Challenges, Opportunities of Health Exchanges, New Insureds

The 12 million Americans expected to begin enrollment in health insurance exchanges next year represent a customer base of new insureds with a demographic profile and health needs that differ from those of the current insured population, according to a new report.

Also, as the November 16 deadline approaches for states to say if they plan to establish a health insurance exchange, it looks like more states are likely to involve the federal government than previously expected, according to the same report from PwC’s Health Research Institute (HRI).

According to the report, “Health Insurance Exchanges: Long on Options; Short on Time,” 13 states and the District of Columbia have announced that they will run their own exchanges. PwC’s HRI projects that a majority of the remaining 37 states will have the federal government directly involved in running their exchanges. Eight states have already chosen to have a federally-facilitated exchange, while three have selected an approach that divides duties in a state/federal “partnership.”

States have two major decisions to make this fall that could have a big impact on this group’s patient care a decade from now: whether to expand Medicaid coverage and how to create an open insurance marketplace that meets their needs.

“Newly-created exchanges represent the biggest insurance expansion since Medicare in 1965,” said Kelly Barnes, PwC US health industries leader. “The exchanges will serve a group of people who may be purchasing insurance for the first time. Companies seeking to capture this new customer base must work quickly to understand the distinct needs of this group and develop ways to communicate with them in clear, understandable terms.”

According to PwC analysts, state-based exchanges will create an “irreversible shift in the insurance market that ultimately changes the way medical care is sold in the U.S.” For the insurance industry, they represent a major business opportunity –a market that will translate to $205 billion in premiums by 2021, according to PwC. The size of the exchange market will vary depending on states’ decisions to expand Medicaid eligibility to 138 percent of the federal poverty level, an option granted by the Supreme Court ruling in June.

PwC’s HRI analyzed two federal databases to draw a portrait of the total 30 million Americans under age 65, who will stand to gain coverage under the Affordable Care Act by 2021. PwC’s HRI analysis found:

• Close to one-third will gain coverage through Medicaid, 45 percent will shop on the exchange and nearly a quarter will enroll in employer-sponsored plans.

• A majority will enter the healthcare system relatively young and single, though significantly less educated and more likely to be unemployed or underemployed than the current insured population.

• They will have a median age of 33, and 88 percent report being in relatively good health today. More than 85 percent do not hold a college degree; 42 percent are employed full time; approximately 30 percent consider English a second language.

• They will have a median income of about $38,263 for a family of four, or 166 percent of the federal poverty level .

Because of income fluctuations, PwC experts expect many newly-insured Americans will cycle between Medicaid and subsidized exchange coverage – a phenomenon known as churn that makes continuum of care a challenge.

“Serving a less educated, ethnically-diverse population that is more likely to cycle on and off government support will require creative outreach programs, more targeted products and stronger ongoing customer support,” said Ceci Connolly, managing director of PwC’s HRI.

Operating in exchange markets may not be easy for health care companies and insurers because of the unique characteristics of the population, according to the HRI report. The structure of the exchanges and the composition of the market will vary by state and carry significant implications for the health sector.

The report outlines key considerations for states, insurers, hospitals and physician groups, pharmaceutical and life sciences companies, as well as employers. For example:

• Uppermost on the minds of many insurers are the issues of pricing and risk selection. At first, insurers on the exchanges are likely to compete based primarily on price. However, as exchanges mature, health plans will need to differentiate themselves beyond price to maintain loyalty of existing members and attract new ones. Because of the distinct health needs of the exchange population, large insurers and Medicaid Managed Care plans that already have experience dealing with the needs of low-income, less-educated populations may have an early advantage.

• Expansion of coverage means doctors and hospitals will have many more paying customers. But the new patient population is more likely to have difficulty with English, be unaccustomed to navigating the health system and have undiagnosed conditions. Provider-owned health plans and accountable care organizations will be well positioned because of their ability to coordinate care, support and services across a network of providers.

• Pharmaceutical and life sciences companies will gain new customers under the law’s insurance expansion. However, states will have considerable flexibility in defining the requirements that participating plans must follow when designing their benefit structure and formularies. More limited formularies could further up use of generic medications. Manufacturers will have to account for state-level variation when developing strategies.

• Employers must decide whether it will be more economically feasible to offer coverage to their employees or pay a penalty and direct workers to exchanges. Tax benefits and competitive factors are among the considerations.

The concept of an insurance exchange is not entirely new. Private purchasing exchanges exist today and are run by insurers or third parties. These private exchanges are in many ways the precursor to public exchanges, and in the future may create an alternative both for employers and for individuals who do not qualify for government-subsidized insurance.

PwC’s HRI report includes a chart depicting the demographic profile of the newly insured population compared to the current insured population. The report is available here.

Source: PwC HRI