Q & A

What are your options in the health insurance exchanges?

The insurance exchanges at the center of healthcare reform will open for business later this year. Alongside existing for-profit insurers, the exchanges will include new nonprofit insurers called Consumer Oriented and Operated Plans (CO-OPs). Allison Silvers '90, chief operating officer of a CO-OP sponsored by the Freelancers Union in New York, discusses the health insurance exchanges and what it takes to create a new kind of insurer.

Q: Starting next year, the health insurances exchanges, which are really the centerpiece of the Obama reform, are scheduled to go into effect. How are the exchanges developing?

The first thing I'll say is that this is definitely going to happen. You hear rumors or maybe hopeful criticism that the exchanges aren't really going to come together. That is just not true. The exchanges are going to be up and running October 1st of 2013. New York had a deadline of April 15th for health plans that wanted to participate on the exchange. The plans are on board. The state has the infrastructure build going on fast now.

There are three types of exchanges: ones that states create and operate by themselves, partnership exchanges where a state works with the federal government, and finally, the federal exchange which typically is in a state with a Republican governor who wants nothing to do with the Affordable Care Act leaving the exchange to the federal government.

Exchanges have both a small group exchange and an individual exchange, which is a bit of a misnomer since includes individuals and families.

Q: How do the exchanges work from the consumer side?

Individuals go to the exchange website and enter their information and projected income for next year. Through the glory of algorithms, they are offered all the plans that they're eligible for along with information on whatever subsidy levels they're eligible for. They choose one and they can electronically pay their first premium.

The difference between the state and the federal exchanges for individuals is in the minutia. Tax credits and cost sharing subsidies will all be taken care of through the IRS, federally. In New York, the state is the intermediary.

On the small group side, it varies by state. New York is taking the most supportive role. They're almost playing HR manager for these small groups. In New York an employer could say yes, we'll participate on the exchange and then their employees can pick from any plan in the exchange. That's not true on the federal exchange, where the employer has to pick one plan for all its employees.

Q: Do you expect to see insurers collectively settling on best practices or will they start to vary even more?

If I had to read the tea leaves, I think what's going to happen is there's going to be a lot of creativity to keep costs down. In some ways, the exchanges commoditize health insurance. As a plan on the exchange, your product is being compared exactly to your competition. That's going to put a lot of pressure on keeping prices down.

I went to a panel recently where all the big players in New York showed their hands about one way they plan to keep prices down. Right now a lot of health plans have 70,000 or 80,000 providers in their network. When your network is that big you have less negotiating control. If you create a preferred network of providers who have proven their quality and cost effectiveness, you can control costs better.

I think another thing that'll cause downward pressure on costs is everyone trying to do things that will have a long-term impact on cost. For example, starting January 1, 2014, pre-existing condition clauses are prohibited. Anybody with a pre-existing condition can buy any insurance. You would think that is going to raise premiums, but because the plans know that these high-risk people out there, they're taking a really hard look at improving their chronic care management capabilities.

While I don't think prices will ever come down, they'll either stabilize or not increase to the extent they were increasing before.

Q: What is the Freelancers Health Services Corporation, and how does it fit in to this new structure?

We are a private, member-governed health insurance company, one of the twenty-four Consumer Oriented and Operated Plans, or CO-OPs, formed as part of the Affordable Care Act. All of the CO-OPs are sponsored by community-based nonprofits that don't currently offer health insurance. We are the only CO-OP in New York State.

Q: Who are you expecting to insure?

We're anticipating getting the bulk of our enrollment from the New York State Health Benefit Exchange. We've been preparing the application, our products and our pricing. That means beating up our actuaries to get our prices as low as they would possibly agree to sign off on.

Not only are we a nonprofit, but the operating rules of a CO-OP require any profits that we do generate have to go back into lowering the premiums. I'm taking lowering premiums to heart and we're doing our best to get our premiums as low as possible from the start.

We're anticipating that we'll cover a lot of people who haven't had health insurance either ever or for a while. We want to make sure that they hook up with primary care and utilize the benefits that they have appropriately rather than running to emergency rooms when they have sore throats or a chronic illness. Our coaches will use motivational interviewing and coaching technology help our members use the healthcare system to their advantage.

Q: How did Freelancers Union choose to sponsor the CO-OP?

