Jan. 27: Insurance exchanges are next big hurdle in health care

The long, heated debate over federal health care reform has landed squarely in Minnesota, as legislators work at break-neck speed to hammer out details of one of the law's central mechanisms.

Under the federal Affordable Care Act, each state will have to offer an online marketplace where people can comparison shop for coverage the same way they might buy a plane ticket. But states have tremendous leeway in what these insurance exchanges will look like and how much government control to retain.

Only two states already offer exchanges, but they provide a template from which others can work. Massachusetts set up a more expensive and regulated model that served mostly individuals and public plans in its early days; Utah chose a leaner, open-market approach aimed at small businesses.

Minnesota is carving its own path, trending toward the more hands-on model embraced by Massachusetts but wanting to also attract small business owners, as in Utah.

"It's about finding a way to encourage plans to be more competitive on things that matter -- quality, affordability, customer service, health improvement," said April Todd-Malmlov, director of Minnesota's health insurance exchange. "What I really don't want to do is just memorialize what the market is today."

By encouraging competition on price and quality and providing subsidies to help make premiums affordable, the exchange promises to usher in a monumental shake-up of the insurance marketplace. The idea is to make insurance more affordable, especially for those who don't get it through the workplace and for small business owners.

The clock is ticking. Legislators have two months to hammer out important details about the exchange, including how it will be managed and financed. A bipartisan bill under consideration calls for the health plans to shoulder most of the costs through a 3.5 percent surcharge.

"Our observation has been that the [Gov. Mark] Dayton exchange blueprint definitely looks more like an enhanced Massachusetts model than Utah," said Andrea Walsh, executive vice-president at HealthPartners. "But the devil is in the details. Let's make sure that when 2014 comes, we don't have more people without insurance than we do today. First, do no harm."

Distinct approaches

The exchanges in Massachusetts and Utah offer a lesson in extremes.

Massachusetts, a state with one of the nation's highest premium costs, opened its exchange in 2006. In its first three years, the rate of uninsured dropped from more than 10 percent to 4.4 percent, the lowest in the nation, where it has remained.

But the exchange was costly. Launched with an initial $25 million investment, the Massachusetts Connector was more successful at serving individuals and those on public plans than small businesses. An independent, quasi-government body was set up to screen plans for the exchange, which has about a $30 million budget and staff of around 50.

Utah chose a more bare-bones approach. Its dominant hospital system, Intermountain Healthcare, is considered one of the most progressive health care operations in the nation, highlighted by President Obama for its ability to lower costs while delivering high quality of care.

Utah launched its exchange as a pilot for small businesses in 2009 with a two-person staff and a budget of $670,000. It outsourced much of its IT work, unlike Massachusetts.

But Utah had problems from the start with low enrollment. The state's uninsured rate increased its first year, from 13.2 percent to 14.8. Risk pools were different inside and outside the exchange, leading to high premiums inside the exchange.

With nearly 150 insurance options on what is now known as Avenue H, polls showed that some people were overwhelmed and found the application form difficult to complete. The exchange has been relaunched twice, and the rules tweaked. Enrollment has grown exponentially.

"The first big lesson from Utah and Massachusetts is work toward your demographic," said Cheryl Smith, director of the exchange practice with Leavitt Partners, a national health care consulting firm. She also worked on the Utah exchange. "One-size-fits-all is a misnomer."

A study of the two exchanges by Georgetown University researchers urged states to avoid either-or thinking. The keys are to draw in health plans as well as a critical mass of consumers, and to invest in a marketing strategy to get people to the exchanges. The study noted that the added expense of the Massachusetts Connector reflects higher enrollment early on -- 220,000 people versus 2,200 in Utah -- as well as more responsibilities.

With its small staff and outside vendors, Utah had more trouble responding to problems early on, according to the report, which concluded, "You get what you pay for."

In Minnesota, a task force has spent more than a year developing guidelines, even though the state has yet to pass a bill authorizing an exchange. Dayton has drawn nearly $110 million in federal grants, and officials are aiming high.

About 930,000 Minnesotans are expected to use the exchange in its first year, including about 310,000 low- to moderate-income families that will qualify for public plans. By 2016, when the exchange is fully operational, almost 1.3 million could use it.

According to DFL legislative estimates, the exchange could cost $162 million through 2016, with federal grants and Medicaid covering much of the state's $88 million portion for the three years. All state exchanges must be self-sufficient by 2015.

"Maybe you use less of a heavy hand than in Massachusetts, where they're stuck with huge high-tech giants and big academic health systems so there's a need to create a tougher marketplace," he said. "But we haven't achieved Utah-level quality. We're still a very average state with charges and quality. We're not the place where everyone comes to figure out how to do it."

University of Minnesota health industry economist Roger Feldman said a big unknown is how the state will bring both individuals and health plans into the exchange. Questions include whether more insurers enter the state, or whether existing providers will develop new offerings. "How do we get plans to compete in the exchange?" he said. "We don't have a very big individual market in this state."

Laying a foundation

In a nondescript office in the Golden Rule Building in St. Paul, phones are ringing and printers are chugging behind a maze of beige partitions.

The exchange has hired about 15 people, including a marketing director, as well as an IT staff of about two dozen mostly temporary workers. It is looking for bigger, permanent space.

"It's not just a $110 million web site," Malmlov told state senators last week. She argues that the exchange will be a powerful platform for innovation and a way to simplify the health insurance marketplace.

"If you want the benefit of the exchange, then you've got to put the effort into it at the front end to get a better outcome," she said. "If the market was so great, people wouldn't be complaining."