While Obamacare Exchanges Remain Controversial; Opportunities Exist for Commercial Insurance Exchanges

JAN 14

With the seating of the new Congress, much attention has been given to the Republican pledge to repeal Obamacare, or at least their desire to defund major parts of the Patient Protection and Affordable Care Act (PPACA). High on the list of defunding targets are the state mandated health insurance exchanges (section 1311).

The state exchanges are designed to be a marketplace where people not covered through their employers would shop for and purchase health insurance, and if qualified, would receive subsidies.  The PPACA mandates that all states must establish insurance exchanges for individuals to purchase insurance by 2014, or the Department of Health and Human Services (HHS) will establish and run the exchange for the states who aren’t compliant.

The exchanges remain one of the most controversial aspects of the PPACA because of the large unfunded mandates they place on the states, in addition:

  • The exchanges are the vehicle for supporting the Individual Mandate (the portion of the Reform Act that requires all US citizens to be covered under health insurance), and because of the very ambiguous rules legislated in the establishment of the exchanges.
 
  • Half of the U.S. State Attorneys General are suing the federal government to block the mandate to implement insurance exchanges, claiming the rules are too ambiguous, that the unfunded mandate will bankrupt the states, and that the mandate is an overreach of federal powers.
 

The national debate on healthcare and popular sentiment to make health insurance more accessible and affordable has forced the health insurance companies to re-think how they market and sell their products.  As we have spoken about many times in the last year, the health insurance market is at the forefront of a fundamental shift to a retail business model from its legacy wholesale roots.

Despite the public scrutiny being paid to the insurance exchange mandate and congressional risks to rejigger the entire legislation, TripleTree is seeing a much more interesting dynamic forming in the healthcare insurance marketplace – early steps to establish alternative insurance exchange marketplaces by commercial entities.

A commercial healthcare exchange is a private venture between one or more insurance companies and a retailer (such as Walmart), bank, property and casualty insurance company.  It could in reality, include a range of consumer-oriented entity that unite to create a health insurance marketplace.

In the individual and small group market, consumers may find much higher value (and savings) in bundled insurance products (i.e. property, auto, life and health) than they would in singulary buying health insurance in the state dictated and controlled exchange.   Complicating things, this is especially true for consumers that would not qualify for the federal or state subsidies that can only be received if insurance is purchased in the public state exchange.

Today, most property and casualty holders get a discount for carrying multiple policies from the same carrier (e.g. homeowners and auto combined might yield a 15% discount on both policies).   Our research has led to many discussions with property and casualty insurers interested in bundling health insurance though a partnership (rather than direct underwriting).  Their goal?…aggregate and manage a larger share of consumer spend on insurance products.

Similarly, we are aware of large national retailers seeking to implement a proprietary insurance marketplace of as a way of extending a service mix to their customers, building brand loyalty and retaining customers within their own pharmacies.  While some retailers may form single entity partnerships, others see themselves as a marketplace for multiple carriers competing for business.  We anticipate seeing these commercial insurance exchange marketplaces begin rolling out sometime in 2011.

Though these commercial exchanges may not solve the adverse selection problem that the PPACA exchanges were designed to address, they should prove a successful partnership for the retailer and the insurance company that otherwise has difficulty marketing directly to consumers.  While states dither and politics hinder the roll-out of the public exchanges, many forward thinking commercial business recognize the market opportunity to provide a better insurance buying experience and are moving quickly to meet a market need – the way that free economies are supposed to work.

This is a thorny, emotional issue – and our research and sell-side mandates are paying close attention as technology-based solutions emerge.

Let us know what you think and have a great week!

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Scott Donahue