A Hatchet Job from the AP on the Exchange Application

Ricardo Alonso-Zaldivar of the Associated Press took a swing at the draft Exchange eligibility application, which was released for review and comment by CMS back in January. The story seems to be getting picked up pretty widely but, unfortunately, its commentary seems, to my eye at least, to be way over the top and sensational. Here's the first line:

Applying for benefits under PresidentBarack Obama's health care overhaul could be as daunting as doing your taxes.

This is bound to get a lot of people worked up and scared, but it really is a long way from the truth.

First of all, it starts off by saying that the draft application runs 15 pages and doesn't mention until the very end of the article that there's a shorter application for those who don't want or know they aren't eligible government subsidies for purchasing insurance. 

If you look at the shorter six-page application for those who know they don't qualify for a subsidy, you'll see that it's really not all that onerous. It's actually an eight-page package, but two of the eight pages are instructions, and they're in large and accessible type. Page 2 is the standard information about the applicant: name, address, phone, email, preferred language, SSN, birthdate, and checkboxes for citizenship status and ethnicity and race (both optional).  Pages 3 and 4 ask for the same information about each person you're going to include in insurance coverage. Page 5 is about American Indian status, and requires a single checkbox if no one in your family is a Native American. Pages 6 is a signature page. The optional Page 7 lets you specify an "authorized representative" who can discuss your application on your behalf.

Frankly, this is the same information you complete on just about any form you fill out for any reason today, and it's hard to imagine how CMS could get away with asking you for less information. I've scratched my head again and again, and there's only one problem that I can see with the whole application--and I'll get to that later.

But what about the 15-pager that Alonso-Zaldivar plays up so much in his article, the one that he claims runs "counter to the vision of simplicity promoted by administration officials" and are raising fears that "a lot of uninsured people will be overwhelmed and simply give up?"

For starters, of the 15 pages, the same two pages repeat six times, since you fill out the same information about up to six people. And, yes, the questions do get a little complicated. They ask about the federal income tax filing status of each person and details about a person's current job and income. If you know the details behind the Affordable Care Act and its subsidy provisions, each of the things being asked makes sense. All this is trying to get to household income, since families with a household income up to 400% of the Federal Poverty Level are eligible for subsidies.

It would be nice, I suppose, if there was just a single line you could fill out that says: enter your household income: ___________ But, to figure out what should go in that box, you would have to know all the rules of what counts and doesn't count and work up to that . . . in other words, fill out all the information that's in those two pages per person.

As for the other pages, most of them can be skipped by answering a single question: Is anyone offered health coverage from a job? Does anyone have another health insurance now? Is anyone in your family American Indian or Alaska native? Do you want to name someone as your authorized representative? Answer no to these and you knock out four more pages from the fifteen. When you fill out an application online, you'll never even be presented with many of the questions.

The real problem is that figuring out household income and prior or other health insurance information is complicated and requires a lot of information. In his article Alonso-Zaldivar quotes Sam Karp of the California HealthCare Foundation, which on its own designed a separate model application and, one can only assume, knows the pain of trying to capture all the information needed to determine subsidy eligibility. Karp, the article notes, "gives the administration high marks for distilling it all into a workable form." And I love Karp's quote: "We are not just signing up for a dating service here."

But, I suppose "Government does a pretty good job asking complicated questions on health insurance application" just isn't quite as dramatic a story.

Oh, and one other small detail not mentioned by the AP: this same application will determine individuals' eligibility for Medicaid or CHIP programs, too. 

And that brings us to the one big problem with the whole application process that no one else seems to be picking up on. I'll touch on that in a later post.

Member Level Rating Challenge #2: The Monthly Invoice

This is the second in an ongoing series looking at some of the thorny operational challenges created by the shift to member-level rating as required by the Affordable Care Act. See here for background on the series.

Here's an interesting area that you might not think of as being affected by the shift in rating methodology required by the ACA: the invoice that small business owners receive from their insurance carrier each month. We're not talking about the new consolidated invoices that will be created by the SHOP Exchanges (that's a different animal altogether). We're talking about the insurance bills received by small businesses that buy their coverage through their old familiar channels, which means, in most cases, through their neighborhood insurance broker.

"Why would rating changes affect the bill?" you might ask. "The rates were calculated during the sales process. Now the customer is just paying what he or she owes each month." Yes, but, a small business health insurance bill is a little different from the power bill or the landscaping bill.

