yup! CGI, its trusty computer vendor.
Now that the original $177 million in startup funding is all but gone, the managers forecast costs that will top $50 million a year.
A harsh reality is about to hit the fan. The legislature is asking questions: Should we turn the exchange back to the feds or get a waiver to do something entirely different? What does having an exchange really buy us? Why can’t we seem to get the SHOP program for small business off the ground?
These are all questions that should have been asked before the expedition began.
The cheerleaders for the exchange point to the number of Medicaid clients enrolled plus the uninsured who are now covered as proof of success. How hard is it to give away Medicaid Platinum plans and sell individual plans with 70 percent subsidies?
But, what has been overlooked is the extreme difficulty of crafting a viable business model that is sustainable. It is now a part of legend that both Amazon and Google took five years to figure out how to insinuate themselves into the market. And, the Internet is supposed to dis-intermediate, not add additional layers to distribution channels.
That means the exchange’s covert strategy will end up attempting to eliminate the role of the licensed insurance agent so it can repatriate that 7 percent in commissions and residuals to the bottom line of the insurers in return for their cooperation in the marketplace. The exchange, the insurers and our insurance commissioner are moving rapidly to replace licensed agents with navigators who are minimally trained.
This alienation of the existing distribution channels is why Connect for Health won’t generate sufficient enrollments to survive. If it did, the call center costs would go through the roof.
Health insurance cannot be reduced to a commodity by a clerk wielding a spreadsheet. Sure, it can be purchased based on price and price alone on the website. Then you have people with poor health profiles buying bronze plans.
There is a significant amount of variation in individual and family financial situations and needs. Each case must be analyzed before a plan can be selected from the multitude of alternatives. If we are going to license plumbers, then licensed health agents are going to need to play a part in the future of the health care system.
Nationwide, all of the exchanges are experiencing deficits or financial stress. They are now being forced to ask hard questions about the future. I would argue the solution is not to turn the marketplace over to the federal government. That is, unless you plan on moving to a single-payer system.
Forecasts suggest that as many as 70 million people eventually will be buying insurance in the individual market. To federalize this market is contrary to our historical experience. Even Medicare advantage HMOs and supplemental plans are sold in the market, not by the federal government. They are sold by licensed agents appointed by insurers. Every time we centralize things in the hands of the bureaucratic hierarchy we find incompetence reigns. I need only point to the VA Hospital.
Last week, the Office of Inspector General released a report on the progress of the health care co-operatives, which were included as a provision in the Affordable Care Act along with the creation of the exchanges. What the OIG found was that 21 out of 23 cooperatives are running deficits and most are unlikely to be able to generate sufficient profits to pay the loans they used for startup and reserves.
The Iowa/Nebraska co-op had to be liquidated and Colorado has been placed on the insurance commissioner’s watch list.
This whole adventure cost nearly $3 billion dollars and may become a pile of ashes.
Stop and consider that hundreds of thousands of employers, encompassing nearly 80 percent of the American private sector workforce, have quietly gone self-insured under ERISA.
It is pretty simple. Employers hedge their risk, not by depositing tens of millions of dollars of reserves, but by reinsurance. Most hire an outside administrator and network operator. Rarely does one of these trusts go bust.
We can see the early warning signs all around us. More change is yet to come. None of the startups charged with realizing the Obamacare dream is doing well or thriving. And, if the presidential election year political rhetoric is any indicator, the Congress will eventually attack Obamacare. Whatever the political establishment does will be tinkering at the margins. It is sure to set off another round of unintended consequences.
Do not despair. There is a solution.
First, we need to recall that Supreme Court Justice John Roberts saw Obamacare for what it really is: a tax credit law. Amazingly, the heart and soul of Obamacare, is subsidies as tax credits. This approach meets conservative criteria.
It’s unlikely they will ever be taken away because Congress would have to replace them with something similar.
And, you might object to the mandates and community rating on other philosophical grounds, but then you have to solve the problem of adverse selection. I envision the exchange’s monopoly being altered to allow individual and family subsidies to be obtained as a routine part of the tax filing process and based on prior year income.
If we ever hope to lower health care costs and improve quality in the marketplace, this is where the innovation and creativity must occur. We will never get there by a planned system overseen by government bureaucrats. We simply must pursue a strategy of pluralism.
That means encouraging multiple exchanges and allowing multiple cooperatives to flourish. Some of these organizations will, like high tech startups, fail to gain traction in the market. However, with proper reinsurance  and transparency, members will be protected. Out of this crucible, enough organizations will somehow succeed. It will be the beginning of a new health care system.
During the past two decades we have witnessed the wholesale purchase of community hospitals by for-profit management companies. In the insurance area, Anthem is buying CIGNA, and Humana is buying Aetna. Soon the market will be dominated by an oligopoly of three large insurers. Historically trust-busters have blocked acquisitions and mergers that excessively concentrate market power. In the past, the feds sued Microsoft and took IBM to task for monopolistic practices.
Ironically, before they could adjudicate the matter, the market took care of it. Apple successively put Microsoft on its heels. IBM was the ultimate victim of creative destruction when the personal computer began to replace mainframes. IBM and six other Fortune 500 firms that dominated computers are either out of existence or no longer manufacture hardware. They are now consulting firms.
Almost all of the players in every industry from computers to telecommunications have been humbled by forces in the market.
We must now unleash such forces on the health care market.

Francis M. Miller is the past president of the Colorado Business Coalition for Health and the vice chairman of the Colorado Health Data Commission. He founded the first consumer cooperative for health care called the Alliance and is the current president of Health Smart Co-op. He blogs on www.thethoughtczar.com.

Opinions expressed in Health News Colorado represent the views of the individual authors.

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One thought on “Opinion: For exchange, harsh reality about to hit the fan

  1. As Mr. Miller all but suggests, most of these issues would be solved easily under a single-payer system. The most straightforward way to do that would be politically impossible: expanding Medicare to cover everyone, regardless of age or condition. Much of the necessary bureaucracy is already in place, Medicare already operates more efficiently than most private insurance companies in terms of administrative costs, and the age cohort most likely to use the services, the elderly, will in large part be already familiar with procedures and whatever hoops have to be jumped through. It’s politically impossible because people who like to call themselves “conservative,” (e.g., Kevin Lundberg) are not interested in the welfare of the general public, only the welfare of corporations and those fortunate enough to have incomes well above the median. Philosophically, these so-called “conservatives” are advocates of “cowboy health care,” where we all operate in an ethical and financial and health care vacuum wherein we make informed choices based on the sort of market conditions Mr. Miller mentions above. Too bad the vast majority of folks cannot make informed choices because the necessary information isn’t made available to them, a problem made worse by the fact that health care is usually not something that’s discretionary – people need it when they need it, for the most part, and the individual consumer has virtually zero bargaining power. The “market” is thus very heavily skewed in favor of health care providers and those who supply them with tools and equipment. In short, the notion of a health care “free market,” so dear to the hearts and minds of lawmakers like Mr. Lundberg, is a dangerous and cruel delusion. It doesn’t exist.

    In the meantime, while we agonize over how to get health care exchanges going – bureaucracies that would be unnecessary in every other industrialized nation on the planet, where health care is both more cost-effective and provides better health outcomes than in this country – those other industrialized societies provide quality health care to citizens without anyone going bankrupt or losing their home to medical expenses, health care providers are well-paid (though not members of the 1%), and their life expectancies are often better than ours, as well. Not many people here actually want health insurance. What Americans want is health CARE – at a reasonable price, and that’s effective.

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