California’s health care exchange may see a flood of customers when it opens in 2014 — not only from people who have been uninsured but also many previously covered under employer-sponsored plans.
“What the policymakers are saying is different from what we’re hearing from businesses,” says DeVon Wiens, a partner in the Health Care Practice at Moss Adams LLP. “Policymakers don’t anticipate a big shift among employers away from providing coverage and toward letting employees go to the exchanges to purchase their own insurance.”
That’s likely true for larger employers with 1,000 employees or more who have enough critical mass to self-insure, he says. But it’s not the case with smaller businesses.
“Many employers may be sending up the white flag,” Wiens says. “Instead of spending $8,000-plus a year per employee, they’ll give them an equivalent increase in compensation and let them buy their own health insurance through the exchange. Some studies show that there won’t be a huge shift, but we see it more often than not among our clients.”
Smart Business spoke to Wiens about the Affordable Care Act (ACA) provisions and how businesses are responding.
Why do you anticipate many people will buy insurance from the exchange?
Many small to midsize companies are waiting and watching — they don’t want to be the first to go to the exchange, but they’re not going to be last either. Once one or two companies in the same industry go to the exchange, the others will follow suit. This will only accelerate now that the employer mandate has been delayed a year. Essentially, it means businesses can drop coverage and send employees to the exchange without facing a penalty. This is more likely in industries that do not require a professional level workforce or for which current levels of available qualified candidates to fill open positions are hard to find.
Insurance companies clearly expect more people to flock to the exchange because they’re purchasing providers. United Healthcare through its affiliate, Optum Heathcare, and Humana recently acquired large medical groups in the California market, as well as others around the nation. If groups opt to go into the exchange, their commercial insurance business shrinks and insurance profits drop dramatically. They want to offset the loss by having more control over physicians and other providers, with closed networks similar to Kaiser Permanente. This consolidation will likely lead to access-to-care problems later for those not covered by commercial insurance, employer-sponsored plans or Medicare.
Will the exchanges be ready by 2014?
In 1982, California counties responsible for indigent care established the County Medical Services Program. They basically set up their own HMOs, and the program struggled mightily at first. Today most are well-run organizations.
It will be the same with the health care exchanges. After a few years, the exchanges likely will learn how to operate and more effectively administer the insurance products offered. They’ll probably have to reduce the number of coverage options to be efficient.
Over time a switch to a single-payer system is likely. Approximately 20 percent of the cost of health care is because we don’t have one system, one way to pay a claim. The lack of centralized control drives up costs. However, a single-payer system also adds costs by taking competition out of the insurance market. Still, pure economics dictate a shift to a single-payer system eventually, especially with a slow economy.
Will the exchanges lower health care costs?
They may bend the cost curve, but they won’t reduce costs. If you look at health care spending, the freight train coming at us isn’t the uninsured; it’s our aging population.
Regulation and market forces drive the health care market, and right now market forces are moving faster. But the ACA is here to stay, and the market will adjust to it. The smartest thing the government can do is outsource the work of the exchanges, like it does with Medicare, one of the smaller federal government departments. Medicare outsources most claims processing and auditing to private industry. If they approach the exchanges in the same way — set the ground rules for how health plans play, and let the private sector participate — over time they’ll figure out how to make this work.
DeVon Wiens is a partner, Health Care Practice, at Moss Adams LLP. Reach him at firstname.lastname@example.org.
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