Two key factors:

1. A health insurance bill is a snapshot in time 
2. A health insurance bill often triggers an enrollment transaction

This all a shorthand way of saying that the monthly insurance bill represents a snapshot of what employees (and their dependents) are enrolled in health insurance coverage at a particular point in time--that is, the point at which the bill was generated. And, that snapshot of coverage very often is what reminds a small business owner that he or she needs to submit some sort of enrollment change.

Every health insurance carrier does things a little differently (a common theme that constantly plays into Exchange and healthcare reform issues), but two common features of the group medical insurance bill is the coverage summary and detailed roster.

The coverage summary provides counts of the number of employees enrolled into each coverage level of each plan offered by the company. For example, a company that offers its employees the choice of a PPO and a High-Deductible Health Plan (HDHP) might see the following summary:

Plan	Employee Only	Employee + Spouse	Employee + Children	Family	Subtotal
PPO	2	1	2	0	5
HMO	1	3	4	1	9
Total	3	4	6	1	14

The detailed roster would show employee by employee what each person is enrolled in, offering the detail behind, for instance, which 4 employees chose the Employee + Children level of the HMO.

It might look something like this:

Last Name	First Name	Plan	Coverage Level	Premium
Adams	John	PPO	Employee Only	$198.23
Anderson	Margaret	PPO	Employee Only	$198.23
Carter	Ann	HMO	Employee + Spouse	$318.29
Hendrick-Smith	Nancy	PPO	Employee + Family	$498.73

etc.

Now, in the old world of rating, this is pretty much all you need to know to figure out where the total amount that's printed on the "Please Pay" line comes from.  Once you bought the plans for the year, you pay the same for each employee enrolled in the Employee-Only coverage level of the PPO, which is why John Adams and Margaret Anderson share the same premium on the detailed roster. Take the total number of employees enrolled into each coverage level of each plan, multiply it by the premium for that particular plan and coverage level, then sum it all up and that's your bill.

Flash forward to the new world of member-level rating. Now, the summary may still have some use in getting a quick tally of the number of employees enrolled in plans ("Wait, 14? We only have 13 now, since we canned Jakey last week.") But, it no longer tells you everything you need to know in order to figure out where the total bill came from, and for a simple reason: the rate charged for each employee's policy is now based upon the age, tobacco use, and location of each dependent being covered. 

The detailed roster, in its current form, at least, isn't going to be much use, either. Nancy Hendrick-Smith may have enrolled her full family in the PPO, but that isn't enough to determine the rate. Instead, we need to know Nancy's spouse's age and tobacco use and the age and tobacco use for each of her children, too.

Now, suppose next month Nancy has a baby and adds him to her policy. In theory, she still has "family coverage", and in the old world her employer would be charged the same rate for both months.  Not in the new world. Assuming she still has fewer than three children, then the premium charged for Nancy will go up for month 2, since it's calculated on a per-member rate, and she just added a new member to her coverage. Under the old summary and detailed roster format, the employer would have no way of seeing why the premium charge for Nancy's family went up this month over the previous one. He or she needs to see the full detail not just for each employee but also for each depended being covered under the employees' policies. 

So, to wrap it up, here are some basic implications for billing:

1. Carriers will need to rethink the summary section of invoices to determine whether there is a more relevant set of summary information that will let small business owners quickly review and evaluate whether their bill is correct. Perhaps, instead of count of number of employees enrolled in coverage levels, it will show the total number of employees and dependents enrolled in each plan. 

2. The detailed roster will need to be expanded to present not an employee-by-employee roster but rather a full roster of employees and dependents, with each line itemed out and explaining the premium being charged for each.

3. Carriers can expect an increase of calls to their customer service centers in the first months of 2014, since their small group customers are suddenly going to see something different than what they are used to and will be bound to have questions.

Just one of many examples of the potentially unforeseen downstream ripples of what seems like, in theory, a relative simple change in the way premiums are calculated.

Member Level Rating, Challenge #1: Quoting New Group Business

Last week, I drilled a little into the workings of the ACA-mandated member-level rating methodology to set the stage for discussing the rather large downstream impacts this change will likely have on an insurance carrier's internal operations. Since I wrote that post, HHS published the final rule on Health Insurance Market Rules, and there are not substantive changes in the rating methodology put forth in the original proposal rule. So, it looks like this new rating method is going to stand. And, it's going to create quite a number of big challenges for carriers to implement.

We'll dig into each one step by step, and today we'll look at . . .

Challenge #1: Quoting New Group Business

One of the first and most obvious impacts of the rating change is that the systems carriers use to sell new business (that is, to quote rates to prospective insurance buyers) will have to be modified to calculate rates following the new rating rules.

