Health plans that have long been incented to compete on risk selection—vying for healthy enrollees and eschewing the sick—are bracing for new rules that will turn their offerings into commodities with buying decisions hinging on price above all else.
The patient Protection and Affordable care Act (PPACA) calls for the creation of exchanges where small employers and individuals may purchase qualified health plans.
Exchanges are intended to make purchasing health insurance easier by providing eligible consumers and businesses with "one-stop-shopping," a place to compare various offerings for policies. The Obama Administration expects that exchanges will give consumers and purchasers greater flexibility and information about health insurance policies before they buy.
Last week U.S. Health and Human Services Secretary Kathleen Sebelius announced $51 million in federal grants to help states set up insurance exchanges.
But where does that leave payers? Exchanges pool all comers together: the healthy, the worried well, the sick, and the sicker. Under PPACA, exchanges will prohibit payers from selecting applicants on the basis of health, and they will be restricted in their abilities to vary premiums with regard to health status.
With the current practice of mitigating costs by practicing risk selection no longer an option, payers will have to rely on their wits. They'll need to dive into the data with the best analytical tools they can get their hands on and start practicing risk adjustment rather than risk selection.
Risk adjustment means applying analytics and predictive modeling to the data presented by a group of enrollees in order to forecast its future wellness and calculate appropriate pricing.
Current exchanges, like the one in Massachusetts, illustrate the pressures payers are already experiencing.
Last month Massachusetts sent letters to four large insurance firms urging them to offer low-cost medical plans for small businesses or face legal sanctions.
The insurers balked because the state capped rates that could be charged at 2009 levels, and insurers are claiming they will lose money. While Massachusetts presses on, one thing is clear: More exchanges are coming.
Health plans, government agencies, employers, and providers all have a stake in what happens next, and its the smartest, most data-savvy players who will come out ahead.
Population health tools have been both promoted and dismissed by health plans and employers. With risk-selection off the table, population health management might be one of the few cost savings strategies that health plans have left. Data management is a big emphasis, but so is working effectively with members and employers to get real action from this information. The results could not only improve the bottom line for payers, but also enhance the health and satisfaction of members.