Insurance exchanges didn't work in Florida

Nonprofit health insurance exchanges _ the type proposed as an alternative to the public option in congressional health care plans _ were tried in Florida in the 1990s with disastrous results. Some experts think new ones can be made to work, but others see inherent problems that mean any version is likely to fail.

The Florida groups _ called Community Health Purchasing Alliances _ started in 1993 to allow small businesses and the uninsured to band together to purchase insurance. They died in 1999 because insurers were suffering such large losses they didn't want to offer coverage to the CHPAs (pronounced CHIP-ahs).

As health care reform legislation makes its way through Congress, the potential of exchanges is sparking intense discussions.

Randy Kammer, an executive with Blue Cross Blue Shield of Florida, believes "absolutely" that improved exchanges can be made to work as part of a health care reform package now being discussed in Washington. "There's a lot of good lessons to be learned from the CHPAs," she says.

John Sinibaldi, the president of an insurance company in Seminole who sold a lot of CHPA policies in the 1990s, disagrees. "Even when properly administrated and constructed, they're going to find it tough to maintain viability."

Sinibaldi believes the present proposal for the exchanges is "huge smoke and mirrors. People are offering this up because they're opposed to a government insurance program. But I don't think it can be effective or meaningful, frankly."

The concept behind health exchanges is that individuals and small businesses joining together could get better rates from insurers than they could get separately. Depending on how they're structured, they're sometimes referred to as co-ops, sometimes "insurance marketplaces," but by whatever name, they involve forming groups to get better deals.

However, in Florida and some other states where they have been tried, heavy lobbying from the insurance industry has led to serious limits to the exchanges.

In Florida, the Legislature created 11 district CHPAs, diluting the pool and adding to administrative costs. What's more, they weren't allowed to negotiate rates with insurers. "So they had no group purchasing power," says Linda Quick, president of the South Florida Hospital and Healthcare Association.

By April 1996, 74,000 persons were covered by CHPA-sponsored health insurance, according to a report by the Legislature's Office of Program Policy Analysis and Government Accountability. About 38,000 of those had been uninsured _ but that was a mere 1.5 percent of the state's uninsured at the time.

The report also found an oddity: Almost 80 percent of the small businesses signing up for CHPA had only one or two employees.

Sinibaldi has an explanation: The state's high-risk pool _ a group intended for the seriously ill who couldn't get insurance at work or through the individual market _ had closed to new patients in 1989.

"CHPA became the de facto high risk-pool," says Sinibaldi. People formed one- or two-person businesses just to get into a CHPA. One difference: In Florida and most states, high-risk pools are subsidized by the government because the patients are so expensive to treat. CHPAs received no subsidies.

The end result: CHPAs attracted the older and sicker. Small businesses with younger, healthier employees found they could get much better rates by dealing directly with the insurers and avoiding the CHPA alliances.

By the late 1990s, insurers' expenses handling CHPAs had soared. Sinibaldi says one insurer was paying out $3 in claims for every $1 collected in premiums.

Whatever the background, Washington policymakers are trying to design workable health exchanges because Republicans and conservative Democrats are opposed to a new government insurance plan for individuals and small businesses that couldn't get coverage elsewhere.

Some proposals envision a huge national pool, where tens of millions could have strong leverage in negotiating good rates with insurers.

A. Duke Livermore, chief operating officer of BCBSF, says his organization is opposed to a national group. Each state already has a good regulatory process for insurance, and there's no reason to set up a national one as well, he says.

Quick, the hospital association executive, says exchanges can work if insurers "are not allowed to undercut the prices they have for the exchanges." This means pools would be required to provide the pools with their lowest prices _ rather than "cherry-picking," offering companies with younger, healthier workers better rates.

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Kammer, the insurance executive, says insurers would be agreeable to that as long as the exchanges didn't add in costs of a new bureaucracy. But she is concerned by one proposal being floated on Capitol Hill that would prohibit insurance sold in an exchange from being offered outside an exchange, which might mean either setting up new insurance companies or having the exchanges be self-insured, locking out existing carriers.

Sinibaldi, the insurance broker, is concerned that by their very nature, exchanges will always attract the older and sicker. "There is a natural tendency for risk to look for the lowest cost," meaning the younger and healthier will find better ways of getting coverage, leaving the pools with the most expensive cases.

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Insurers say the key is to mandate that everyone have insurance _ so that the young and healthy would pay premiums, spreading the risk with the older and sicker. Under many proposals those who couldn't afford to pay all of the premium would receive government subsidies.

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Under the co-ops proposed in the main Senate proposal, the Baucus bill, the Congressional Budget Office decided that "they seem unlikely to establish a significant market presence in many areas of the country."

Quick, the hospital association executive, said the key will be in the details, with the insurance industry working hard to make sure their own plans aren't damaged by the exchanges.

"Somebody said when I was in D.C. that for every page of legislation, there are going to be 20 pages of regulation" on how to carry out the law, Quick said. "So if the bill is 1,000 pages long, there are going to be 20,000 pages of regulation. So it clearly depends what's in that to see how this will work out."