Insurance Exchange Early Glitches Ultimately Won’t Matter

September 26, 2013

Many credible people are worried that the ObamaCare insurance exchanges will be an operational nightmare for both health plans and consumers–riddled with technical glitches,  misquoted prices, and delays in determining member eligibility and subsidy levels.

Some–like Daniel Henniger in today’s Wall Street Journal–are actually hoping the exchanges crash and burn.  ObamaCare’s Achilles’ heel, he writes, is technology.

The software glitches are going to drive people insane….ObamaCare’s software has to communicate—accurately—across a mind-boggling array of institutions: HHS, the IRS, Medicare, the state-run exchanges, and a whole galaxy of private insurers’ and employers’ software systems.

All indications are that there will be a lot of technical problems when the exchanges open up for business on Oct. 1.  But in the end, they won’t matter.  Why?  Because lots of people will be getting pretty good health insurance for a very low cost given subsidies.

I always harken back to research from Harvard University professor Robert Blendon, who once offered a provocative assessment of public attitudes toward managed care after the first HMO horror stories started to emerge.

Blendon pointed out that the HMO backlash of the 1990s actually occurred as overall customer satisfaction with HMOs was pretty high.  His conclusion: people are willing to endure obtrusive administrative barriers and other annoyances as long as they aren’t denied care when they are really sick.

Likewise, I think people will ultimately endure the frustration caused by the early–inevitable–kinks in these complex exchange systems, as long as in the end they aren’t denied decent coverage at an affordable price.


Good News on Exchange Rates from HHS

September 25, 2013

There’s good news from HHS on health insurance exchange premiums in 47 states and Washington, DC: The rates are 16% lower than expected on average, and that’s before subsidies are taken into consideration.

The report shows that a 27-year old living in Dallas who makes $25,000 per year will pay $74 per month for the lowest cost bronze plan and $139 per month for the lowest cost silver plan, taking into account tax credits.  And he or she will be able to choose from among 43 qualified health plans. For a family of four in Dallas with an income of $50,000 per year, the lowest bronze plan would cost only $26 per month, taking into account tax credits. The majority (around 6 out of 10) of the people uninsured today will be able to find coverage for $100 or less per month in the Marketplace, taking into account premium tax credits and Medicaid coverage.

The bad news–as illustrated in states like California–is that the young and healthy will see premium rates increase; although the elderly see rates decline.  There’s also the fact that cost sharing in exchange plans is relatively high–at least relative to employer-sponsored coverage–according to an analysis by Avalere:

For an individual enrolled in a Silver plan, the average annual deductible before any plan coverage begins is more than twice the average deductible in employer-sponsored coverage. Most exchange plans also rely on coinsurance for non-preferred brand drugs and higher-cost specialty drugs, with average patient contributions around 40 percent of the drug cost. However, there is a ceiling to exchange enrollees’ annual out-of-pocket costs, which is $6,350 for an individual.

In other words, exchange plans offer low-cost (read: subsidized) coverage, choice, a highly regulated minimum benefit level, protection against catastrophic events and skin-in-the-game (i.e., incentives for patients to control spending).  It’s almost like the type of program both liberals and conservatives could support.

BCBS-NC is Ready, Able and Worried About Exchanges

September 24, 2013

Alan Hughes, chief operating officer of Blue Cross Blue Shield of North Carolina, gets high marks for clearly outlining the opportunities, challenges and concerns around health insurance exchanges as his organization readies itself for the launch of the ObamaCare marketplaces.

Hughes spoke this month at CRG’s Health Insurance Exchange conference in Boston.  His biggest fear: that consumers will have a bad experience because of a lack of readiness on the part of the federal government and by extension blame BCBS-NC for the shortcomings.  (North Carolina is a federally funded exchange state).

He quipped that maybe one of the reasons why large national health plans are approaching exchanges with caution is that they want early adopters to take the heat from a deficient launch and then ride in later after the kinks are out and offer an improved experience.

Complete coverage of Hughes’ remarks and other conference coverage appear in this week’s issue of Health Plan Market Trends.

Medicare Controls Price, Health Plans Control Utilization, Medicaid Controls Both

September 24, 2013

Via The Incidental Economist:


Medicaid Cost Trends

FL, OH, MO Undercut ObamaCare Exchanges, Report Say

September 18, 2013

From the New York Times:

As many states prepare to introduce a linchpin of the 2010 health care law — the insurance exchanges designed to make health care more affordable — a handful of others are taking the opposite tack: They are complicating enrollment efforts and limiting information about the new program.

Chief among them is Florida, where Gov. Rick Scott and the Republican-dominated Legislature have made it more difficult for Floridians to obtain the cheapest insurance rates under the exchange and to get help from specially trained outreach counselors.

Missouri and Ohio, two other states troubled by the Affordable Care Act, have also moved to undercut the law and its insurance exchanges, set to open on Oct. 1. In Georgia, the state insurance commissioner, Ralph T. Hudgens, has said he will do “everything in our power to be an obstructionist.”

BCBS Plan Pricing Moderates, Margins Improve

September 16, 2013

From Citi:

Blue Cross pricing continued to moderate in the second quarter — The change wasn’t extreme, but rates in the commercial group market rose 1.8% in the second quarter on a per member per month (PMPM) basis, down from the 2.2% increase reported in the first quarter….