This sounds simple on the surface, since there are really just four pieces of information you need to know to calculate the rate for each member: the product(s) they want to see quotes for, their age, their tobacco-use status, and their family's zip code. Add them up, and you have the family's rates. If you're quoting business for a small group, add up the family rates for all the employees being covered, and you have the total cost for the business to cover its employees.

Ah, but the challenges are actually quite complex, and there aren't good answers for all of them.


Challenge #1A: Hardwired Sales & Quoting Systems

It would be nice if all carriers were using sophisticated, cutting-edge quoting technology where the information to be gathered from prospective groups and their employees and the calculations used to generate quotes could be updated through a simple, intuitive graphical-user interface.

Unfortunately, most carriers' quoting systems were built years ago, and many (if not most) of them are hardwired specifically to that carrier's particular quoting methods and market practices. Tobacco-use has not typically been captured except in the health questionnaire, which now has to go away since rating based upon pre-existing conditions is no longer allowed. The logic to generate rates has typically been at the subscriber/family level, not at the member level--and that logic tends to be encapsulated in a lot of complex procedural computer code that has to be totally rewritten, and hardwired into reports that have to be written, and stored in rigidly-structure database tables that have to be rewritten. In the small group market, most of the systems were designed to support insurance agents requesting quotes for their small business customers, not the small business owners themselves, so they vary greatly depending upon each carrier's relationship with their broker network.

Here it is almost the end of February, and all this custom code has to be analyze, redesigned, rewritten, tested, and put into production by October 1st. Not an easy task.


Challenge #1B: What Do You Do With the Street Quote?

For most carriers, the small group sales process has two distinct steps, with two different types of information being gathered and quotes being produced. In both cases, these steps were being driven by insurance agents/brokers quoting business of behalf of their small business clients:

1. The "Street Quote": This is a quick and dirty quote intended to give the agent a quick look at the different rates his or her client might be able to get for various types of small group plans and to compare rates across multiple carriers. They are simply ballpark numbers, based upon some very limited information about the company such as number of employees and their average ages. It's a way for the agent to "run the numbers" and lay out some options to pursue without knowing all the specific details about each employee. 
2. The Final Quote: Because a group's final rates have (up until 2014, at least) depended upon the health status of the group's employees, a detailed group application has typically been required before an insurer could create a final quote and formally offer coverage to a prospective group. That means submitting detailed information--birthdate, SSNs, and answers to lots of health questions--about each employee. Agents would use the street quote to narrow down the options to just one or two plans, and only then go through the work of applying for a final quote, and usually then with just a single carrier that the prospect had decided to go with.

The new rating methodology actually has a good bit more precision than the old, allowing differences in age and tobacco use be reflect more directly in the premium each member is charges than in the past, when they were sort of lumped together and the differences averaged away in the rating algorithms. The downside to this precision, though, is that the rates are going to vary much more sharply from one group of employees to the next, increasing the likelihood that any sort of street quote isn't going to be terribly accurate compared to the final quote.

But, the sales process isn't likely to change just because the rating rules have changed. Small business owners will still want to compare their options across multiple carriers without having to gather tons of information from their employees , and agents will still want to be able to run quick quotes, too, without having to fill out a lot of forms (be they paper or online). Will the street quote remain? If so, how will it need to change in order to be more accurate, since the member-by-member rating might greatly skew the actual rates available from one business to another?

Challenge #1C: Integrating Vendors, Brokers, and Partners

As if the first two challenges we're pressing enough, many carriers rely up vendors for delivering their sales systems, and they have networks of large brokers and other partners who may have their own quoting and sales systems that let agents run quotes on their own and submit the final applications to the carrier electronically. It's one thing for carriers to get their own house in order; to keep business going in the future, they will also have to work with vendors, brokers, and other partners to make sure those external systems are updated properly, too. And all by October.

The Silver Lining

Some carriers have been aggressively looking ahead and have already thought through all these challenges, and a few have already begun implementing the changes that the regulations require. The majority, however, are really just getting started, and for good reason: the rating rules themselves weren't finalized until last Friday. It's hard to blame anyone for not having already ripped out and started rewriting a bunch of complex but well-tested and functioning system code.

But, one silver lining to the cloud is that these changes are affecting insurance carriers all across the country, so no one company is on its own in figuring out what needs to happen. The short timelines make best practices and information sharing all the more important, and we'll look at some of the best practices for solving these challenges in upcoming posts.

