By 2014, all states are expected to open health insurance exchanges as prescribed by the healthcare reform bill. And, according to research from PricewaterhouseCoopers' Health Research Institute (PwC; New York), half of the health insurance companies in the country will welcome the opportunity.
PwC surveyed 153 insurance executives to learn how prepared they were for the coming exchanges. In addition to the 52% that were planning to participate, 31% were undecided while 17% flat-out said they would not participate in the exchanges. Expectations for profit are tempered, however; less than a third of executives polled expect net profit increases in either individual, small group or Medicaid businesses from the exchanges.
But that doesn't mean it will be impossible to have a successful business model that incorporates the exchanges, Jeffrey Gitlin, principal for PwC, says. While the size of the exchange market will be about $60 billion in 2014, by 2019 that's expected to balloon to $200 billion. The insurers who are able to take the biggest pieces of that pie will be those who position themselves now to take advantage of the new distribution model.
"We're making a transition from that b-to-b type of relationship for purchasing healthcare to a consumer model," Gitlin says. "Payers are going to think differently about how they handle their business."
Not only will more people buy health insurance on an individual basis through the exchanges, but the policies those individuals will buy will have to meet certain federal mandates for coverage. For example, people cannot be denied for pre-existing conditions, and there are limits on how wide premium spreads can be.
This should spur some technology investment, as health insurers will need to build sophisticated data and risk management capabilities to better understand their customers and create appealing products both for them and the company, Gitlin explains.
"Data analytics is going to be critical," he says. "Payers are going to be moving from this model of risk selection to risk management. Being able to mine customer data, getting as close to real time as possible, will be important."
Insurers, however, are still waiting to see how states choose to build their exchanges. There is a continuum between an, open marketplace model, where any plans that meet the state and federal criteria can participate; and active purchaser, in which the exchange selects which plans can compete for members and establishes a bidding process. Carriers tend to prefer the open model — 44% of those surveyed by PwC said so, with only 10% preferring an active purchaser role for exchanges. However, most (46%) are hopeful states will take a hybrid approach.
"States are going to have a tremendous amount of flexibility in terms of how they structure their programs," Gitlin says. "The most important decision up front is whether you're going to be an open access exchange or a purchaser. That decision sets the tone for all the next steps you're going to put in place.
"There's a host of cascading decisions that drive off those," Gitlin adds. "How do you measure [plan] quality, and will the states start to come up with a standard way to measure quality? Now that it’s a one-to-one relationship, you can ask people what they think."
Insurers are going to look state-by-state from their current position in terms of network, product offerings and membership base, and make a decision about being in that state's exchange sets them up for success, Gitlin says. Still, despite the preference of insurance companies for one type of exchange, and the propensity for certain states to go in a different direction, he adds that there's little danger of those states' exchanges going unpopulated, simply because of the size of the market.
"The reality of that is if you look at the markets, there are people that are selling individual, small group, Medicaid in those markets now," he says. "The framework for a competitive landscape is there."
But perhaps the biggest obstacle to adding policyholders through exchanges will be getting consumers to fully leverage their own options. In addition to surveying insurance executives, PwC talked to 1,000 consumers about exchanges as well.
"Two of the stats that jumped out at me [from the consumer survey] were that56% of the people surveyed did not know the definition of an exchange, and 82% of the people who were subsidy-eligible did not know they would qualify," Gitlin says. "People really can't articulate what the exchange is — it requires a collective effort on the part of the payers and the states to educate consumers on what this would mean to them."
Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio