The Affordable Care Act? Is That Still a Thing?

Two weeks ago, the Kaiser Family Foundation published poll results that provide bracing lessons for anyone currently working to roll out Health Insurance Exchange and other Affordable Care Act (ACA) related business changes. That theme is simple: don't assume any of your constituents understand the changes that are coming down the pike.

The most telling statistic for me: 42% of respondents were not even aware of the current status of the ACA law, which means they probably don't even know that there are significant changes in the health insurance world coming up this fall when open enrollment begins.

It immediately suggests a couple of key principles for how insurance companies, brokers, and employers move forward into their post-ACA business.

1. Education. Education. Education. View every constituent contact as an opportunity to engage and educate as to what's coming down the road.

2. Explain everything. When you've been in the trenches of implementing healthcare reform changes, the alphabet soup of acronyms becomes an insiders shorthand: EHB, APTC, CSR, even ACA itself. In any external communications, spell it out and explain what it is in the simple language possible. The changes themselves are hard enough to make sense of: don't let language make it harder.

3. Keep it simple. When trying to decide between different possible approaches or designs, always start with this question: what will make this easiest on our brokers, our employers, and our members? 

4. Provide continuity: There is a temptation when contemplating changes as broad as the ones that ACA-features like Exchanges and member-level rating to take that opportunity to overhaul the whole way you do business. But, there's a danger in changing too much too fast. If you can keep your interactions, your communications, and processes as similar as possible to the way they currently function, that will help ease your constituents into the new post-ACA way of doing things. 

And, don't forget the network effect. The largest single source that Kaiser's poll respondents cited as to where they get their information about health care reform law is from conversations with friends and family. If you can effectively reach those people you do make contact with, they'll help spread the word to everyone else.

Member Level Rating, Challenge #3: Rating New Employees

The last time we looked at the challenges of member-level rating, we considered the possible impact it might have on a group's premium invoice--the bill. This time, we take a look at another challenge: bringing new employees onboard mid-year.

This is, in fact, similar to the issue we discussed last time of an employee adding a new baby to their family coverage and the employer's overall bill going up. Member-level rating, in this case, means that, even after a group has purchased their plan or plans for a benefit year, the amount each employee pays for coverage is not fixed--it depends upon the make-up of their family.

How It Works Today
Today, an employer typically shops for insurance before the benefit year begins and then locks in rates for either all his or her employees or, in a large company, for all employees in a certain category of employment, such as full-time, non-union employees.

Say, for instance, that an employer buys a PPO plan with a $750 monthly premium for family coverage and an HMO with a $625 monthly premium. He or she decides to contribute $300 a month for the premium. Any employee who is hired mid-year and wants to enroll in one of the plans will have the difference ($450 for the PPO and $325 for the HMO), deducted from his or her paycheck.

The conversation is pretty simple for employer explaining the benefits options to the employee: "Joe, you can get the PPO for $450 or the HMO for $325". He or she probably has that printed up on a little one- or two-page sheet in the benefits handbook and shares that sheet with job candidates, too.

How It Will Work in the Future
That conversation won't be so easy in the future, at least not in small companies with fewer than 50 employees (to which member-level rating applies). Imagine the HR administrator at a 30-employee company explaining the benefit options to a job candidate, Joe, who is considering an offer with the firm.

Joe: "What about health insurance?"

HR Rep: "We have a very generous package. We have an HMO and a PPO, both very good plans."

Joe: "How much do they cost?"

HR Rep: "Well, that depends . . ."

And here the HR Rep is in a bit of a pickle. You aren't supposed to ask a candidate about marital status, whether they have children, etc. during the interview process. But, to be able to tell Joe how much coverage is going to cost, the HR Rep needs to know if he is going to cover a spouse and children or other dependents, and not only that but the age and tobacco-use status of each of those dependents.

Even if the HR Rep happens to know these things (say, when explaining the plan to Joe after he has already started work and can freely chat about his family situation), how would he or she be able to explain to Joe what he is going to have to pay? Does the insurer or broker provide them (like life insurance companies do) with a look-up table so the HR Rep can look up the cost for each family member, add them up, and tell Joe the rate?

It's already complicated enough just understanding the difference between HMOs and PPOs, much less High-Deductible Health Plans and Health Savings Accounts. The HR Rep's job has just gotten a lot harder.