In the long run, the outlook is not as bleak as it appears. These changes are all pushing carriers to standardize their operations so that each does business more like their peers in the industry. While this might at first seem like a bad thing--those peers are competitors, after all--the long term effect is likely to be increased efficiency and overall smoother sales and quoting operations. It's just going to take some elbow grease to get there.

The Exchange Landscape by State and Type

It's now looking clear how each state plans to tackle their Exchanges in 2014--either as a standalone State-Based Exchange (SBE), as an Exchange run in partnership with the Federal government, or as a full Federally-Facilitated Exchange (FFE), whether by choice or by default because they took no action to establish an exchange on their own.

I put together a map to give a visual snapshotof the landscape.

Per-Member Rating: The Long Cascade

From the perspective of an insurance carrier’s operations, one of the most significant provisions of the Affordable Care Act (ACA) is the new individual and small group rating methodology defined by the Department of Health and Human Services (HHS) under their proposed Health Insurance Market Rules. The change may seem simple—rating individual families and small group plans on the member- rather than subscriber-level—but it creates huge downstream ripples within a carrier’s operations.

We’ll take a look at a lot of those ripples in the future, but let’s start by reviewing the proposed change in rating methodology.

How It (Often) Works Today

Let’s start with rating for individual direct-to-consumer plans. Rating methodologies vary from carrier to carrier, and some states prescribe specific methods, but here’s a typical one.

Rate = (Base Rate * Age Factor * Tier Factor * Health Risk Factor)

In this model, you start with the base rate defined for the product (say, $238 per month) and then adjust it based upon the age of the subscriber, the type of coverage being purchased (e.g. individual coverage or family coverage) and then by a factor based upon the health history of the family—that painful list of dozens of questions beginning “Has anyone applying for coverage been treated for [insert long list of dreadful diseases and conditions here].”

So, suppose you have the following family of four:

            Bill (age 36)
            Sandra (35)
            Mark (10)
            Sarah (8)

           

Bill selects a PPO plan with a base rate of $238.25 per month and fills out an application, including completing the health questionnaire. Because he is 36, Bill is assigned a subscriber age factor of .79, and because he chooses family coverage his contract has a tier factor of 2.68. Based upon some health conditions Sandra and her son Mark have, the carrier’s underwriters assign a health risk factor of 1.1. 

So, Bill’s final rate for family coverage is:

$238.25 * .79 * 2.68 * 1.1

Which equals $554.87 per month.

Note that in this case Sandra's age and the fact that she and Bill have two children do not figure into the equation. The rate is based off the oldest adult (Bill) as well as the fact that they selected family coverage, and the rate would be the same whether they have one child or four. The rate also doesn’t change if they have another child and add coverage for the baby.

How It Will Work in 2014

Under the proposed HHS rule, the rates for Bill’s family will be calculated a little differently starting in 2014. One of the big ACA changes is that rates can no longer be based upon members’ health history, so that health risk factor will go away. Now, only age, tobacco use, and “geolocation” (basically, the county in which the family lives) can be taken into account.

Here’s the kicker. The family rate must now be determined by adding up the rate for each individual family member. The rule also stipulates that no more than three children under the age of 21 can be taken into account. (Any children after the first three can be added for no additional cost.)

So, let’s rate Bill’s family under the new methodology. Bill’s monthly premium will be the sum of the rates for each of the members in his family. Each member’s rate will be calculated as follows:

member rate = (base rate) * (age factor) * (tobacco factor) * (geo factor)

Instead of filling out a lengthy health questionnaire, Bill simply has to indicate whether each person he is covering uses tobacco. In his family’s case, only Bill does. So here’s the calculation:

Bill’s rate = $152.62 * 1.22 * 1.35 = $250.34
Sandra’s rate = $152.62 * 1.18 * 1 = $179.36
Mark’s rate = $152.62 * .635 * 1 = $96.52
Sarah’s rate = $152.62 * .635 * 1 = $96.52
Total Family Rate = $620.62

Now, suppose Bill and Sandra have a third child, Nellie. Under the original rating method, they just add Nellie to their family coverage and their premium stays the same. Under the new rating methodology, Nellie gets rated separately and Bill’s coverage goes up by $96.52.

If they have a fourth child, under the new method, the premium would not increase since only the first 3 family members under 21 are counted.

Small Group Rating

The impact on small group rating is very similar, for the proposed rule does away with former “composite rating” approaches commonly used with groups.

