So, What's Your Exchange Policy? [Part 1]

Bob and I recently participated in a conference call, brainstorming about the potential for "defined contribution" health insurance plans. So, what's a "defined contribution" (DC) plan? It's pretty simple, really: instead of your employer choosing your health insurance plan, he gives you a "voucher" to buy whatever policy suits your particular needs.

I know, makes way too much sense; why is this "new?"

Some companies offer "cafeteria" plans which are, in essence, DC plans: the employer says "here are 6 plans from which to choose, I'll kick in $100, you pay the rest." The problem is that not every employer can afford to offer such plans (there are admin and other costs associated with them, in addition to the premiums), and some carriers don't offer multiple plan designs within a given group, or allow employers to offer plans from multiple companies.

So along come "Exchanges;" most notably, that which is part of RomneyCare and, of course, those planned for '14 under ObamaCare�. We've seen how "well" they work in the former, but one wonders if there isn't a better model.

The Beehive State thinks there is.

After the aforementioned conference call, I contacted the folks at the Utah Health Insurance Exchange; Patty Conner (the Director) and Sue Watson (the Project Manager) both graciously agreed to an interview to help explain the program to our readers. We'll focus here primarily on the small group (2-50 lives) market:

InsureBlog: How many businesses have registered, and then how many of those actually signed up for a quote? (And of those who did, how many indicated they had a broker?)

Patty/Sue: For the plan year beginning 2010, we had 11 groups in the program. For 2011, about 220 or so businesses �tested the waters.� All 11 of the class of �10 re-upped, and 31 additional groups came on board, bringing the total participating to 42 groups as of January, 2011.

But: last year businesses could only sign up for January; this year it�s �rolling,� and we�ll have 69 groups �live� as of March 1rst.

We�re seeing continuously growing interest as more employers become aware of the existence and benefits of the program.

Almost all of these groups, by the way, have and use brokers/agents throughout the process.

IB: How do you get around the adverse risk of carriers saying "hey, we may lose some money with sloppy underwriting, but we'll just nick Humana and UHC for the diff?" Also, can an employer offer more than one carrier? If so, what about participation issues?

P/S: �Uncommon Knowledge:� Utah first started working on this in 2005, looking to add economic value for small businesses in the state. We collaborated with business, insurers and agents in developing the program.

Unfortunately, the information on the website really doesn�t accurately reflect how the program works [ed: more on this in a bit]. The process isn�t complicated, but it does take some time.

There are (currently) four participating carriers. When an employer chooses to �try out� the program, he submits standard group information (name, address, EIN, number of employees, number of eligible employees, etc). Assuming the group meets participation requirements (e.g. a group with 20 employees but only 5 covered employees wouldn�t fly � just as in the �open market�) then the case is randomly assigned to two of the carriers.

At that point, employees go online and complete industry-standard enrollment forms (names, socials, medical history, etc) and these are forwarded to the two assigned carriers. The carriers pore over the information, and assign a rating class (aka rate factor) to the group. The two carriers� rate factors are then averaged (there�s a dispute resolution system in place if there are problems at this point). The averaged factors are then sent to all four participating carriers, which apply them to their standard (�street�) rates.

This is an �all-in� deal: a participating carrier can�t take a �pass� on a given group. So all four submit their rates for the plans they�ll offer and this is sent to the employer. It�s possible that in a given group of, say, 10 people you could have 10 different products chosen, and 3 or even all 4 carriers in that group. And remember, this is �all-in� so they have to live with that.

The key is that the carriers know this going in � remember, they helped design the program. It�s the free market at work. We like to say that our role is to �facilitate, not mandate.� [ed: I am so stealing that!]

In Part 2, we discuss how these plans work and play with Health Reimbursement Arrangements and similar �alternative benefits.� There�s also be a quick peek at large group plans and (of course) ObamaCare�. And to wrap things up, we offer our conclusions and some food for further thought.