Arizona’s Health Insurance Exchange Proposals

by Michael Bryan

The new federal Patient Protection and Affordable Care Act, or as the GOP has so ably dubbed it, "Obamacare", allows the creation of state-based insurance exchange boards that will collect information on single and small group policies and make them available to eligible buyers. The idea is to enable consumers to easily compare policies and use the market to drive better competition and thereby control premium costs.

Each state has the option of creating their own Exchange; or else the federal government do it for them, if they fail to act. In Arizona, two different bills, House Bill 2666 and Senate Bill 1524, have been introduced to create an Exchange, and as with any complex undertaking, the devil is in the details.

In every respect the Senate bill is superior to the House bill – I will explain why.

The Goldwater Institute opines that Arizona shouldn't bother creating an Exchange because "Obamacare" will be declared unconstitutional. For once, I hope the GOP actually follows G.I.'s advice, because it would very likely be better for Arizona consumers if the Arizona legislature fails to act and the federal government creates a state (or better yet, a multi-state) Exchange for us.

However, if the Lege is going to create an Exchange, Senate Bill 1524 is the far superior structure. I base my analysis of the bills on the Progressive States blueprint for creating strong Exchanges, which is worth a read to grasp the basic issues involved.

The issues that really matter are:

1. Membership and voting on the governing Board of the Exchange
2. Conflicts of interest restrictions on Board members
3. Rulemaking authority vested in the Board
4. Cost containment powers of Board
5. Allowing the Board to mandate higher levels of coverage for listing on the Exchange than Federal standards

1) Membership and Voting: SB1524 is far superior in this regard.

SB1524's Board consists of seven members, all of whom have a vote: the Director of the Department of Insurance, the Director of AHCCCS (State Medicaid Administration), 3 Gubernatorial appointees (1 being a patient advocate), and 4 members appointed by the majority and minority caucuses of the state House and Sentate. All the political appointees must have expertise in two of the following subjects: individual H/C coverage, small employer H/C coverage, H/C plan administration, H/C finance, H/C delivery administration, H/C coverage purchasing, patient advocacy, or actuarial science (which are the recommended fields of expertise by Progressive States blueprint). While the Board is dominated by political appointees, there is a fair balance and strong representation by central Administration players in the Directors of of Dept. of Insurance and AHCCCS.

HB2666, in contrast, practically turns the Board over to the healthcare industry, and is entirely appointed by the Governor. Of 11 Board positions only 9 may vote and 7 of those are direct representatives of the H/C industry. Only two can remotely be considered advocates for consumers, and one of those would likely represent the Chamber of Commerce and businesses, not individuals. 2 members will represent the largest individual policy carriers and 2 from the largest small group carriers (which means that 4 votes automatically go to the for-profit healthcare insurers who are the problem, such as Cigna, United, Humana and others [the only exception being one of the slots will certainly go to Blue Cross/Blue Shield, which is the largest individual policy carrier in Arizona by far, and is non-profit]. 1 member comes from a dental plan on the Exchange, 2 will be "producers" in individual and small group markets (which means insurance salesmen or brokers). That's 7 of 9 voting members who represent the status quo of the insurance industry. The remaining two voting members will be an appointee representing purchasers of small group insurance (likely a Chamber of Commerce person), and one will be "an individual who purchases individual insurance on the Exchange", which hardly guarantees a consumer advocate. Finally, perhaps the two most important and expert members, the Director of Board (who is appointed by the Board) and the Director of AHCCCS are non-voting members. This is a recipe for a Board that slavishly serves the interests of the insurance industry, not Arizona's consumers.

2) Conflicts of Interest: SB1524 is far superior in this regard.

SB1524 ensures against conflicts of interest in an appropriate manner for both Board members and staff of the Exchange:

"A.  WHILE SERVING ON THE BOARD OR ON THE STAFF OF THE EXCHANGE, A MEMBER OF THE BOARD OR A STAFF MEMBER OF THE EXCHANGE SHALL NOT BE:

1.  EMPLOYED BY, A CONSULTANT TO, A MEMBER OF THE BOARD OF DIRECTORS OF, AFFILIATED WITH OR A REPRESENTATIVE OF A HEALTH CARE INSURER, AN INSURANCE AGENT OR BROKER, A HEALTH CARE PROVIDER OR A HEALTH CARE FACILITY OR CLINIC.

2.  A MEMBER, A BOARD MEMBER OR AN EMPLOYEE OF A TRADE ASSOCIATION REPRESENTING HEALTH CARE INSURERS, HEALTH CARE FACILITIES, HEALTH CARE CLINICS OR HEALTH CARE PROVIDERS.

B.  NOTWITHSTANDING SUBSECTION A, PARAGRAPH 1, A MEMBER OF THE BOARD OR A STAFF MEMBER OF THE EXCHANGE MAY BE A HEALTH CARE PROVIDER IF THE BOARD MEMBER OR STAFF MEMBER DOES NOT RECEIVE COMPENSATION FOR RENDERING SERVICES AS A HEALTH CARE PROVIDER WHILE SERVING ON THE BOARD OR ON THE STAFF OF THE EXCHANGE AND DOES NOT HAVE AN OWNERSHIP INTEREST IN A PROFESSIONAL HEALTH CARE PRACTICE."

HB2666 merely specifies that "AN EXCHANGE BOARD MEMBER SHALL NOT TAKE ANY ACTION IN WHICH THE MEMBER OR THE ENTITY THE MEMBER IS REPRESENTING HAS A CONFLICT OF INTEREST." No oversight or enforcement is provided, and given that 7 of the 9 voting members are industry representatives, or even employees, board members, management, or owners of insurance entities, this laxity ensures that either most Board members will be unable to vote on just about anything, or that the conflict of interest rule will be entirely ignored.

