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New Distribution Trend

Publish date: FEB 01, 2012




Health insurers are moving methodically to meet their responsibilities under the Patient Protection and Affordable Care Act (PPACA). However, that's not to say they've forgotten what the private market can accomplish aside from PPACA.

For example, private plans aren't waiting for the states' health insurance exchanges to launch in 2014. They've leapt ahead with a clever spin-off: private-market insurance exchanges, up and running and enrolling members right now.

These emerging models allow managed care plans to reach prospective members in targeted segments, such as the small-group and individual markets, which are anticipated to grow in the near future. In fact, the private-exchange alternative is so promising, some of managed care's largest players have already gotten in on the ground floor.

Health Care Service Corporation (HCSC), which serves 13 million members through Blue Cross and Blue Shield plans in four states, recently invested equal stakes in a private-market exchange with Blue Cross Blue Shield of Michigan and national Blue-plan giant WellPoint. The infrastructure organization, Minneapolis-based Bloom Health, is actually a separate entity, founded in 2009, but the three plans claim majority ownership.

"We got started with Bloom Health after we recognized that we were going to be competing in private-exchange marketplaces going forward," says Marty Foster, executive vice president and president of plan operations for HCSC. "We saw private exchanges emerge and begin offering defined-contribution alternatives for large employers for their retiree populations. It was at that point we realized that the defined-contribution approach was going to extend beyond what was already happening for retirees and into active populations."

Specific populations covered

Unlike some of the broker sites that might provide estimates and general plan information based on ZIP codes, the Bloom platform combines sophisticated customer qualifying with enrollment tools and ongoing financial management of its defined-contribution products. It's not just an interface for finding coverage but for interacting with the health plan for the duration of coverage.

Foster says HCSC is focusing on individuals and retirees moving from group to individual Medicare supplement policies and will offer them defined-contribution plans. Because HCSC's targeted member populations are distinctly different than those expected to shop in the Affordable Insurance Exchanges—generally more of a subsidized population—Foster doesn't view the Bloom exchange as a direct competitor to state exchanges under PPACA.

Industry observers believe private exchanges will compete head-to-head with Affordable Insurance Exchanges for segments that do not receive subsidies from the federal government to purchase coverage.

"There may be individuals who, because of their position relative to poverty level, aren't eligible for as significant of a contribution and make a conscious decision to purchase from a private exchange," Foster says. "That could happen, but I don't view that as competition. We're not competing for that thin little overlap where people might go one direction or another. We're competing in the employer marketplace, where we're expecting private-model health insurance to continue—not competing through the Bloom private exchange with the public exchange marketplace."

Private-market exchanges represent an opportunistic trend because:

  • Recent policy discussions and educational efforts have helped consumers become familiar with exchanges;
  • Individuals and small businesses that are aware of the upcoming coverage mandate could begin shopping for insurance prior to 2014;
  • Offering health coverage with a private exchange would benefit an employer because the company can gain the tax advantage and avoid the penalty applied under PPACA's coverage mandate starting in 2014;
  • Employers are increasingly looking at defined-contribution models to control their costs and make them more predictable;
  • An estimated 8 million to 10 million individuals could enter the insurance market in the next several years without any subsidies; and
  • There is a void in the market currently in serving certain segments, such as early retirees, for example.

According to the HR Policy Assn., there is an increased interest on the part of large employers in offering retirees individual coverage, particularly early retirees who will are not eligible for Medicare. When the individual mandate and the guaranteed issue provisions become effective, the Affordable Insurance Exchanges will not be structured to serve the needs of early retirees, therefore, retirees will need an alternative way to find suitable coverage.

Private-market exchange vehicles are uniquely suited to fill that void. They also will provide strategic advantages for the insurance carriers looking to increase market presence.


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