February 11, 2013

Battle looms on negotiating rates for Exchange policies

HBJ File Photo
HBJ File Photo
Kevin Counihan, CEO, The Connecticut Health Insurance Exchange.
Kevin Lembo, Comptroller

The debate over whether or not Connecticut's health insurance exchange should negotiate the price of health plans with insurance companies is heating up, creating a major divide between business and consumer interests.

And the ultimate outcome could weigh heavily on whether health plans offered in the exchange are affordable to the hundreds of thousands of small businesses and individuals that are expected to shop for coverage from it, officials say.

The Health Insurance Exchange has already elected not to negotiate with insurance companies on the price of health plans insurers will propose to offer within the exchange.

That means the health plans will go through the typical oversight process, getting scrutiny and requiring approval from the Department of Insurance, which will make sure plans meet minimal benefit guidelines and are actuarial sound in terms of pricing and cost projections.

But consumer advocates are crying foul and pushing the exchange to establish a competitive bidding process to make sure costs to consumers are held in check.

A legislative proposal to make that happen is being considered by the Insurance and Real Estate Committee but the bill is facing resistance from the exchange board and insurance industry.

"The bottom line is that the Health Insurance Exchange must negotiate insurance premiums and plan designs to meet its own basic, essential mission — to increase the number of insured Connecticut residents, improve health care quality, lower costs and reduce health disparities while providing an exceptional consumer experience," said Comptroller Kevin Lembo in testimony he recently provided to the Insurance and Real Estate Committee.

The exchange is mandated as part of the federal health care reform law and will essentially be an online marketplace where small businesses and individuals can purchase health insurance.

Nine insurance companies have notified the state of their intentions to offer health or dental coverage within Connecticut's health insurance exchange when it gets up and running later this year.

Five insurers — Anthem, Aetna, Connecticare, United Healthcare, and HealthyCT — said they plan to offer health plans, while MetLife, Delta Dental, The Guardian Life Ins. Co., and Renaissance Dental said they plan to offer dental coverage.

Each carrier will have to submit standard plan designs that define cost sharing parameters, including deductibles, out-of-pocket maximums, copayment schedules, and benefits of the plan.

Businesses and individuals will begin shopping for coverage this fall, and the exchange officially goes into effect Jan. 1.

The exchange board and federal law have already established many of the major guidelines that will govern the exchange, including the minimum benefits that insurers must offer in their plans.

Insurers can offer tiered plans within the exchange, meaning some health plans will provide juicier benefits, but also cost consumers more.

The exchange, however, also has the authority to actively negotiate with insurers on the plan design and premiums they offer within the exchange, a tactic known as active purchasing.

It's something Lembo and many consumer groups are pushing for, arguing it would help keep costs in check.

In his testimony to lawmakers, Lembo said given the large pool of participants that are expected to shop for coverage from the exchange — it's estimated up to 300,000 residents will use it — the exchange board will have significant leverage in negotiating premiums with insurers.

And Lembo pointed to several examples of how that could help potentially lower costs. The state, for example, has more than 200,000 covered lives in its employee health plan and "has secured very low administrative costs and deep prescription drug discounts by actively negotiating with the plan's third party administrators and pharmacy benefit manager," Lembo said.

In Massachusetts, which has one of the few statewide exchanges in the country, active purchasing has led to the state demanding lower bids from insurers, which reduced health care costs by up to $20 million in fiscal 2010, Lembo added.

But the exchange board and health insurance industry are against the idea of active purchasing, arguing there is too much uncertainty around the exchange to begin playing hardball on premiums and product design.

"We oppose it," said Keith Stover, a lobbyist for the state's insurance industry. "There is no clarity around what they would negotiate on."

Kevin Counihan, who is CEO of the state's exchange, said price negotiation in the start-up period of the exchange is impractical and risks making insurers opt out of participating.

That is because there is too much uncertainty around the number of individuals who are going to buy coverage from the exchange, what products they will buy, their health status and utilization level, their geographic or demographic mix, the stability of the enrollee population, or other details required to have a substantive negotiation with an insurance company, Counihan said.

"In other words, such negotiation is analogous to negotiating the purchase of a car without knowing the desired year, make, model, accessories, or condition," Counihan said. "The idea of prospective rate negotiations without facts or data will likely result in fewer carriers participating on the Exchange, both limiting consumer choice and reducing marketplace competition which is both a core concept of Exchanges and which will likely result in higher prices."

Counihan said he has met with the CEOs of 17 other states implementing state-based insurance exchanges and none of them were prospectively negotiating rates with carriers. As the exchange enrolls members, it will begin to collect the needed data to support an evidence-based approach to any potential negotiation, Counihan said.

In addition, Stover, the insurance lobbyist, said Connecticut already has a robust regulatory and rate setting system to ensure that insurers offer products that are actuarial sound.

There are concerns, however, about how affordable insurance plans offered in the exchange will be, Stover said, because of the minimally required benefit levels and uncertainty around the individuals who will buy the coverage.

"Everyone lays awake at night about potential rate shock," Stover said. "There are a lot of unknowns."

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