‘Everybody Was Surprised By Oct. 1’

A Q&A with the insurance industry’s leader in Washington

Karen Ignagni, American Health Plans
©2008 Richard A. Bloom
Sam Baker
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Sam Baker
March 31, 2014, 1 a.m.

Oth­er than Pres­id­ent Obama him­self, no one has more rid­ing on the suc­cess of the Af­ford­able Care Act than in­sur­ance com­pan­ies.

The in­dustry’s re­la­tion­ship with the law is com­plic­ated — it spent mil­lions of dol­lars to try to de­feat Obama­care in Con­gress, but has since emerged as the one of the strongest de­fend­ers of the law’s fun­da­ment­al struc­ture, push­ing back against changes from Re­pub­lic­ans and the White House alike.

In the four years since Obama signed the Af­ford­able Care Act in­to law, in­surers have over­hauled their products and busi­ness prac­tices to com­ply with the law while try­ing to in­flu­ence the massive reg­u­lat­ory un­der­tak­ing of im­ple­ment­a­tion. And then, in Oc­to­ber, the launch of Health­Care.gov sent in­surers scram­bling.

Na­tion­al Journ­al re­cently sat down with Kar­en Ig­nagni, the pres­id­ent of Amer­ica’s Health In­sur­ance Plans — the in­dustry’s largest trade or­gan­iz­a­tion — to dis­cuss the law’s fourth an­niversary and its first open-en­roll­ment peri­od. What fol­lows is a tran­script of that con­ver­sa­tion. It has been con­densed and lightly ed­ited for clar­ity.

NJ: Through earn­ings calls and oth­er for­ums we’ve got­ten some in­dic­a­tions from some car­ri­ers who are feel­ing like the risk pool will be about what they ex­pec­ted, a little bet­ter, a little worse. If you can at­trib­ute one sen­ti­ment to your mem­ber­ship — where are your com­pan­ies now? Are they pan­icked? Are they nervous? Are the op­tim­ist­ic?

KI: No one knows right now. We’re not go­ing to know. About a month from now, we’ll have a much bet­ter idea, but right now we don’t know. We’ve al­ways thought that March would be the time when the young­er and the health­i­er would ac­tu­ally pur­chase in­sur­ance. And we are see­ing an up­tick in en­roll­ment, which is very en­cour­aging. We just don’t know ne­ces­sar­ily who those people are — mean­ing, what their health care ex­pendit­ure pat­tern will be like. Will they fall in­to the cat­egory of healthy or sick? We just don’t know that yet.

But we’ve al­ways thought that it was a mara­thon, not a sprint. And the people who are less likely to need in­sur­ance would be the last entrants. And from their eco­nom­ic per­spect­ive that’s prob­ably ra­tion­al, be­cause they feel that they don’t need to ac­tu­ally sign up un­til the end. That’s what we’ve al­ways thought. And that’s happened in the states, as well; we saw that in Mas­sachu­setts and we’ve seen it in oth­er states. So it’s very dif­fi­cult. It’s not a par­tic­u­larly sexy an­swer, but it’s very dif­fi­cult to know right now un­til we go through the end of the month and we see, what does that dis­tri­bu­tion look like.

And then the oth­er is­sue that is a chal­lenge go­ing for­ward is the num­ber of people who are in the so-called trans­ition­al policies. The reas­on that that’s a chal­lenge is that means that some of the health­i­er people in the mar­ket are not go­ing to be part of the risk pool — not only this year but go­ing for­ward. So that’s a chal­lenge to be ad­dressed go­ing for­ward as well.

And this is why the tem­por­ary risk mit­ig­a­tion strategies are so im­port­ant. Be­cause just like Part D, in that new mar­ket, there were tem­por­ary risk mit­ig­a­tion strategies de­signed to off­set the high­er unanti­cip­ated ex­pendit­ures, etc. So it is go­ing to take, I think, that trans­ition time that was fore­seen in the le­gis­la­tion, just as it did un­der Part D.

NJ: What do you think the polit­cal/pub­lic per­cep­tion cli­mate is right now? You’ve seen those pro­grams cri­ti­cized from the right. Ob­vi­ously the le­gis­la­tion was passed with a lot of cri­ti­cism about in­surers. Is there a way out of that box?

