ANALYSIS: Insurance exchanges tilted toward health insurers, not consumers

Introduction

The insurance industry made it abundantly clear this week that it is in the driver’s seat—in both Washington and state capitals—of one of the most important vehicles created by Congress to reform the U.S. health care system.

The Affordable Care Act requires the states to create new marketplaces— “exchanges”—where individuals and small businesses can shop for health insurance. In the 15 months since the law took effect, insurers have lobbied the Obama administration relentlessly to give states the broadest possible latitude in setting up their exchanges. And those insurance companies have been equally relentless at the state level in making sure governors and legislators follow their orders in determining how the exchanges will be operated.

When Health and Human Services Secretary Kathleen Sebelius announced the proposed federal rules governing the exchanges on Monday, insurance executives must have been doing high fives all over the country.

Insurers had several main objectives. First, they did not want the feds to require states to negotiate with health plans on price and benefit design. And they did not want plans that failed to meet certain criteria to be excluded from the exchanges. Insurers did want the states to feel free to appoint people with ties to the industry to run the exchanges.

Consumer advocates didn’t think they had much of a chance of denying insurers their first two wishes. But they hoped HHS would at least agree that allowing health insurance executives to serve on exchange boards would create a ‘foxes-guarding-the hen-house’ disaster that lawmakers never intended.

Nowhere are consumer groups more dismayed by the Obama administration’s proposed rules than in Colorado, where lawmakers passed a bill that explicitly prohibits the state exchange from negotiating with health plans and where the governor and legislators have just packed the exchange board with industry executives and allies.

I can’t say I’m surprised with most of these developments. During a visit to Denver in March, I heard a member of one of the legislative committees that helped draft the bill say at a public forum that Colorado’s exchange should offer the state’s residents “bad choices as well as good ones.” The state had no obligation, in her view, to inspect all the apples in the health insurance barrel and throw out the bad ones.

A majority of her colleagues agreed with her. As the bill worked its way through the legislature, free market ideology trumped the real world need to protect the state’s residents from unscrupulous and profit-motivated insurers.

I was surprised, though, when Gov. John Hickenlooper, a Democrat, joined Republican legislators in appointing industry executives to the exchange board. Hickenlooper got to appoint five of the nine board members, and several of his appointees, actually, tilted the board solidly in favor of insurers.

Five of the nine board members appointed by the governor and legislative leaders have either direct or indirect ties to the industry. Of the other four, one is an accountant and another is a doctor who has been a vocal critic of health care reform and the very idea of state exchanges. (As you might guess, he was appointed by a Republican, Senate Minority Leader Mike Kopp, who also was opposed to creating a state exchange.) Only two of the nine have been active proponents of reform and champions of consumer interests.

What is especially dismaying to Colorado consumer advocates is that Hickenlooper seems to have bought—hook, line and sinker—industry claims that the exchanges couldn’t possibly meet the needs of consumers if insurance company executives don’t hold seats on exchange boards, that only by having insurers on the board can consumers be assured of “choice and competition.”

In every state that has taken up legislation to create exchanges so far, insurance executives have said that no one could possibly know the marketplace and the needs of consumers better than they do.

That’s nonsense, and I suspect Hickenlooper knows it. It’s hard to believe that in all of Colorado, he couldn’t find qualified candidates who understand commercial health insurance to balance industry executives with obvious conflicts of interest. I know from my years in the industry that insurers will protect their market share at all costs, that what they consider competition is competition among existing players and that the choices they want consumers to have are the choices they decide to offer. What are the chances that the industry-dominated Colorado exchange board will allow a new insurer to get a toehold in the market? Not much, I’d bet.

Colorado has many fine colleges and universities with faculty members who have deep knowledge of health insurance and health policy. Surely at least one or two of them would have been willing to serve on the exchange board.

And what about former state insurance regulators? Few people know the industry and individual companies as well as they do. I got to know and respect Colorado’s former insurance commissioner, Marcy Morrison, when I served as a consumer representative to the National Association of Insurance Commissioners last year. If I were Hickenlooper, I would have begged and pleaded Morrison to serve on the board.

Hickenlooper could have ensured that the board tilted more toward consumers than insurers. Instead, three of his appointees have industry ties. One is the CEO of Anthem Blue Cross, another is CEO of United Healthcare of Colorado and one is vice president of TriZetto, an information technology company that serves some of those insurers and has two insurance company executives on its own board of directors. (Other members appointed by legislative leaders include the president of Rocky Mountain Health Plans and the executive director of Colorado Health Partnerships.)

At least two consumer groups in the state have called on the TriZetto executive to resign, in part because of what he wrote in a trade publication about how the exchanges would affect insurance business practices and profit margins. He wrote that exchanges would be “bad” because they would be “competitive marketplaces where payers will have to differentiate themselves based on brand, price, customer service and more—all while cutting costs and increasing efficiencies.”

One can’t help but wonder what the governor was thinking—if he was thinking at all about the best interests of his constituents—when he appointed someone to the board who had written just a few months ago that all of that would be bad. Hello, Governor, that’s exactly what the exchanges are supposed to do.

Lorenz Meinhold, Hickenlooper’s deputy policy director who helped review and recommend candidates for the board, was quoted recently as saying that all of the board members “had made a commitment to creating an exchange that will increase affordability of, access to and quality of health care while increasing competition in the market.”

Of course they made that commitment. Foxes don’t get jobs as henhouse guards by revealing their true intentions.