Xchange Factor: Why Oklahoma should be wary of buying the Utah model

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The deadline for Oklahoma to begin operating an online health insurance exchange is just over two years away.  Insurance exchanges, a major component of the federal health care law, are state-operated online marketplaces where private insurance will be bought and sold with robust consumer protections.  Only two states currently operate functioning insurance exchanges – Massachusetts and Utah.  While progress has stalled in developing an Oklahoma exchange, legislative leadership are clearly fans of the Utah model, expressing admiration last session for their “free-market” approach.

Oklahoma legislators should proceed with caution before designing an exchange based on the needs of another state’s consumers. While Utah has been held up as a model for states looking for guidance in developing their exchange, their experiment has not been an unqualified success.  Problems with low enrollment and premiums that offer no cost advantage over the traditional market continue to challenge exchange administrators.  Rather than opting for a copycat exchange, Oklahoma will be better served by a health insurance exchange that accounts for the unique needs and characteristics of Oklahomans.

Utah’s health insurance exchange predates the federal health care law.  Established in August 2009, Utah offers a way for companies to make a defined contribution to their employees medical coverage and for their employees to select their own coverage from an online menu of health plans that vary in terms of price and benefits packages.  The Utah Health Exchange now provides coverage for 22 employers and 1,424 of their employees.

The first lesson learned from the launch and subsequent expansion of the Utah Health Exchange is that ease of use and consumer-friendliness can make or break participation.  Originally, 99 eligible employers began the enrollment process, but 19 dropped out when they could not get their employees to complete the application, which many complained was too long, redundant, and intrusive.  Additionally, since Utah’s exchange takes all comers, any willing plan that met minimal requirements was listed on the exchange.  This made the process for choosing a health plan so cumbersome, employers dropped out at this stage too.  As Sabrina Corlette of the Georgetown University Health Policy Institute explains:

In 2010, there were 146 plan options for 436 enrollees.  The multitude of choices is so great, in fact, that 55 percent of respondents in a 2009 survey of employers who registered for the exchange but did not ultimately enroll cited the process for choosing a health plan as the reason they walked away.

Only 11 of the original 99 employers were still enrolled in the exchange in 2010.  The primary reason for dropping out was cost.  Premiums quoted on the exchange were 20-30 percent higher than premiums outside the exchange.  Analysis from the Utah Health Policy Project reveals why:

Underwriters assumed that if businesses were looking for new health plans, it must be because they employed an inherently riskier pool of employees. Given their charge to keep the Utah Health Exchange solvent and actuarially sound, the underwriters and insurers tried to pass this increased risk back onto the customer: the businesses and their employees.

Remember, exchanges are designed to enable individual and small group consumers to pool their buying power and negotiate with insurers for lower cost coverage, in much the same way that a large employer can cover all of its employees – from sickest to healthiest – at the same rate.  The high cost of premiums on Utah’s exchange was a direct result of their failure to tap into this central cost-containment mechanism.

The Utah Health Exchange excludes the individual market and originally allowed insurers to discriminate against exchange participants by using different rating techniques than they used for consumers outside the exchange.  Utah quickly resorted to regulatory solutions to ensure their ‘free market’ model functioned properly and worked for consumers.  State officials limited rating factors that insurers use to price plans to age, family composition and geographic area and moved to penalize insurers who did not participate in the exchange by barring them from joining later.

Furthermore, Utah is in a unique position in terms of risk pooling – its citizens are fairly young and healthy.  The Director of the Utah Health Exchange Patty Conner cautions states that are considering using Utah as a model:

Obviously, there are political and budget issues to consider, as well as who are their uninsured, and the health status of their population. I know that there are some states that have very high-risk populations, which is not the case in Utah. We actually have a pretty healthy population, and a much younger population.

There, in a nutshell, is the difference between Utah and Oklahoma.  The chart below outlines the stark differences between the health outcomes of Utahns and Oklahomans:

In overall health status, Oklahoma residents ranked a dismal 46th in 2010, compared to Utah’s 8th place ranking.  Breaking down the data by individual health indicator, shows a population with health challenges far and above exchange model Utah’s health outcomes.

Robust regulations are crucial to realizing the central goal of exchanges – providing access to affordable coverage.  Before Oklahoma considers following in Utah’s footsteps, it’s important to realized that the ‘free-market’ model is something of a misnomer.  Utah’s exchange experiment demonstrates clearly what happens without minimum regulations on insurers – higher premiums and minimal participation.  Oklahoma must also come to terms with the fact that our population, older and in poorer health, is not one that will fare well in an environment lacking cost-containment measures.  Without a sincere commitment to building an insurance exchange that will serve Oklahoma consumers, fidelity to another state’s model won’t do much for the long-suffering Oklahomans in need of affordable coverage options.