An interview with Jon Kingsdale  

In addition to potentially increasing volumes and driving down payments, health insurance exchanges may boost payer-provider collaboration around value-based insurance offerings. 

Three years from now, the Affordable Care Act is posed to usher in the creation of state-based health insurance exchanges designed to enable consumers to easily compare qualified health insurance options and select plans that best meet their needs. These exchanges are expected to support choice in the healthcare market, as well as make health coverage more affordable by providing premium and cost-sharing subsidies to low and moderate-income individuals, according to a Kaiser Family Foundation issue brief.

A Congressional Budget Office factsheet estimates that more than 24 million people will enroll in a health plan purchased through a state-based health insurance exchange by 2019.

Jon Kingsdale, managing director, Wakely Consulting Group, has unique insight into health insurance exchanges. He helped set up the exchange for the state of Massachusetts when he served as the executive director of the Commonwealth Health Insurance Connector Authority, an independent authority established under Massachusetts' landmark health reform legislation of 2006.

In the following Q&A, Kingsdale discusses some of the benefits and challenges of these exchanges-as well as how hospitals and health systems can prepare for them.

Access related tool: Questions to Ask as Hospitals Prepare for Health Insurance Exchanges

What are the biggest benefits the exchanges offer to hospitals and health systems?

Kingsdale:
By themselves, the exchanges will probably not have a huge impact on hospitals and health systems. However, when you consider the exchanges in the context of the Affordable Care Act-which is also expanding Medicaid and providing insurance subsidies-then clearly, the big advantage for healthcare providers is that there will be millions and millions more insured patients.

By improving access to insurance, the exchanges will enable many patients to obtain care they may not have been able to afford previously. That has some pretty significant business implications in terms of increased volumes for physicians, hospitals, and other providers.

Are there any other business implications for hospitals and health systems?

Kingsdale:
Yes, I think another possible benefit will be more payer-provider alignment around value-based plans and business propositions.

The exchanges will give individuals (including employees of small employers) the ability to shop for insurance. Individuals tend to make different choices than groups or employers buying on behalf of a group.

The majority of private insurance sold today is group insurance, purchased by employers. Typically, employers want a health plan that has every provider in the book. Employers don't want to buy a select network that forces employees to give up their current providers.

The downside to offering broad networks is that it is difficult to judge a health plan-and the individual providers in that plan-in terms of quality and costs. When a health plan offers access to thousands of physicians and dozens of health systems, the behavior of any one of those providers doesn't really have any major ramifications for the health plan.

For instance, let's say Health Plan ABC includes 50 hospitals, including Hospitals 1 and 2. Hospital 1 is inefficient and has low quality scores. But Hospital 1's poor performance doesn't really affect the ranking of Plan ABC. Conversely, Hospital 2 is doing a tremendous job at improving quality and efficiency. Yet, Hospital 2 is kind of lost in this broad network of hospitals that are offered by Plan ABC.

The introduction of the exchanges should add more individual purchasers into the insurance market, which will begin to change the dynamic and the financial incentives of the market. Entering this new insurance store will be newly insured individuals who may not have a provider or are willing to switch providers-if they can save on their own premium dollars. These patients will be "in play," if you will, and if they see that they can get a lower premium and good quality scores from a limited network plan, then they will likely go with that plan.

This gives hospitals and health plans a new business opportunity. Hospital finance leaders will no longer just be thinking about, "How much can our hospital extract from every health plan?" They will also think about, "How can we partner with a payer around a select network that's effectively marketed to individuals, so we can attract more individuals to our delivery system?"

A health system might approach a health plan and say, "Let's get together and offer a lower cost, higher quality alternative on the health insurance exchange. Let's offer a better value proposition. It won't appeal to everybody, but we don't have to appeal to the whole group to attract value-conscious individual shoppers."

Moreover, the small-group and individual insurance markets that exchanges are required to serve will have risk-adjustment mechanisms to help balance the premiums. Thus, some select-network health plans might even target sicker enrollees-if the health plan gets more premium dollars for them, and its select provider network excels at managing care for sicker patients in a cost-effective manner. You can save a lot more on good care management for a 40-year old diabetic than for a perfectly healthy one-if you can get more premium dollars through risk adjustment.

Now, of course, this vision is going to play out very differently from geography to geography.

What markets do you think are most likely to see a shift to more value-based select networks?

Kingsdale:
I think this change will come most rapidly to more competitive markets, versus ones that have one dominant health plan or provider system.

I've not seen as much change in the Massachusetts market in 30 years as we've seen in the last two years here. It's unbelievable. We're seeing provider systems align with health plans around a whole new value proposition for patients, which is pretty exciting.

All sorts of network-dominated health plans are popping up. For example, Partners bought Neighborhood Health Plan, which is a relatively small HMO. Steward, an old Catholic hospital system converted to for-profit, is partnering with Tufts Health Plan to offer a limited network called Steward Community Choice.

What are some challenges that you see associated with these exchanges for hospitals and health systems?

Kingsdale:
The exchanges will be like retail stores. The shelves are stocked by insurance companies that manufacture health plans. Somewhere between 80 percent and 90 percent of the cost of those health plans represent covered services purchased from medical providers.

The logic is that if the store is a big store, it'll have a significant impact on providers. If the exchange isn't very big, who cares?

If there's not a lot of volume to your state's exchange, then it may be business as usual for your hospital or health system. However, if there is a lot of demand on your state's exchange, if it affects competition among payers, if it starts to create new kinds of relationships between health plans and providers, then providers risk being "left behind" if they are not anticipating and responding to these changes.

Do you think that hospitals are going to see their payments decrease from payers as a result of the exchanges?

Kingsdale:
Yes, I think providers will experience some downward pressure. The exchanges do tend to emphasize price competition, and they will introduce more price transparency. Price-based comparisons are the easiest ones to make for individual consumers.

How do you think the Supreme Court's decision on the individual mandate may affect the launch of the exchanges? If the Supreme Court votes down the individual mandate, do you think the exchanges will still happen?

Kingsdale:
I'm not a lawyer, but what I read suggests a high probability that the individual mandate will be upheld. If so, health plans and hospitals had best be prepared.

If not, there are at least two possibilities. The first possibility is that much of the rest of Title I of the Affordable Care Act, including exchanges, remains intact, meaning that some other "fix" (than the mandate) will need to be found for the "free-rider" problem of folks waiting to get sick before they buy insurance. In this case, hospitals and health plans will still need to prepare, but I expect that any fix will not even receive serious Congressional consideration before we learn the national election results of November 2012. The second possibility is that much of the insurance reform-government exchanges included-will be invalidated along with the individual mandate because the mandate is a keystone of reform.

Almost as much uncertainty hangs over health care as over our financial markets. In such uncertainty, leaders can focus on necessary change in anticipation of likely long-term developments. These are relatively safe "bets." For example, we are going to repay the Chinese, which means the ever-escalating trend of government spending on health care will be cut. So it is not too soon to figure out how to run a leaner operation. Whether through exchanges and select-network plans or otherwise, the cost and quality of hospital services will be made transparent, so it is not too soon to focus on systematically improving both.  


Interviewed for this article: Jon Kingsdale is managing director, Wakely Consulting Group, and the former executive director of the Massachusett's Commonwealth Health Insurance Connector Authority (jonk@wakely.com)

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Publication Date: Tuesday, November 29, 2011