Sarah Horowitz founded the Freelancers Union close to 20 years ago now. She originally thought of it as a forum for that segment of the economy to come together and advocate for different policies at the state and federal levels, but once she started putting the organization together, the most significant thing that the self-employed workforce talked about was health insurance.

By and large the health insurance industry doesn't really want individuals or small businesses. They're looking to snag large employer contracts.

Certainly for the Freelancers' CO-OPs, and probably for all the CO-OPs, we exist because we want to make sure that freelancers, sole proprietors, and small businesses have access to affordable and quality health insurance. People in this segment of the economy are either in financial jeopardy because they can't afford health insurance and get wiped out if something happens to them, or have to spend a significant amount of their income to get health insurance. I think it's absolutely something that as a social venture we need to address.

While CO-OP isn't short for co-operative, it is meant to allow the consumer a voice in health insurance. At least 51% of our board must be comprised of people we insure. As our executive director puts it, "Why buy insurance from somebody else when you can buy it from yourself?" It speaks to our focus on building something that benefits our members. It's going to be an excellent plan for people who really haven't gotten the attention from the industry to date.

Q: How do you make sure you've got a sustainable approach?

We just hired a general counsel and compliance manager. He asked in his interview if our board is comprised of people who are insured, but aren't necessarily in the full business of understanding the risks and cost structure, what's going to stop them from covering things like teeth whitening?

Our mission is to keep premiums low. It's a pretty easy to understand that keeping premiums low requires keeping medical expenses in check, and some of that isn't rocket science. The more people that get the flu shot, the lower expenses are in general. If all of a sudden the entire health insurance industry is doing its best to get people to get flu shots, it can make a difference.

Q: When do start offering the insurance?

We start accepting applications October 1, 2013, and providing benefits January 1, 2014. Like any start-up, especially in a regulated space, we have a lot to do. On the enrollment side, there are 87 interfaces that have to be built to accommodate the various combinations of income levels and tax credits. That's a tremendous amount of work.

By the end of June we have to have all our policies and procedures done. At the same time, we're still trying to build our network. We have a vendor and if nothing else happens, we will function quite well, but we're trying to add in some targeted providers to strengthen who we are and what we can do. And since we are consumer run, we figured we should be even better about interacting with the consumers, so we're putting significant effort into making sure our customer service is top notch.

We don't have our license yet so we can't market specific products, but we are trying to go out there and educate people about the exchanges, what the options are, and when CO-OPs might be right.

I got my hair cut this Saturday. The woman who owns the salon is exactly the sort of small business owner I want to insure, but she had no idea about the health exchanges. I really want my hair stylist and her three employees to get their insurance through us. I think it's the right fit. To get a little sappy, we're going to care about what her experience is whereas most health plans are more concerned with IBM's experience.

Q: How many people are working for the company right now?

Right now we have 8 ½. By July we'll have about 14. By the end of the year, about 30 or 32. We can probably stay at 30 to 32 for a while unless we enroll well beyond the 30,000 we're projecting.

Q: Are you able to compete as a smaller company? Would you be able to do different things if you get bigger?

Scale is important. Like any business, once you get a certain scale, your administrative costs start coming down on a per person basis. I think one of the things that I personally have in mind once we have a bigger scale is to start doing pilot programs. To do that correctly I would need a pilot population and a control population. We need scale for that.

Another examples is marketing. For United Healthcare it might be .005% of their budget, but for us it's up there. It's too high a proportion of our administrative expenses. But as we grow the denominator gets bigger while the marketing number isn't going up as much.

Q: Do you have a sense of whether you're going to be able accomplish what you want or is it something that will be proved out in the years to come?

We're not going to be in a position to set up correctly incentivized payments to providers until we really know who our insured population is and what their needs are. But once we jump to a place where we can pay for what we want rather than just reimbursing any service provider, I'm confident we will get there. We want to succeed as a health plan and a business. That's in our self-interest. But we have the broader perspective that ultimately we won't succeed unless we have an impact on the health and the cost of healthcare for New York State.


For more on the implimentation of healthcare reform, see a video conversation with Robert Galvin, CEO of Equity Healthcare, a firm that manages health insurance for more than 300,000 people, talking about how he sees the law changing the health insurance market—and the importance of continuing to innovate on all levels.

Chief Operating Officer, Freelancers Health Service Corporation