Over the next few years U.S. taxpayers will be billed more than a billion dollars to duplicate an online health insurance sales distribution system. Cost of running a government-supported insurance exchange range from $500,000 a year in Utah to many millions of dollars per year for bigger exchanges like the “Connector” in Massachusetts. Meanwhile, the government is ready to indirectly (and probably unknowingly) approve funding for continued support of a competing private system. The existing commercial Internet-based health insurance distribution system has enormous economic and technical advantages that were funded entirely by private investors without government subsidies. It is foolish for the government to spend taxpayer money now to reinvent the wheel when the few collaborative measures tested so far have already proved highly efficient. Commercial health insurance exchanges and related Internet service providers have already proved to be cost-effective distributors of government-provided health insurance in many states. At least 18 state Medicaid plans already use the same underlying technology, business structure and staffing as their commercial health insurance distributors. We should continue to build on this recent success rather than tear it down to invent a brand new insurance sales system.
This week National Association of Insurance Commissioners, the group that is most closely responsible for carrying out the provisions of the federal health reform law, took action that will likely result in an exemption of agent commissions from the medical loss ratio rules that are expected to go into effect on January 1, 2011. Without this measure, the insurance markets might collapse resulting in destabilization of the infrastructure of U.S. health care financing. In effect, this means that health insurance premiums will be allowed to continue to include the cost of distribution without violating the Medical Loss Ratio rules effective January 1, 2011. Regardless of what else is done in the public sector, the commercial health exchanges will continue to receive payment for their services and so health insurance will remain available to consumers.
While we agree with the findings and action of the NIAC committee, our concern is for the adverse effects on taxpayers and the national health insurance exchange. Some insurance exchange supporters wonder why would a consumer rely on an online insurance exchange when the same product can be purchased at the same price from a local professional providing personal support? It is a legitimate question, but the same question that was asked in the early development of Internet-based commerce. We believe there are consumers who prefer to do their own research and shop online and that consumer choice is always preferable to a single distribution system.
The real problem arises from two basic assumptions: 1) health insurance will continue to be priced the same regardless of where it is purchased and 2) health insurance will continue to be an Internet-based business.
The commissions applicable to health insurance products sold on the insurance exchange must, by law, be the same as those sold through agents or other distribution systems. This will not change; we are quite certain that health insurance will always be the same price regardless of where it is purchased. This is a widely accepted macroeconomic principle among national and state policymakers and we are unaware of any suggestion to introduce tiered-level pricing of health insurance based on the distribution system.
We are equally certain that virtually all health insurance will continue to be purchased through the Internet, regardless of whether through an commercial agent or publicly-funded insurance exchange. It is almost impossible today to purchase health insurance without going to the Internet for at least part of the purchase or underwriting process. U.S. health insurance is dominated by big public companies like Ehealth that provide back-office support to government and private insurers in addition to the consumer sales systems shared with smaller private ventures like our Freedom Benefits Insurance Exchange. Most people are unaware that a wide range of health insurance services ranging from state Medicaid plans to the small specialty insurance plans listed by Freedom Benefits share the same underlying technical platform provided by well-known commercial Internet service firms. Policyholder and claim services for commercial policies as well as Medicare and Medicaid are also handled primarily online. Health insurance – whether private or public – is clearly an Internet-based business.
Meanwhile, taxpayer-funded insurance exchanges are now being developed throughout the country at a total cost of billions to U.S. taxpayers. The intent is to have them replace commercial health insurance exchanges by the year 2014. Most of the intitial funding comes from the federal Health and Human Services Department but is then funded by allocations legislated directly by each state. In contrast, all of the commercial health insurance markets are developed soled through private investment funds. The cost of distributing health insurance is assumed to be the same regardless of whether it is distributed through a public or private exchange or other means. Many observers agree that it seems unlikely that government-operated health insurance exchange could compete with the well-funded and well-managed commercial insurance exchanges, especially when the commercial exchanges have already gathered such a strong share of the market. By the time that the taxpayer-funded exchanges get up and running, they will left to compete for the dregs of the market (those consumers who could not or would not be enticed by any of the offerings on the commercial market). This is not a business model that would appeal to many.
We conclude that taxpayers are getting the short end of the stick. While we support multiple distribution systems for health insurance, the staggering cost of developing the government-run insurance exchange is a waste of money. The commissions already built-in to health insurance are enough to fund the development of a robust network of insurance exchange and supporting services. We don’t need to double dip by forcing taxpayers to reinvent the system. A better option, we believe, would be for the states to contract for additional distribution to the already successful national health insurance exchanges.
This is one rare example in the U.S. health care system where we can say “If it isn’t broke, don’t fix it.”