Everything else being equal, we’d expect to see pricing from the Blues improve in the second half of the year — The impact won’t be significant, but assuming the Blues pass the 2014 health insurance industry tax onto customers, it should result in slightly higher PMPM rates over the next two quarters.

 Even with the lower price increase, margins at the Blues have improved — The non-profits have also benefited from favorable utilization, with the medical loss ratio in the first half of 2013 improving 70 basis points, to 82.5%, versus the same period a year ago. Pricing is up an average of 2.0% on a PMPM basis, relative to a cost trend of 1.1%….

Risk membership at the Blues has stabilized over the last year — Last year, enrollment fell 50,000 lives, a drop of 0.3%, and enrollment has fallen another 50,000 lives so far this year. That’s not great, but it’s far better than the significant risk enrollment declines reported by the publicly traded peers.

BenefitFocus IPO Just Keeps on Giving

September 13, 2013

(Reprinted from the Sept. 9 issue of Health Plan Market Trends).

BenefitFocus (Charleston, SC), which is seeking to raise up to $127 million in an initial public offering, revealed in a securities filing mounting losses and a few of those uncomfortable disclosures that should make investors think twice.

For starters, the offering is for 4.5 million shares at between $21.50 and $24.50 per share before underwriters’ commissions.  BenefitFocus is offering 3 million of the shares and selling shareholder Goldman Sachs—which owns 66% of the company—is offering 1.5 million.  That means a third of the proceeds from the offering after underwriters’ commissions go to Goldman.  BenefitFocus will use its share for working capital and to fund expansion.

Goldman is also the lead underwriter.  Assuming the sale of another 675,000 shares by the selling shareholder—i.e., Goldman—to cover over-allotments, then about 42% of the proceeds after underwriters’ commission would go to Goldman.

Goldman would still control BenefitFocus after the IPO, with nearly 52% of outstanding shares.  BenefitFocus chairman Mason Holland and chief executive Shawn Jenkins would still own 12% each after the offering, and Oak Park Investments would own 10%.  All told, the directors and executives of the company would own about 82% of shares following the IPO.  Of 24 million outstanding shares after the IPO, 19.8 million would be restricted.

‘Material Weakness’ in BenefiFocus Accounting

Here’s another tidbit.  According to the IPO filing, BenefitFocus “identified a material weakness in connection with preparation of our 2012 financial statements.”  BenefitFocus offers private exchange software and other technology that helps people evaluate health coverage options and manage their benefits.  Its clients are employers and health plans.

Because its platform is sold on a subscription basis, recognition of revenues is spread over the life of a contract or estimated length of a relationship with a client.  In 2011, the company increased the estimated length of certain relationships—forcing it to spread its deferred revenues out over a longer period.  The upshot: lower-than-expected recognized revenues and higher-than-expected losses in 2011 and 2012.

BenefitFocus reported a net loss of $15.2 million though six months of 2013, up from $10.4 million a year earlier.  Combined net loss for 2010 through 2012 topped $32 million.  Without the material weakness, net loss would have improved by $5.8 million in 2011 and $2.8 million in 2012. Accumulated deficit is $187 million.

Here’s more.  BenefitFocus rents office space for its corporate headquarters in Charleston, SC, from Daniel Island Executive Center—with nearly $48 million in payments still due over the life of two 15-year leases expiring in 2021 and 2024.  Holland owns Holland Properties, which owns a majority of Daniel Island Executive Center.  Jenkins owns the rest.  Holland also owns a majority of North American Jet Charter Group, which provides chartered jet service to BenefitFocus.

Insurer and Employer Segments

BenefitFocus has two segments.  Its insurer segment accounts for more than 60% of revenues and was profitable from 2010 through 2012; although it slipped into the red through six months of 2013.  The employer segment, which has been growing at a much faster pace, accounts for the remainder of revenues.  Losses in the employer segment topped $12 million through six months of 2013.

Clearly, this is a company that needs to sell investors on its growth potential. Through six months of 2013, revenues were $48.2 million, up 25%.  For the full year 2012, revenues were $81.7 million, up 19%.  The company had 37 insurer clients, up 12%, including Aetna, Blue Cross Blue Shield of Kansas City, BCBS of South Carolina and WellPoint.  It also had 348 employer clients as of June 30, 2013, up 46% from a year earlier, including Bon Secours Health System, Brooks Brothers, Columbia Sportswear and Fender Musical Instruments.  The company says it had served 20 million consumers on its platform as of June 2013.

It’s a promising market, but also a highly competitive one.  BenefitFocus lists as competitors in the employer space software vendors SAP, Oracle/PeopleSoft and Infor/Lawson; the private exchanges of Aon/Hewitt and Towers Watson; and payroll companies like ADP and Paychex.  In the insurance market, competitors include traditional payer vendors like Trizetto and DST Health Solutions—as well as the plans themselves, many of which have built internal benefit management solutions.

On the bright side, BenefitFocus has very little debt.  But all-in-all, this is an IPO that’s hard to get excited about.



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