State and federal agencies are spending a fortune to create and market the public exchange system. Health insurers and drug store companies are marketing it. Hospital company executives are promising securities analysts they will push uninsured patients to sign up.
Assurant Health is selling qualified health plan (QHP) coverage through 16 exchanges (up from none last year) during the first Patient Protection and Affordable Care Act (PPACA) individual health insurance open enrollment period. UnitedHealth is selling QHPs through 23 exchanges (up from four a year ago).
At press time, the public exchanges and their QHP issuers seemed to be getting the second annual PPACA open enrollment period off to a smooth start. Consumers could enter information through an automated system, most of the time, and get intelligible answers back, most of the time. As of Dec. 3, the public exchange QHPs had brought in about 760,000 paid 2015 enrollees, according to ACASignups.net. Applications for coverage starting Jan. 1, 2015, were not due until Dec. 15, and the open enrollment period was set to run until Feb. 15, 2015.
The respectable performance of the exchange system has raised disquieting questions in the minds of traditional health insurance producers. For instance, if the public exchange system can "ditch the glitch," will insurers keep issuing individual policies outside the exchange system after 2015?
Can ordinary producers stay in the game? If ordinary producers can stay in the game, how?
The first modern exchanges were the "health insurance purchasing coalitions" (HIPCs.) Health producers had an easy way to beat the HIPCs: Wait for them to implode.
The HIPCs usually attracted business by offering small groups, individual consumers or both access to health coverage without medical underwriting, or with only limited medical underwriting. Low-risk customers would soon leave to get cheaper coverage elsewhere.
Many of the most complicated and controversial provisions in the PPACA commercial health insurance rules — such as the ban on use of personal health information in decisions to issue coverage, the ban on use of personal health information other than age and tobacco use in decisions about the price of coverage, the standardized essential health benefits (EHB) package, the coverage metal level system, and the mysterious "three R's" risk management programs — exist at least partly to make the existence of a long-lasting health insurance exchange actuarially feasible.
Vermont and the District of Columbia have tried to add a defensive layer by requiring issuers of all new individual and small-group major medical coverage to write the coverage through their public exchange systems — even when the buyers are using brokers. But one reason why there are so many defenses, and such complicated defenses, is that the HIPCs had such a long, rich history of failure.
Here are seven reasons why the individual market players outside the public exchange system may still be able to outmaneuver the new PPACA HIPCs, or at least carve out a lucrative, stable market of their own — reasons why this may be the start of a rebirth of the off-exchange individual health insurance market, at least in states that let the off-exchange market continue to exist.
1) The market has nowhere to go but up
The individual health market had some appeal for independent health insurance agents and brokers, but it's been ailing for years. Enrollment in employer- sponsored group plans has shrunk, but U.S. employers were still providing coverage for about 169 million people, or 53 percent of the total U.S. population, in 2013, and Medicaid and the Children's Health Insurance Program have been covering a rapidly growing percentage of Americans under the age of 65.
The share of people depending on individual insurance for coverage fell to only 11 percent, down from 14 percent in the mid-1970s. In 2012, only 3.6 percent of U.S. residents were counting solely on individual health coverage, according to Census Bureau figures.
The individual market faced the risk that only people with severe health problems would bother to apply for coverage and pay for it. Efforts to tighten application reviews, and reviews of claims filed by relatively new enrollees, led to the widely publicized policy rescission wars in California. Insurers may have won many of the rescission battles in the legal courts, but they had a tougher time in the court of public opinion.
Issuers tried to limit risk by clinging to coverage exclusions left over from earlier medical insurance epochs, such as exclusions for maternity coverage and for mental health services. Some carriers continued to take the individual market seriously, but many national players left it, and the producers in the market have complained for years about falling commission levels.
2) Low income households
The PPACA public exchange system is designed mainly to appeal to low-income consumers who had a hard time paying for individual coverage on their own even before PPACA came along.
The PPACA public exchange system can offer some subsidies for consumers who earn from 250 percent to 400 percent of the federal poverty level, but the subsidies for the consumers in that income bracket are not worth much. Most of the consumers who get significant exchange subsidies are earning less than 250 percent of the federal poverty level. Few of those consumers could afford to pay for their own major medical coverage before the exchange system came to life.
The remaining players in the off-exchange market may be in about as strong of a position to compete for consumers with incomes over 250 percent of the federal poverty level — aka, the consumers who have been in the commercial individual health insurance market all along — as they were before 2014.
3) Positive side effects
The PPACA commercial health insurance rules that apply to off-exchange coverage could make selling off-exchange policies easier — especially to the higher-income, better-educated consumers who can afford to buy coverage outside the exchange system.
See also: Overall private health insurance use rises.
