By Francis M. Miller
The net-stream of positive news about Connect for Health arrives daily. You would think the staff would have taken a much deserved spring break charter flight to Cancun. Then again, there are bonuses, pay raises and funding formulas to be nailed down before the dog days of summer.
Let me first say that I think what was accomplished was remarkable. It was the shock and awe Donald Rumsfeld promised in the Iraq War. History will eventually prove that 2013 was a defining moment in health care.
First and foremost, the health exchanges have turned the marketing of health care inside out and upside down. Prior to 2013 most health care insurance was sold by brokers in the old fashioned way. Like the lonesome Maytag repairman they sat at their roll top desks with a neon sign flashing outside, waiting for someone to lose his group coverage. The group market has historically been served by brokers stratified by their country clubs, Armani suits and ultimate driving machines.The creme de creme were picked to head blue ribbon commissions.
With the arrival of the exchanges and Obamacare, the Internet website and the telephone contact center has taken center stage. With this paradigm shift, it is now common for individual agents to personally book 500 applications a month, something unheard of even a year ago. Tens of millions of customers visited the exchanges and 8 million purchased policies. Health care insurance has been reduced to a commodity to be compared on spreadsheets and booked online by the customer him. For the seven large insurance companies who comprise the health insurance oligopoly, it’s analogous to a Japanese fishing trawler hauling up massive catches of fish in a net.
Selling insurance is a proposition that historically has required motivating the customer and broker alike. Normally brokers must be given steep upfront commissions as incentives. To get the broker to service his book of business and retain the accounts, it required the insurers paying hefty residuals on the back end. All of that has now come to an end with the advent of the $15-an-hour call center employee paid $1 to book an enrollment.
Stunningly, Colorado’s insurance commissioner is effectively allowing the insurance companies to pay unlicensed employees to do enrollments by laundering money through the exchange. What is providing the railroad track on which to run this new train is that half the exchange’s customers are receiving subsidies and enhanced plans. Couple that with penalties with sharp teeth being imposed to punish anyone who doesn’t buy insurance. Financial practices that skirt licensing requirements and allow rebates would have landed an insurance broker in jail a year ago. These perverted practices are now being promoted with abandon by the insurance companies. The state insurance commissioners have become enablers.The legislature has rubber stamped all of these initiatives.
This change in the health insurance business landscape will soon allow health insurance marketing to go the way of the travel agent, the antique store and the bookseller. One by one, brokers are being obliterated by the dis-intermediating effects of the Internet and the exchange in a new marketplace.
The only thing that has stood in the way of a wholesale takeover by the exchanges-as-Amazon-in-drag, of course, is the current high per-unit cost of doing business. If you divide the $88 million the exchange received as funding in the last six months of 2013 by the roughly 127,000 people enrolled, the average unit cost is over $600 per enrollment. Add to that the subsidies necessary to generate demand, and the economic dead-weight loss is staggering. (Forget Medicaid enrollments. It shouldn’t cost anything to give away free platinum health plans.)
When all is said and done, Obamacare has thrown one heck of an intoxicating party. It fits right into the Rocky Mountain High image along with craft brewing and legalized marijuana. But now that we have all sobered up, there is a harsh reality settling in. The next open enrollment will bring another wave of Visigoths coming to sack Rome. The exchange has a Frankenstein of a website that will cost millions to maintain. And the exchange has nary a staff member who can program.
The exchange website promises to compete with the $300 million Colorado Benefits Management System for Brook’s “Mythical Man Month Award.” (Frederick Brooks wrote in his 1975 book that over 70 percent of all major computer projects were abject failures. The statistic has held to this day.)
Connect for Health Colorado lacks a funding formula in a state that requires a vote to raise taxes. This makes the problem of funding the exchange a not-so-little issue. Finessing such an impossible situation will require the exchange to have more allies than just the Democrats who are their daddy. The exchange can offer little or nothing to the 80 percent of Colorado’s employees on group health plans.
It has always been the case that when organic economic markets fail, the burden is shifted to the nation state’s social and political realm to solve. Obamacare stemmed from a paralyzed conservative politic coupled with a proactive liberal party. The twin problems of access and high rates of uninsured resulted in a vote that allowed the politicians and sociologists to assume control.
It is only fitting that the present failure of the exchange to operate a successful business enterprise leaves it with social engineers running the locomotive down the track.
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.