The Patient Protection and Affordable Care Act is a United States federal statute that was signed into law by President Barack Obama on March 23, 2010. The PPACA is aimed at creating state based Health Benefit Exchanges in the US. The Health Benefit Exchanges are expected to provide individuals and Small Groups (SG) access to affordable health insurance. The Congressional Budget Office predicts that by 2019, about 24 million people will have insurance through these exchanges.
Health Benefit Exchanges will make affordable health care available in a transparent manner. They will also accelerate the growth of the healthcare sector by presenting new opportunities for payers, providers and public health care administrators. Each state has been mandated to set up their Health Benefit Exchanges by January 2014. Understanding and meeting State and Federal compliance requirements will be the foundation for a faster go-to-market strategy.
Health Benefit Exchanges will transform the way individuals and Small Groups shop for health plans. They will function as aggregators, making standardized insurance plans easily comparable for individual and Small Groups buyers. The impact of the transparency will be a fall in insurance costs.
Ensuring transparency by enabling plan comparison in web portals is a fairly revolutionary idea in health care, but it is not a new business paradigm. For years, airline fares have been comparable on a variety of travel websites, ensuring that travelers can make well-informed choices. Health Benefit Exchanges will work in a similar manner. They make a wider and cheaper set of choices available to small healthcare buyers who earlier could not find the deals that large employers or groups enjoyed. By enabling choice for a wider spectrum of insurance buyers and equipping them with decision support tools, Health Benefit Exchanges can expect to increase sales and improve customer satisfaction levels. This contributes to a winwin situation for both buyers and providers.
The nature and structure of Health Benefit Exchanges will make a significant difference to:
- Plan pricing
- Online enrollment mechanisms
- Transparency (benefits, premium costs, provider network)
- Plan performance (Wellness care, chronic illness, overall customer satisfaction and public ratings)
- Quality of service
Exchange operators (State or the Federal Government) will be pivotal to success. They will be responsible for delivering the guided buying experience, monitoring plan performance and quality ratings. They will also become responsible for the IT infrastructure of the exchange, data integration, and interoperable data exchange standards. In addition, operators will need to set up customer management and support infrastructure for phone-based exchange services.
The Exchange Operating Model has been left to the discretion of individual States. Each State can adopt a model from a variety of approaches:
- States can co-operate American Health Benefits Exchange (AHB) and Small Business Health Options Program (SHOP) exchanges together
- Operate different exchanges for the different segments (Individual and SG)
- Participate in a regional multi-State Exchange
- Not operate a Health Benefit Exchange. In this case the Federal Exchange will cover that State
- Leverage a private aggregator model – contract a Health Plan or Third Party Services Firm
Each State also has the latitude to decide the degree of regulation beyond PPACA they may wish to implement. This will position the states as Active Regulators or Passive Enablers
Health Plan Exchange Capability Model (To-be): Forcing Cost Leadership
The PPACA mandate on health benefit exchanges has caused dilemma for most health insurance companies. The contour for decision making may differ from payers to payers. But the main concerns are on the following lines. Should health plans participate in an exchange-based model? If they participate, should it be in all States or selectively in a few States? If they don't participate, are they losing a large pie of prospective customers? Also, regardless of the number of States the health plans participate in, which are the best segments (subsidized individual, unsubsidized, small group etc.) to address? These choices will determine the to-be capability model each player must fulfill.
State Exchange participants could design products most appropriate for target groups or adhere to the operating models of individual State Exchanges. The risk they face is that the regulation and demands vary across States. This places barriers to operational efficiencies across Health Benefit Exchanges.
On the contrary, Federal Exchange participants operate in specific States that do not have their own exchanges. They will have to adhere to Federal Exchange requirements.
Regardless of how they operate, it is apparent that products of the health plans will have to be broadly standardized for segments. The outcome of standardization will be commoditization. As a result, product differentiation is less, leading to challenges in premium pricing. This lack of differentiation has a straightforward implication according to Porter's Generic Strategy. Cost leadership will hold the key to success to gain a competitive advantage. However achieving Cost leadership is difficult.