News & Events

Health fight shifts to insurer shopping

Extent of regulation on exchanges is pivotal; US plan could follow Massachusetts model

By Michael Kranish, Globe Staff  |  December 23, 2009

WASHINGTON – The public option is gone. Expansion of Medicare is dead. But an intense fight continues over a crucial issue in the proposed health care overhaul: how far Congress should go in emulating the type of insurance marketplace that is at the center of the pioneering Massachusetts insurance program.

Called “exchanges’’ in the federal health bills and modeled on the Massachusetts Health Connector, they would enable people to compare and purchase insurance as easily as they shop for airline tickets at an all-in-one travel website.

The concept of such comparison shopping is generally backed by insurance firms, but exchanges are also controversial because Democrats in Congress want to use them to impose greater oversight and cost controls on insurance companies, requiring them to provide certain levels of coverage at lower profit margins.

The fight over how much regulatory power to give the exchanges “is at the core of the health care reform package,’’ said Robert Zirkelbach, spokesman for America’s Health Insurance Plans, the industry’s lobby.

The debate over the exchanges has taken on greater urgency now that the Senate has purged a government insurance plan from its bill and killed the idea of expanding Medicare eligibility. If the Senate approves its health care bill tomorrow morning as expected, how the exchanges will work in the historic insurance coverage expansion will be a central element of negotiations to meld the House and Senate bills next month.

Insurance companies want fewer costly rules in the exchanges, contending that greater restrictions will reduce the number of providers willing to participate in the program and limit consumer choice.

But advocates say that, without the public option to compete and put pressure on private plans to reduce premiums, strong exchanges remain the only good way to promote competition and prevent insurance companies from profiting excessively under the new national program.

Former Vermont governor Howard Dean, who has become one of the most vocal opponents of the Senate health care bill, said the exchanges could be “sort of a backwards way of putting the kind of regulation on insurance companies that the public option would have done,’’ while emphasizing the public option would be more effective.

Similarly, Senator Paul Kirk, a Massachusetts Democrat, said in an interview that robust exchanges are the “next best thing’’ to the public option.

Kirk said the exchanges would be especially effective at holding down premiums when coupled with other provisions in the House and Senate bills requiring that insurance companies devote 80 to 85 percent of their revenue to patient care, a measure that is designed to limit profiteering.

“It is the kind of thing that insurance companies would resist,’’ Kirk said, referring to the regulations that insurance companies would have to follow to participate in the exchanges, in addition to restrictions on profit margins.

Differences between the House and Senate visions for the exchanges are significant. The House bill, for example, envisions one major national exchange, with an option for states to set up their own, overseen by a national administrator. The Senate version, preferred by the industry, calls for individual exchanges set up and operated by states, under federal guidelines.

Proponents of the exchanges say that – despite the furor accompanying the death of the public option – the key to greater competition and billions of dollars in savings for consumers and government is the ability to offer a government-administered menu of insurance programs.

The discussion about the public option “was much ado about little. The transformative piece here is the exchange. That’s what matters,’’ said Jonathan Gruber, an MIT professor on the board of the Massachusetts Health Connector.

Jon Kingsdale, executive director of Massachusetts Health Connector Authority, estimated that the state’s program has cut the annual premium increase in some insurance plans in half. Translated to a national level, that would mean a $30 billion savings over 10 years if a similar plan is adopted for all states by Congress, Kingsdale said. The Massachusetts Connector, with about a half-dozen providers participating, has helped increase the number of Bay State residents with insurance to 97 percent as of last spring, according to the authority.

One of the top worries of health insurance companies is that the bills before Congress would increase regulation of health insurance companies through the exchanges, while simultaneously requiring them to spend 80 to 85 percent of their premium revenue on health care services. That spending requirement would apply to companies whether or not they are in exchanges.

Zirkelbach, of America’s Health Insurance Companies, said forcing insurance companies to spend 80 percent or more of premiums on direct health care is “not viable,’’ saying it would make it difficult for companies to spend on innovative measures.

Currently, some for-profit companies spend as little as 60 percent of premiums on health care services, with the rest going to administrative costs, a variety of expenses, and profits, according to a report by Families USA, a nonprofit that favors health care reform. Some nonprofit health plans spend about 90 percent on health care services; for example, Tufts Health Care of Massachusetts says it spends 89 percent on such services.

Democratic lawmakers see the exchanges and the minimum patient care spending threshold as working in tandem to hold down premiums.

“The Senate bill goes a long way toward lowering costs and increasing affordable options,’’ said Senator John F. Kerry, a Massachusetts Democrat, in an e-mail yesterday. “This was a big damn deal to make national reform honor the best innovations already succeeding in Massachusetts.’’

Insurance companies could be expelled from the exchanges if rate increases are deemed excessive, under both versions of the bill.

While details remain to be finalized, it is expected that the exchanges would be used mainly by individuals or small businesses that do not have insurance. Those categories of consumers face sky-high premiums in the current insurance market. The exchanges would be open to both lower-income people who are eligible for federal subsidies as well as people of all income levels who are shopping for insurance.

The exchanges would not be created for three or four years, depending on which version of the legislation is adopted. However, White House officials said this week that insurance companies that arbitrarily increase rates before then will be excluded from the exchanges, which they said will provide an incentive to keep rates lower in the meantime.

The Massachusetts exchange program, which was set up in 2006 to expand coverage, has wide support.

Mario Motta, president of the Massachusetts Medical Society, said the Health Connector program “has worked well. . . . It has helped keep costs down.’’

James Roosevelt, president of Tufts Health Plan, also praised the Connector program as “very successful’’ and said it can be a model for other states. But Roosevelt said he objected to the House proposal that would establish exchanges with strong federal control, saying that decisions are best kept at a state entity, as happens in Massachusetts.

The exchange program has been so popular that Bay State officials have convinced Congress to insert language allowing the Connector to continue as the state’s exchange program.

“We are the model for national legislation,’’ said Kingsdale of the Massachusetts Health Connector. “It would be ironic if they put the model out of business.’’

Michael Kranish can be reached at