Now, there's an alternate wrinkle where an employer could reverse the patten. Instead of covering $300 for each employee and letting the employee pick up the rest, make all employees pay a fixed amount (say, $450) for the PPO out their weekly checks and, as the employer, pick up whatever the difference is. But, that not only means uncertainty of benefits cost for the employer but create an undesired incentive for age discrimination, since it would cost much less to insure a younger employee than an older one.

Fortunately, member-level rating applies only to the small group market, so companies with more than 50 employees don't have to worry about this wrinkle, but it makes things even more challenging in an already challenging small group market.

Implications for Insurance Carriers
This is a lot to think about for a health insurance company, but here are a few implications and considerations.

1. Effective constituent communications to the sales and broker channels and the existing employer customer base is key to explain the changes that are coming and to provide tools and materials to help brokers and employers be ready to communicate with their employees.

2. Follow the patterns established by life and disability insurance companies, for whom this sort of age-banded coverage is common.

3. Provide easy tools (like an online employee rate quote calculator) that makes it easy for a broker, employer, or HR rep to quickly look up the cost for an employee and run a report that can become part of that new employee welcome kit or job offer documentation.

The Big Glaring Problem with the HHS Exchange Application

Last time,  I took issue with the Associated Press's characterization of HHS's proposed application for Exchange insurance eligibility, making the case that, considering all the information they have to gather in order to assess income and other eligibility factors, they actually didn't do all that bad of a job.

But, there is one glaring problem that, so far at least, I've not seen anyone point out. It surfaces in the text that appears right beneath the signature lines:

Congratulations, you’re done! What happens next? 

We’ll contact you in 1–2 weeks and let you know how to take the next steps, like joining a health plan 

This is one the big, fat problem in the whole mix: with this form (and this is the form for someone not applying for any government subsidies) you are not applying to be covered by a particular health insurance plan but rather applying to be allowed to shop for health insurance.

Can you imagine going to the mall and not being allowed to enter and browse until you fill out a form and get approved?

Perhaps not surprisingly, since this process has been designed by the Centers for Medicare and Medicaid Services, that this application process works just like Medicaid: first you apply to determine whether you are eligible for Medicaid coverage and then, once you've been approved, you select the plan you want. It makes total sense in the Medicaid world, since you are apply for a public assistance program, and the eligibility determination is the biggest and hardest part.

But, to those coming from the commercial insurance world it turns things on their head. In that world, you shop and select your plan first, and you fill out an application only when you've decided what plan you want to buy. The only real thing that determines if you're "eligible" to shop is whether you live in that carrier's service area, and all it takes is a ZIP code to figure that out.

It's long been a best practice in commercial insurance sales that you require users to enter as little personal information as possible until you absolutely have to have it. You need to know people's age and ZIP code to provide a premium rate quote, so a user does have to enter that in, but no online brokerage or carrier sales site requires you to enter your address and phone number just to shop. It's been well established that the greatest "session abandonment" (i.e. people leaving the site) occurs at the point where they have to enter their full name and contact information. Why? Because they are just shopping around and aren't ready to apply yet.

Watch CMS's YouTube demo video of the online application, and you'll see that their flow breaks these best practices in several ways:

1. You have to set up a user account before you shop
2. You have to read and agree to a pretty hefty disclaimer allowing the government to query data sources and use personal information before you even know if you need to bother applying for financial assistance
3. You have to enter your full contact information before you can shop

Only after these three steps can you specify whether you even want to apply to get help paying for health insurance.

Who knows--maybe this will work out okay for the Exchanges. Costco, for instance, does a bang up business, and you have to apply for membership before being allowed to browse. But, the trade off is that once you get in the door you can buy a zillion rolls of toilet paper for a couple of bucks.

But, in the insurance world, consumers will pay the exact same premium for plans purchased on the Exchange as they will for plans purchased through a private brokerage or directly from a carrier, unless their income qualifies them for a subsidy. (Subsidized plans can be purchased only through the public Exchange.) There are plenty of companies already offering exchange-like multicarrier private marketplaces and more rushing to launch new ones.

The danger for Exchanges is that having a high bar to get in the door will mean that the only people who will shop on the Exchanges will be those that have below 400% of the Federal Poverty Level and are thus eligible for a premium tax credit. And that's exactly the sort of two-tiered approach that policy makers have been trying so hard to avoid. Let's hope they figure it out and scramble the order of operations in the shopping and enrollment process.

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.