This article first appeared in the February/March 2011 issue of the newsletter "States in Action."
The Utah Health Exchange is a Web portal through which small businesses can make a defined contribution—a fixed dollar amount per employee—toward health insurance, and their employees can compare and select health plans from a range of options. Employees pay the difference between the employer's contribution and the premium. This differential is smaller for lower-cost plans, and higher for richer, more generous plans.
"The Exchange is intended to give consumers more health plan choices, and give employers more control over their health insurance costs," said Patty Conner, director of the Utah Health Exchange.
In 2010, the Utah Office of Consumer Health Services within the Governor's Office of Economic Development launched the Health Exchange as a limited pilot, enrolling 11 small businesses with 116 covered lives. It has since opened to all Utah businesses with two to 50 employees, and enrolled 69 small groups with about 2,000 covered lives as of March 2011. New applications suggest the exchange will experience rapid growth over the coming year. It also began a pilot for large businesses of 50 employees or more in 2010. For those without employer coverage, the exchange offers links to insurance brokers or Web sites that sell non-group insurance.
Four of the state's five major carriers offer health plans through the Health Exchange. There are about 140 possible benefit plans offered, though the choices are limited by the plans available in an employee's area and the group size.
The Exchange's Purchasing Role
Compared with the requirements of the Affordable Care Act and the role of the Massachusetts Connector in standardizing benefit design and setting and monitoring cost and quality standards, the Utah Health Exchange's approach has been more passive, letting the private market compete under limited oversight and guidelines. Working with a very modest budget ($650,000 annual allotment from the state), administrators view their exchange as first and foremost a technical platform, whereby the state contracts with private companies that own and run the software. The vendor that operates the software receives a $6 per member per month premium add-on as its payment.
However, Utah's insurance code does have some specific requirements for defined contribution plan offerings that ensure a wide range of plans are offered in the exchange. For example, insurers must offer their five most popular plans (purchased outside of the exchange), a basic benefit plan, a plan with actuarial value at least 15 percent greater than the basic plan, and two federally qualified high-deductible plans. Beyond this, the carrier has wide latitude to offer additional variations. "This was a policy decision, to encourage carriers to try new things and offer individuals many choices," said Norman Thurston, Utah's health reform implementation coordinator.
The Utah Health Exchange site offers tools that enable consumers to view side-by-side comparisons of health plans. For example, individuals can filter or sort plans according to physician affiliation (that is, whether their physician is part of a plan's network), hospital affiliation, copayment and deductible levels, or premium levels. "Individuals can compare and select health plans based on what is important to them," said Conner.
The exchange will be adding additional consumer portal links, and its administrators are engaged with the state's Departments of Insurance and Health to develop policies for sharing quality data and cost analyses. At this time, they are not considering use of quality standards for participating health plans.
Currently, employees of participating employers can shop on the exchange portal; if they want to be considered for Medicaid or the Utah Premium Partnership (a premium subsidy program for low-income individuals), they are referred via a direct link to the Medicaid Web site. Administrators are trying to make this transfer more efficient; they do not plan to build new Medicaid or Children's Health Insurance Program eligibility tools or other major functions inside of the exchange.
Federal health reform legislation requires insurance exchanges to undertake additional activities, such as certifying health plans. "If federal requirements end up being broader than Utah's current approach, we certainly wouldn't want to be disqualified and have a federal exchange imposed on us. But our goal is to work with HHS to expand flexibility for state exchanges," said Thurston. "Ideally, we just want to do what's right for the state of Utah. We believe our private insurance system is working, and the exchange facilitates that system."
Protecting Against Adverse Selection
During the limited launch of Utah's exchange, carriers initially quoted different rates for the same health plans inside and outside of the exchange, threatening adverse selection. (Some rates were lower in the exchange, while some were higher.) "Early on we and the carriers came to the critical realization that you have to have parity inside and outside the exchange," said Thurston. As a result, Utah passed legislation in March 2010 requiring participating health plans to establish a single risk pool and charge the same rates for the same products offered inside and outside of its exchange, and standardizing various rating practices in the small-group market to take effect over 2010–13. The legislation also requires participating carriers to offer their most popular plans from the traditional market, which helps ensure that insurers do not target only high- or low-risk individuals in one of the markets.
The defined contribution model presented a risk for a new type of adverse selection within the exchange. Instead of plan selection at the employer group level, in the exchange individual employees choose their own health plans. Those with health problems may be attracted to and disproportionately select certain plans over others. To address this potential risk segmentation, the four participating health insurance carriers agreed to share the risks of all those who sign up for a plan through the exchange, through a combination of prospective and retrospective risk adjustment.
Once a small business signs up, its employees fill out a health questionnaire that insurers use to evaluate the group's overall risk. Base premiums are set by the content of each plan, but the premium goes up or down based on the group risk factor. Individuals then choose a plan, and their premiums are not affected by their individual risk. However, the health plans that enroll sicker individuals on average receive a larger share of total premiums prospectively to offset their higher expected costs. In addition, at the end of the year, the carriers share in the actual risk of the highest-cost individuals.
The exchange has a risk adjustment board comprised of carriers, business owners, and government agencies, and its decisions are subject to the approval of the insurance commissioner. The board's role is to come up with ways to manage risk, define processes, and monitor rates to ensure parity in and out of the exchange.
Utah's experience offers lessons to states planning exchanges. First, to reach small businesses, Utah found that it is crucial to engage brokers, as they drive the small-group insurance market. An exchange must educate brokers about the value and benefits of purchasing through the exchange, and offer commissions comparable to those in the outside market. Each week, Utah Health Exchange leaders meet with a different insurance brokerage firm and conduct town hall meetings to educate and interest brokers in becoming certified to sell exchange plans.
Second, exchange leaders have learned that, according to Thurston, "you don't need to build from scratch. Nearly every exchange function already exists in the private sector. You just need to facilitate partnerships and collaborate." For example, states can learn from and partner with any companies that have experience marketing and selling their products online. Third, Utah Health Exchange planners learned the importance of starting on a small scale, launching a test version of its Web portal first, working out problems, and planning to expand at a manageable rate.
For more information: Contact Patty Conner, director of the Utah Health Exchange, email@example.com, or see the Utah Health Exchange Web site.