KI: I think a fun­da­ment­al ques­tion — and we saw this in the dis­cus­sion of the trans­ition­al cov­er­age last fall — is what is the per­cep­tion of an in­di­vidu­al who has had cov­er­age and is asked to buy 10 cat­egor­ies of cov­er­age? Do they feel that that is too much? Do they feel it’s too much in one fell swoop, to buy up? These are some of the ob­ser­va­tions we made back in 2009 and 2010. To some de­gree, the de­cision around trans­ition cov­er­age re­cog­nizes that there is con­cern on the part of cer­tain in­di­vidu­als about be­ing re­quired to buy up in one gi­ant step, as op­posed to a more gradu­al pro­cess. Cer­tainly the de­cision on trans­ition cov­er­age is one way to ad­dress that, and I think that there will be oth­er ways that are looked at to ad­dress that is­sue, so that we can give people a more gradu­al way to get in­to the sys­tem.

NJ: Step­ping back just a minute: March 23, 2010, when Pres­id­ent Obama signed this in­to law, every­one sort of had their own as­sess­ment of what it was and what it was go­ing to be, what the is­sues were, what it rep­res­en­ted. From then un­til now, how has your as­sess­ment of the Af­ford­able Care Act changed? What’s been the biggest change?

KI: It hasn’t. Our as­sess­ment is the same today as it was in 2009 and 2010, in terms of the ar­chi­tec­ture and some of the chal­lenges as­so­ci­ated with the ar­chi­tec­ture. We made sev­er­al points then, which are play­ing out now in the pub­lic de­bate as well as on the ground in terms of the op­er­a­tions.

One, we sug­ges­ted in 2009 and ‘10 that people were go­ing to have con­cerns about the buy-up that they were go­ing to be re­quired to un­der­go. Mean­ing that … in­di­vidu­als who are buy­ing on their own in the in­sur­ance mar­ket, in the old in­sur­ance mar­ket, pre-ACA, ex­pressed a very, very strong pref­er­ence to buy more cata­stroph­ic cov­er­age. They chose very high de­duct­ibles. They wanted to min­im­ize their out-of-pock­et premi­um, and to pro­tect them­selves from med­ic­al bank­ruptcy.

So we made the point back in 2009 and 2010 that be­cause of that pref­er­ence, that had been strongly demon­strated by con­sumers — not by us in the in­dustry, but by con­sumers — that was a re­cipe for con­cern go­ing for­ward. And in­deed some of the de­bate around the trans­ition cov­er­age ac­tu­ally sheds light on that con­cern. And that’s why I think there’s go­ing to be more dia­logue in the policy com­munity about how to ad­dress that con­cern so people can have more of a gradu­al trans­ition in­to the mar­ket.

Num­ber two: We raised sig­ni­fic­ant con­cern about the premi­um tax. You’re prob­ably sick of hear­ing us talk about the premi­um tax. And the reas­on was, and is, that it adds to the cost of the product, at a time when con­sumers are very spe­cific­ally price-sens­it­ive. All of the re­search that’s been done on con­sumer pur­chas­ing in the ex­change demon­strates that their num­ber one con­cern is hav­ing af­ford­able premi­ums.

The third is­sue that we were very con­cerned about, and have been con­cerned throughout the reg­u­lat­ory pro­cess, is the is­sue of rat­ing bands for young­er people. Pri­or to the ACA, in 40 states “¦ the rat­ing band — which is the ra­tio of what older to young­er pay — was 5 to 1. Some states had 7, 7.5, 8, 9, oth­ers didn’t have caps on their rat­ing bands. So if you com­press that overnight to 3 to 1, that means that the young­er people will pay that much more than they were pay­ing pri­or to the ACA. 

NJ: There were some meet­ings be­fore Oct. 1, and then a lot more after it seemed like, with you and some CEOs, where the White House mes­sage was al­ways: We’re on the same page now, car­ri­ers and the ad­min­is­tra­tion. How has your re­la­tion­ship with the ad­min­is­tra­tion changed over the last four years? “¦ As you said, plans did what they had to do, it was the law of the land, and then nobody could sign up for the plan. And then you’ve seen all of these [changes]. Some are big­ger than oth­ers. All of that, I would ima­gine, has to strain that re­la­tion­ship.

KI: Well, it strained re­sources at the plan level. I mean, their hu­man and fin­an­cial re­sources. Be­cause there are two sides to the op­er­at­ing en­vir­on­ment, right? What con­sumers see, which is the front end, the front door of the web­site. And then the back end, which con­sumers don’t see as much. But to work in­tens­ively through the chal­lenges, to take a web­site that was go­ing to largely work in an elec­tron­ic fash­ion, and to ac­tu­ally be re­quired to do quite a num­ber of the func­tions by hand, es­sen­tially — that’s a very dif­fer­ent state of af­fairs than what was ex­pec­ted, what was pre­dicted, etc.