3) Rulemaking Authority: SB1524 is far superior in this regard.

HB2666 states, "THE EXCHANGE BOARD DOES NOT HAVE RULE MAKING AUTHORITY." Pretty clear. No power.

Whereas SB1524 provides that the Board shall, "ADOPT ALL NECESSARY RULES FOR THE OPERATION OF THE EXCHANGE CONSISTENT WITH THE REQUIREMENTS OF THIS CHAPTER."

The House version is a recipe for a toothless Board unable to establish rules for the operation of the Exchange and entirely dependent on the whims of the Governor and Legislature. Only the Senate version makes sense; no regulatory body can operate effectively without rule-making authority to implement its mission.

4) Cost Containment: Neither bill allows direct cost containment.

HB 2666 states, "THIS CHAPTER DOES NOT PERMIT THE EXCHANGE OR THE DIRECTOR TO IMPOSE PREMIUM CONTROLS ON HEALTH CARRIERS."

SB1524 is more subtle, but still does not allow premium cost controls. It provides, "THE EXCHANGE SHALL NOT EXCLUDE A HEALTH BENEFIT PLAN FOR ANY OF THE FOLLOWING:… 2. THROUGH THE IMPOSITION OF PREMIUM PRICE CONTROLS BY THE EXCHANGE.

However, both bills at least make an attempt to require insurers to justify premium increases, and can exclude them from exchange if their justification is not deemed sufficient. They both contain the following language:

"THE EXCHANGE SHALL REQUIRE EACH HEALTH INSURER SEEKING CERTIFICATION OF A PLAN AS A QUALIFIED HEALTH PLAN TO:

1.  SUBMIT A JUSTIFICATION FOR ANY PREMIUM INCREASE BEFORE IMPLEMENTATION OF THAT INCREASE. THE HEALTH INSURER SHALL PROMINENTLY POST THE INFORMATION ON ITS INTERNET WEBSITE.  THE EXCHANGE SHALL TAKE THIS INFORMATION… INTO CONSIDERATION WHEN DETERMINING WHETHER TO ALLOW THE HEALTH INSURER TO MAKE PLANS AVAILABLE THROUGH THE EXCHANGE."

Both bills fall short of rate regulation required to really control costs, but at least require some transparency and can exclude insurers who unjustifiably jack up their rates. Undoubtedly, this is an area where a federally created Exchange could be significantly stronger than any likely to pass the Arizona Legislature and our Governor's veto.

5) Requiring Higher Levels of Coverage than Federal Mandates: SB1524 is clearly superior.

HB2666 restricts the Exchange Board from requiring any greater level of coverage than the minimum required by federal law. "THE EXCHANGE SHALL NOT REQUIRE A HEALTH BENEFIT PLAN TO MEET MORE THAN THE MINIMUM STANDARDS REQUIRED BY THE FEDERAL ACT AND THE REGULATIONS PROMULGATED UNDER THE FEDERAL ACT IN ORDER TO RECEIVE CERTIFICATION AS A QUALIFIED HEALTH PLAN UNDER THIS CHAPTER." The federal enabling act allows states to set higher requirements than the federal minimums, but HB2666 leaves that power unused.

SB1524, in contrast, allows the Board to determine qualifications for inclusion in the Exchange. "THE BOARD MAY DETERMINE THE MINIMUM REQUIREMENTS A QUALIFIED HEALTH PLAN MUST MEET TO BE CONSIDERED FOR PARTICIPATION IN THE EXCHANGE AND THE STANDARDS AND CRITERIA FOR SELECTING QUALIFIED HEALTH PLANS TO BE OFFERED THROUGH THE EXCHANGE THAT ARE IN THE BEST INTEREST OF QUALIFIED INDIVIDUALS AND QUALIFIED SMALL EMPLOYERS.  THE BOARD SHALL CONSISTENTLY AND UNIFORMLY APPLY THESE REQUIREMENTS, STANDARDS AND CRITERIA TO ALL HEALTH INSURERS.  IN THE COURSE OF SELECTIVELY CONTRACTING FOR HEALTH CARE COVERAGE OFFERED THROUGH THE EXCHANGE, THE BOARD SHALL SEEK TO CONTRACT WITH HEALTH INSURERS TO PROVIDE HEALTH CARE COVERAGE CHOICES THAT OFFER THE OPTIMAL COMBINATION OF CHOICE, VALUE, QUALITY AND SERVICE."

As I read this language, it leaves the Board free to impose uniformly on insurers additional coverage requirements that are higher than the federal minimum. This is a great advantage for Arizona consumers.

Summary

In summation, in every way except cost containment, where both bills are deficient, SB1524 is a better bill for Arizona's consumers and will guarantee an more independent and competent Board, more efficient operation of the Exchange, and the best coverage for those seeking insurance through the Exchange.

That said, it might be even better for Arizona's consumers if the Legislature fails to implement an Exchange and allows the federal government to do so. Because Arizona's health insurance market (and to be fair that of most states) is so terribly uncompetitive (PDF link), a multi-state Exchange (which the feds are far more likely to implement than any group of states on their own) could be better for consumers. There is some merit to the GOP idea of allowing insurers to write health policies across state lines – it can create more competition among insurers who face far too little. Combining Arizona, New Mexico, Utah, Nevada and Colorado (PDF links) into a single Exchange could inject significant competition in each market as a each state is dominated by different carriers, and create a significantly larger and standardized market for insurers. Also, a federal Exchange could be empowered to directly mandate some cost controls on insurance carriers in order to be listed on the Exchange, which would also be a superior outcome for Arizona's consumers.