Maximizing enrollment in insurance exchanges is essential

Massachusetts’ Connector, operational since 2006, is the prototype for PPACA’s insurance exchanges. Connector boosters have claimed it is a vital and successful part of Massachusetts’ health care reform; its critics have noted its failure to influence either benefit or administrative costs or to attract significant enrollment. However, whether success or failure, the Connector offers lessons for other states.

Low enrollment means failure

As Massachusetts discovered, it’s impossible for the exchange to influence premium rates without a significant share of the small group and individual markets. Massachusetts succeeded with its subsidized plans, where it was the dominant purchaser, but not with its unsubsidized plans. Insurers will see no reason to risk cannibalizing their non-exchange business by offering especially competitive rates within the exchange if the potential enrollment is too low to be attractive.

Low enrollment also means high per capita administrative costs. Implementation expenses ($25 million for the Connector) will be politically unacceptable unless substantial enrollment can be guaranteed, while ongoing operating costs spread over too few enrollees could make the exchange noncompetitive with non-exchange offerings—resulting in even lower enrollment.

Massachusetts attempted to make individual coverage less costly (and therefore more attractive) by combining individual and small group markets. This creates a larger enrollee risk pool, and greater per plan enrollment, but results in higher small group rates.

PPACA exchanges should gain from being the only sources for those receiving premium subsidies, with subsidized and unsubsidized enrollees expected to choose from the same menus of plans (unlike the Connector). However, competition from non-exchange plans may be significant since PPACA puts few limits on such offerings, other than to require that premiums be the same if the identical plan is offered through the exchange, and to require that exchange and non-exchange enrollees be part of the same risk pool.

Enrollment must be attractive, easy, and fast

To maximize enrollment, exchanges must compete successfully with individual insurers. To overcome the government agency stigma, exchange enrollment processes must be exceptionally well-designed to attract potential enrollees (and supported by advertising), be easy to navigate (while providing the information needed by enrollees), and fast (so enrollees don’t quit before enrollment is completed).

Massachusetts’ Connector website provides a good model for plan selection and enrollment by non-subsidized individuals, but could require considerable modification for a state with more plans, and to attract small employers (few of whom have chosen to use the Connector).

PPACA’s subsidized enrollees will present problems because of the need to review income and other details. Exchanges will have an effective monopoly of this group, but enrollment will be a two-step procedure, as in Massachusetts, separated by a—possibly lengthy—state and federal subsidy determination process.

Price competition is essential

Massachusetts’ Connector (and also California’s 1.3 million enrollee CalPERS public employees exchange) shows that people tend to choose lower cost options IF they can easily compare premiums and benefits. Such comparisons are essential to controlling the costs of coverage and—eventually—medical care.

The Connector (and also CalPERS) offers limited menus of plans, with benefits defined by the exchanges. This reduces the complexity of plan choice and—in theory—means that enrollment isn’t spread so thin that it becomes insignificant to individual plans.

PPACA exchanges may encounter pressure to include the products of every licensed insurer in the state or region, and to allow variations from standard benefits. Insurers may also attempt to cherry pick outside the exchanges by offering products aimed at the best risks, while trying to finesse PPACA’s risk-pooling provisions. Allowing such flexibility would undermine any potential that exchanges have for controlling health care costs.

Exchanges must be activist

Massachusetts took an activist approach to exchange operation, including specifying allowed coverage options and providing a website that readily allows price comparison. Similarly, CalPERS has worked closely with insurers to provide affordable and comparable options. (In contrast, Utah’s so-called exchange offers little more than would be provided by a Google search on “health insurance.”)

PPACA gives exchanges a lengthy list of responsibilities, including requiring that an exchange provide “standardized comparative information on plans,” and that it assign a “quality and price rating.” However, the law is silent on key issues like the exchange’s ability to determine which insurers and which products are to be included, or exactly how they are to be compared, or whether restrictions could be imposed on competition between exchange and non-exchange products.

Without a strong activist approach, exchanges will provide no incentive for insurers to control their own costs or the costs of their contracted providers—and their success will still be dependent on meeting enrollment and price competition goals.

Roger Collier is a consultant specializing in health care policy issues who blogs at Health Care Reform Update.

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  • Finn

    As a self-employed individual who uses the Massachusetts Health Connector, I can tell you that it is not terribly well-designed. You can only compare 3 plans at once, and the process of returning to the options page to select other plans for comparison is tedious. Your payment options are limited to mailing a check far in advance of the month of coverage (I received a bill yesterday for February) in response to a paper bill that fails to indicate which month you’re paying for, or giving the Connector access to your checking account for direct withdrawal, which works fine until you decide to change plans because the one you had jacked up the price (as happens every year) and lowered the coverage, at which point the only way to change the amount the Connector withdraws from your account is to cancel the auto withdrawal, write a check for the first month of coverage under the new plan, then sign up for auto withdrawal again. When I had to do that I couldn’t even cancel my own account; I had to call the Connector and get a supervisor to do it for me. You can’t pay online because you can’t pay by credit or debit card, so when you choose a plan you still have to mail in a check. It is a royal pain in the neck and I hope that no other state uses it as a model.

  • doc99

    You have to pass the bill before you can find out what’s in it. Nuff said.

  • ninguem

    Hey Finn, since you’re in The Bay State, and have shopped insurances, maybe you can share some experience.

    How about obtaining the HDHP, the high-deductible health plans compatible with HSA’s? Are they available for you, as an individual plan, or in an association, or group plan?

    As the Massachusetts system was being put together, I was left with the feeling they were trying to eliminate HSA’s, or deliberately make them so uncompetitive that they would disappear.

  • Trish Soule

    Why is the government giong into the distribution business?

    There are exchange models out there all over the place in the private sector that work extremely well. (see or

    Why are tax dollars subsidizing the creation of new online exchanges when old ones already exist without the use of taxpayer funds?

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