So the chal­lenge has been on the ground for the plans to ac­tu­ally work on just the num­ber of the back-end is­sues in a way that they nev­er ex­pec­ted. And to their cred­it, we have a num­ber of tech­no­logy ex­perts, op­er­a­tions ex­perts, that are work­ing very, very hard to provide in­put to CMS and ad­vice about what they’re see­ing, wheth­er the test­ing is work­ing, wheth­er cer­tain strategies are work­ing, etc. And that’s been a very im­port­ant part of the pro­cess, cer­tainly for the agency.

NJ: When you men­tioned earli­er that you think we’re go­ing to see more dis­cus­sion in the policy com­munity around trans­ition­al [policies], what do you mean by that?

KI: I think the ques­tion is, what do people want to buy, and what op­tions should they have? And do we have enough op­tions for them at present? And one of the things that be­came very clear in the fall is a con­cern on the part of people who did have cov­er­age — they didn’t want to lose it. And in part they were con­cerned about mov­ing from cov­er­age they had, which had not ne­ces­sar­ily in­cluded all 10 cat­egor­ies of cov­er­age, and buy­ing up. So now the ques­tion, from a policy per­spect­ive, is how do you ad­dress those chal­lenges? Are there ad­di­tion­al op­tions that are offered to in­di­vidu­als? What can we do to make people feel more com­fort­able in hav­ing a broad­er set of op­tions? And I think that will be a sub­ject that’s dis­cussed quite a lot in the policy com­munity, as it should be, be­cause I think people just gen­er­ally like to have a more gradu­al ad­just­ment.

NJ: Would you take away some es­sen­tial health be­ne­fits, or ex­pand age rat­ing? What would you do?

KI: I think it’s not a ques­tion of tak­ing away be­ne­fits, but it’s a ques­tion of wheth­er or not there could be al­tern­at­ives that would al­low people to — wheth­er its to pur­chase cov­er­age that is, from an ac­tu­ar­ial per­spect­ive, is a little less than the ac­tu­ar­ial value of a bronze plan. Things of that sort.

NJ: To that point, most of the people who have signed up so far have been pick­ing sil­ver plans. They haven’t been choos­ing the bronze “¦ Why do you think more people haven’t chosen the less ex­pens­ive plans?

KI: It’s the old ad­age, where you stand de­pends on where you sit. So if in­di­vidu­als have high health care costs and have in­comes that en­sure they are get­ting sub­sidies, then I think they’ll make a de­cision to pur­chase a more gen­er­ous plan. For people who are not ne­ces­sar­ily eli­gible for sub­sidies, or eli­gible only for small sub­sidies, then they be­come very eco­nom­ic­ally sens­it­ive. They’re look­ing at price very spe­cific­ally. And I think those in­di­vidu­als are more likely to buy something a little less than sil­ver.

NJ: Are you con­cerned at all that there could be an HMO-style back­lash against some of the nar­row pro­vider net­works in some of these plans?

KI: I think that it’s very dif­fer­ent now than it was back in the 90s. Back in the 90s, what health plans were do­ing was fo­cus­ing on the price side of the premi­um. Now, I know of no plan that is ne­go­ti­at­ing with doc­tors and hos­pit­als and only look­ing at price. Be­cause of the ad­vent of tech­no­logy, data, and the ma­tur­ity of the qual­ity-meas­ure­ment en­ter­prise in this coun­try, plans are look­ing — as they are think­ing about new pay­ment ar­range­ments with hos­pit­als and phys­i­cians — they’re look­ing at high-value net­works, they’re look­ing at tier­ing, they’re look­ing at a vari­ety of strategies. And they’re look­ing at price, be­cause con­sumers want af­ford­able pri­cing in premi­ums, but they’re also look­ing at qual­ity, be­cause con­sumers also want high-qual­ity pro­viders. And that’s very, very dif­fer­ent than what was go­ing on back in the 90s.

Second thing that’s dif­fer­ent is that, based on what we learned dur­ing the Part D ex­per­i­ence, this idea of provid­ing people choices. In a sense, bronze, sil­ver, gold — it’s a tier­ing sys­tem, if you will, that provides people and in­di­vidu­als choices — of net­work, of in­di­vidu­al phys­i­cians, of hos­pit­als, and so on, so that they can make fully in­formed de­cisions about what is the way they want to re­ceive care. So they, as con­sumers, just as in Part D, can bal­ance price and ac­ces.

NJ: That’s a lot for con­sumers to un­der­stand, though.

KI: But now, for the first time, con­sumers are mak­ing the choice. In the 90s it was largely a sys­tem where em­ploy­ers were choos­ing. Now we’re talk­ing about a mar­ket that has changed rad­ic­ally in the area of in­di­vidu­al in­sur­ance par­tic­u­larly, where people are mak­ing their own de­cisions. And they are look­ing at these vari­ables. And they’re look­ing at these vari­ables at the kit­chen table, and it’s im­port­ant and health plans spend a great deal of time in terms of edu­cat­ing people about the choices, about their al­tern­at­ives, and we’ll be con­tinu­ing to do a great deal of that.

