Risky Business: What happens when only the sick buy insurance

Taking another look at health exchanges

June 29, 2012

Caroline O'Donovan

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On Thursday, WBEZ talked to lawmakers, strategists, doctors, lawyers and economists over five hours of live health care coverage. We heard from moms with sick kids who were overjoyed by the news of the upheld mandate, and we heard from conservatives so convinced that the law is flawed that they vowed to repeal it in Congress. Friday morning on Eight Forty-Eight we return to the story after a day of reflection to explore how the legislation, now that it is confirmed, will affect the insurance market going forward.

Many believe that Illinois legislators were lackadaisical about creating a health care exchange because they thought the mandate would be struck down. Now that they’re sure it will stand, it’s time to figure out what the exchange will mean and how we’ll manage to comply before the federal deadline.

One thing both of Friday morning’s guests agree on is that the exchange will almost certainly decrease the breadth of provider networks. Health Alliance Medical Plans CEO Jeff Ingrum says the penalty — or what we’ll now call a tax — "is not high enough to compel someone to buy insurance.” Healthy consumers will opt out of the exchange, flooding the exchange pool with high-risk buyers. “If you ask an insurance company to exist in a system where they can’t control their risk or plan design,” says Marcus Newman, “the only variable left for them to use is network, so I imagine they will have very thin provider networks, similar to HMOs or even more anemic.”

Newman is the small businesses director for GCG Financial, a 38-state operation that provides health care communications and consulting for over 500 independently owned companies. It’s very rare, Newman says, that after conferring, an employer will choose to buy an insurance plan through an exchange. Newman reminds us that the health insurance an employer buys for his employees is often de facto his own insurance, and that many employers would prefer to retain their current doctors and networks.

Ingrum says that while Health Alliance has not yet settled on a final strategy, they are prepared for the transition. He does expect “narrower networks” as well as a “less rich product design,” and further, that Illinois will end up with a federally facilitated exchange, not a locally managed one. Many opponents to the ACA predict a decrease in the efficiency of the markets if they are no longer locally managed. A press release from the National Federation of Independent Businesses said, “the ruling guarantees that Illinois residents will have their most personal health care decisions made by politicians and bureaucrats in Washington and in other states whom they’ve never met and whom they’ll have a hard time influencing in the future.”

One major question small  business owners will have in the coming days, Newman predicted, is what the cost of the exchange will be -- a question says nobody will have an answer to for a long time. Newman will be offering what advice he does have for employers as he chats with Richard Steele Friday morning, and we’ll ask Jeff Ingrum for specifics on how insurance companies plan to proceed now that the mandate is here to stay.