Under composite rating, every employee in the company who purchases a plan pays the same as his or her fellow employees, varying only by the coverage tier selected (e.g. employee only, employee + spouse, employee + children, or employee + family). The rates themselves are determined by the characteristics of the group as a whole, such as average employee age, average employee health risk, geography, and size of the group. The rates for the year are determined during the sales process at the start of the benefit year. If a new employee is hired mid-year, he or she can buy coverage for the same price that his or her new co-workers pay.

That is all going to change under the new proposed rules. Starting in 2014, a group’s total rate is going to be the sum of the rates determined for each employee, and the rate for each employee will be the sum of the rates for family members being covered, just as we saw for Bill in the individual example above. A small business, in other words, will be just a collection of individual families, with each member in the group rated separately.

In other words, if you have a small business with 12 employees, go through the same pricing exercise for each employee like we did for Bill’s family above. Sum those 12 employees together, and you have your total group rate. Hire a new employee mid-year, and that new employee will be rated separately and the total group price will go by whatever that new employee is priced to pay.

I’ll let others debate the merits of the “family unit” approach versus the “build up” approach in terms of fairness, accuracy, and efficiency. From an operational perspective, though, it greatly changes things. We'll take a look next at a few of the challenges it poses to various operational areas within an insurance carrier.

The Big Shift and Why It Brings Hope

Joseph Stiglitz has a nice thought-provoking piece in the latest Vanity Fair on the underlying causes of the Great Depression and analogues to our current economic situation.  The crux of his argument is that, just as in the 1920s and 1930s, the economic struggles of today are not the result simply of problems in the financial industry.  Instead, they are part of a larger economic shift taking place as the United States moves from being a manufacturing economy to being a service economy, just as the Great Depression was ultimately the result of a fundamental shift from an agricultural to an industrial economy.

He makes a compelling argument, and one that, admittedly, is open to interpretation for how to proceed from here.  Stiglitz, for his part, advocates a series of massive government investment programs to help goose the transition along, like more funding for education, basic research, and cleaner, more efficient energy production and a return to much tighter regulation of the financial industry.  But, whether one agrees with those prescriptions or not, the fundamental analysis of our current situation--the transition to a new economy--can be an inspiring one.

Inspiring how?  Because it gives hope.  Because if there's a transition underway, then there's another side we can get to.  It's a way to break out of the rather vicious Sophie's choice of a declining manufacturing economy.  Is it really such a bad thing (from a macro perspective) that our manufacturing jobs are rapidly moving to China and Southeast Asia?  If your fundamental premise of an economy is that it needs to make big, heavy, physical things, then the picture doesn't look so good.  There are only two scenarios there:

1. We will continue to see our prosperity slip away overseas as one manufacturing job after another leaves, or

2. We somehow turn it around and reestablish the perfect, glorious economy of our golden days.

And what would #2 look like?  The old 1950s and 1960s Eden where you got a job with a big factory right out of high school and could stay there the rest of your working life (and maybe your kids could get on, too)?   A world where, when you get on up in years and retire you have  a reliable pension and can live out the rest of your years in the exact same house you've been in since you got started?

Is this the best we have to offer, the real American Dream?  It doesn't sound all that terrible, but it doesn't exactly sound like the stuff of dreams, either.

The transition to a "service economy" offers some hope--or, at least it does if you define service as a "knowledge economy" or "professional service" type occupation and not more rote services like answering customer support lines or cleaning motel rooms.  And I think Stiglitz is talking about the former.

If he's correct, it means that there's a green, unexplored field out there for continual expansion and improvement and innovation, a pretty good chance--though, my no means, any sort of guarantee--for the United States to make the turn and not only to stay a prosperous nation but to grow and lead the pack.

The true test, it seems to me, will be how we handle the transition and whether we can repeat our past performance when, in the middle part of the 20th Century, we successfully transitioned from being one of the world's leading agricultural economies to being the leading industrial one.  Time will tell, but we have a lot of assets on our side.

Returning to the New Frontier

This blog started with a good idea and, even with six years hindsight, still a very good initial post.  Then it sagged to the ground, while the other side of my interests--food writing and food history--really took off.  But, it's a new year, and I'm feeling in a very forward looking mood.

So, I'm dusting off The New Frontier.  I gave it a fancy new logo today.  Not a bad way to kick off the year.

And, my New Year's Resolution for 2012 is to look forward.  Not to forget the past, or ignore it.  If anything, we should continue to delve into it as deeply as we can.  But not to live in the past but rather to gain ideas and inspiration and guidance for how to proceed in the future.  And looking at the future seems very important to me right now, for I feel that we are in many ways at a turning point, where we need new ideas and new energy to move forward.

So, here's to 2012.  And the future, too.