Just a fi­nal post­script: If those are the tools that we have — dis­ease man­age­ment, care co­ordin­a­tion, and new pay­ment ar­range­ments and new be­ne­fit struc­tures — and you ba­sic­ally tie one hand be­hind the health plans’ back, wheth­er it be at the state level or the fed­er­al level, and you cre­ate such re­quire­ments where we can’t do high-value net­works, then that will have a very sig­ni­fic­ant im­pact in in­creas­ing costs. There’s no ques­tion about that. Where­as on the oth­er side, if reg­u­lat­ors and le­gis­lat­ors con­tin­ue to al­low the tier­ing, the new be­ne­fit struc­tures, the new pay­ment ar­range­ments, then I think con­sumers will con­tin­ue to see af­ford­able products and a num­ber of al­tern­at­ives that they are go­ing to find af­ford­able and high-qual­ity.

NJ: You were say­ing your as­sess­ment of the law has played out ba­sic­ally the same as what your as­sess­ment was in 2009. What has been the biggest sur­prise to you in the past four years?

KI: I think every­body was sur­prised by Oct. 1. Without a doubt. We had no way to eval­u­ate the front door of the ex­change, be­cause our side of this is more on the side that con­sumers don’t see, the back end. I think nobody had any idea about people not be­ing able to go on and sign up, etc., etc. I think that’s prob­ably the thing that was most sur­pris­ing.

NJ: To what ex­tent did you know that the back-end prob­lems were as severe as they were, or was that ex­acer­bated by the front-end prob­lems?

KI: Well, maybe to some de­gree it was ex­acer­bated by the front-end prob­lems be­cause all these in­di­vidu­als were stacked up and we didn’t know who had signed in and so on and so forth, but our plans could tell in the sum­mer that there were is­sues with not hav­ing enough test­ing and so on and so forth, so that was of con­cern. The back-end side of things. And not hav­ing enough time for test­ing com­pared to what plans would nor­mally do in a rol­lout in the private sec­tor.

NJ: And did those seem like man­age­able is­sues? On Sept. 30, were you all think­ing, “All right, this is go­ing to really go poorly once you open the door here, be­cause we know the back end hasn’t been built.”

KI: It wasn’t com­pletely built, there’s no ques­tion about that. But I think the op­er­a­tions lead­ers in the plans were just con­cerned about the crunch in terms of test­ing, and they were rais­ing con­cerns be­cause of that, and not know­ing what was go­ing to hap­pen based on that, what they per­ceived to be in­ad­equate test­ing sched­ule. And then, what happened is now his­tory. The front end was prob­lem­at­ic and cer­tainly the back end was very prob­lem­at­ic, too. And we still have ma­jor chal­lenges on the back-end side that we’re work­ing through.

NJ: Aside from that — aside from “build a web­site that works” — what do you think is the biggest les­son of the open en­roll­ment peri­od that we’ve had?

KI: I think the biggest les­son is, of course, mak­ing sure that if something so large is start­ing, that it will work. That’s clearly a les­son that every­one has poin­ted to. What our op­er­a­tions people tell us is that they don’t gen­er­ally bring out something so com­pre­hens­ive in one fell swoop, that they bring things out more gradu­ally. Wheth­er that meant they would have giv­en people time to shop without ac­tu­ally hav­ing the sign-up peri­od at the same time, and so on and so forth — it could mean a vari­ety of things. But gen­er­ally what you hear in the private sec­tor, in the health plan com­munity, is that if they’re go­ing to move for­ward with something so large, they do it in a more gradu­al way. That’s what we hear from the ground.

NJ: And do you feel con­fid­ent from your per­spect­ive that we’re at a place now to move ahead to 2015 and 2016, with risk cor­ridors and risk ad­just­ment in place — do you feel like we’ve sort of cleared the tower?

KI: We still have a num­ber of things to do and quite a lot of work to do to get the back end built. As I said, our plans are work­ing very act­ively with the agency on that. So that’s num­ber one. And then num­ber two, I think that these risk mit­ig­a­tion strategies are very im­port­ant to ad­dress both the un­cer­tainty of who’s in the plan and the pro­por­tion of healthy to sick. But there are still some chal­lenges ahead with how does, what does the risk pro­file ac­tu­ally look like? How does that drive your pri­cing for 2015? And our plans are look­ing at all of that. And then, how do you ab­sorb a 40 per­cent in­crease in the premi­um tax? So they’re work­ing through that now; they’ll be work­ing through that over the next couple of months.

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