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Questions About Health Insurance Exchanges

2013 June 18
by Tim Thompson

Daniel asks…

How are Hospitals Responding to Health Insurance Exchanges?

I’m researching for a paper the topic of health insurance exchanges, a prominent component of the PPACA. Does anybody know how hospitals have responded to or prepared for health insurance exchanges? Any news articles from hospital or healthcare officials who have shed light on how these will exchanges will/have affected them? Thanks!

Tim Thompson answers:

There have been no articles about hospitals and the effect of exchanges, however, health care reform will have a big impact on hospitals.

The health reform act, is requiring that hospitals change the way they work. The new emphasis is on improving the post-discharge results that hospitals achieve. The reimbursement that hospitals receive for providing medical services to patients is shifting from a fee-for-service model to a fee-for-results model. In the fee-for-results model the hospital gets additional reimbursement if they can reduce and minimize the re-admission rates of the patients that are discharged after being admitted to the hospital.

Donald asks…

Why do Republicans oppose state regulated private insurance exchanges?

The Obama administration on Monday released broad new operating rules for state-run health insurance exchanges, which form a key part of the 2010 federal healthcare reform law that will face landmark Supreme Court hearings in just two weeks.

Industry and consumer groups welcomed the regulations, saying they provided states with the flexibility necessary to meet consumer needs for choice and quality protections. They also said the regulations shift policy focus to the state level, where the new rules must be implemented.

Both the insurance industry and consumer watchdog groups approve of the state-run exchanges, which will help reduce costs and provide insurance to millions.

Why do Republicans oppose this?
— The federal government plays a negligible role
— private insurance companies still provide the insurance
— the states have control over the exchanges
— The exchanges open markets for private companies to provide insurance across state lines
— and costs are being reduced.

All of these things republicans supported in the past. Why do they oppose it now?

Tim Thompson answers:

The Republicans’ don’t oppose health care reform as a principle. They oppose the ObamaCare version of health care reform.

Republicans approach things from a business and economy standpoint. Free markets can provide products, services, and benefits better and more efficiently (lower cost) than governments. The current health care reform regulations are a step in the right direction, but they overlook numerous “unintended consequences.” The most recent being the retreat of Aetna from the California health insurance marketplace.

By limiting the oversight of health insurance to states, we lose the ability to create a country-wide health insurance marketplace. Therefore, each state becomes its own little battleground in the individual health insurance market.

Insurance is possible because of “the law of large numbers.” In health insurance this means that an insurance company can accurately predict what their costs will be if they have a large enough group of subscribers in their plan. By breaking the US in smaller state markets, the accuracy of prediction goes down.

The side effect of this is that in small states, there will probably be only 1 surviving health insurance company in order to reach a sufficient subscriber base to allow accurate prediction of costs. Therefore, competition will probably be reduced to only a few large companies in the next 10 years.

How is that going to increase competition and lower health insurance prices. It won’t. Therefore ObamaCare needs to be fixed before it’s too late.

Part of Obamacare that kicked in on January 2012 is the requirement for insurance companies to spend at least 80% of the money they get in premiums on providing health care. Many industry experts believed this was impossible! However, the insurance companies were able to achieve this level of spending in only a year, by slashing the commissions they pay to health insurance brokers.

This has caused many brokers and agents to leave the market, and that will make the roll out of the exchanges this year much harder. Most people don’t want to learn about health insurance. They prefer to get recommendations from an independent broker.

ObamaCare initially put a target on brokers’ backs and tried to cut health care costs by eliminating the middle-man that Americans rely on. The Exchanges now realize that brokers are vital to their success, and the Obama administration is starting to get the idea also.

Lisa asks…

What are your thoughts on Government control of Health Care?

“Proponents of government competition in a “national health insurance exchange” claim that it would enhance personal choice and health plan competition. That is highly unlikely. Rather, such a system would impose federal control over virtually every aspect of private health insurance, rendering it virtually indistinguishable from government insurance except for its direct financing. Congress would become increasingly prescriptive over benefits, the adoption of medical technology and new medical procedures, the pricing of these items, and the mechanism that plans may or may not use to manage health care risks. In other words, hardly any aspect of private health plans’ business operations would be free from government regulation and control. That is not a prescription for health care choice or competition.”

Government as “Competitor”: The Latest Prescription for Government Control of Health Care

Tim Thompson answers:

It either won’t work, or it will take a number of years before we get to a government controlled health plan.

As I have said before, the current health care reform regulations will cause competition in each state to shrink to just 1 – 3 health insurance companies. People will start to see that ObamaCare is not working from a competitive standpoint. At that point, the federal government will step in and introduce the “public plan” into every state health insurance exchange.
State Health Insurance Exchanges as of May 282013
How is that possible? In October of 2013, the government will be running the exchanges in most of the states. The strategy is to introduce a “public plan” in those exchanges alongside the plans from the health insurance companies.

Unlike insurance companies, the government can have large losses and print money or borrow to cover it. Over time the “public plan” will reach the tipping point where the “law of large numbers” kicks in, and they will be able to price the health insurance companies out of the marketplace.

As the state-run health insurance exchanges loose competition from the smaller insurance companies, the feds will insert the “public plan” into those exchanges as well. When that happens it’s only a matter of time before we end up with only a “public plan.” Ultimately there won’t be competition….

Chris asks…

Will president Obama make the health plan of members of congress available to all americans?

I’m a little confused about Obama’s health care plan. Now that he’s the next president I’d like someone to explain his health care plan to me like you would explain it to a 4-year old. I read that he wants to create some kind of a National Health Insurance Exchange which sounds a little strange to me (I hope I’m the only one?). How would this make health care more affordable?

Tim Thompson answers:

The initial plans I’ve read about are that the “public plan” the federal government will introduce on federally controlled health insurance exchanges will be based upon the plan that congress uses.

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