If one person could be credited with first conceptualizing and promoting the idea of health insurance exchanges, it's probably Alain Enthoven, an 82-year-old economist and retired Stanford University business professor.
In 1978, Enthoven proposed the idea of managed competition. A sponsor, like an employer or the government, would offer consumers defined contributions, select baselines and establish rules for enrollment, contracts and risk selection.
The idea, he wrote later in 1993, is "compatible with Americans' preferences for pluralism, individual choice and responsibility and universal coverage." Just don't call premium support or defined contributions vouchers, Enthoven said, even though he liked Republican Congressman Paul Ryan's Medicare premium support revamping.
"I think the term vouchers has been picked up by the far left as a way of misrepresenting and deprecating the whole idea," Enthoven said. "Vouchers means we're going to give you a piece of paper and you go out and see if you can find insurance in an unregulated market. That's not what we're talking about. You do need to have structured, organized market, in which there are people there to help you."
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In an interview with Healthcare Payer News, Enthoven talked about the evolution of his idea, why he wants health insurance to be more commodified and some of the problems he sees in the public exchanges being built today.
HPN: What prompted this idea of managed competition and insurance exchanges?
Enthoven: Back in the mid-seventies, I became a consultant to Kaiser Permanente and I noticed that a very large part of their business was the Federal Employees Health Benefits Program and the California Public Employees Retirement System. The reason this was so important in their business is that these were two employment groups in which the employee had a range of choices and could save money by choosing a more economical health plan. From previous experience, I concluded that integrated systems like Kaiser and other prepaid group practices shared information, worked in teams and had incentives alignment...I reached the conclusion that the rest of America has reached 40 years later: that that's a very good thing.
Well then, how do we get there from here? If more people had insurance arrangements like the federal employees or the state employees, then more people would be able to seek value for money and choose quality, cost-effective and integrated delivery systems.
In 1976 Jimmy Carter was elected president; he picked Joe Califano to be his secretary of Health and Human Services, and Joe asked me to work with them to develop a plan whereby Jimmy Carter could redeem his promise to bring us universal health insurance. I wrote a pair of articles published in the New England Journal of Medicine called "A National-Health-Insurance Proposal Based on Regulated Competition in the Private Sector." Then I started hearing from people picking up on the word regulated saying, "Oh you know, the health plans can run circles around you because if you do this, then they'll do that, and if you do that, then they'll doing something else." But they were assuming a kind of very slow-moving, hide-bound regulatory process, and I was thinking more of someone like the smart woman who was running the Federal Employees Health Benefits Program. Essentially, I felt managing instead of regulating was a better term to describe the idea.
That idea really caught on. A lot of people talked about it. Democrats liked it; Republicans liked it. The problem was Democrats liked the managed, but they didn't like the competition. Republicans liked the competition, but didn't like the managed.
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Consumer choice health plan was based on universal insurance. I didn't think through very clearly the details of the exchange. I thought it would in some way resemble CALPERS, California Public Employee Retirement System. I did realize at the time that there were some significant deficiencies with the way in which the federal employees plan was managed -- that prices ought to be set in regional markets, like CALPERS. They have a different price structure for northern California and southern California.
HPN: More recently in 2007, you were part of the project with a D.C. think tank, the Committee for Economic Development, crafting a new universal health insurance proposal. What was the idea for that?
Enthoven: What we had in mind was that the government would make a defined contribution for everybody, equal to the price of the low-priced plan meeting standards in their region. And because the government would be paying all or practically all of the low-price plan, you wouldn't have to have a mandate, because it would be foolish for anybody not to sign up, and there's strategies you could use with the people who don't sign up, like the amount of money intended for their defined contribution instead could go into another fund for catastrophic high-deductible health insurance.
Part of the idea is if everybody is eligible and everybody gets the same contribution, then the exchange can just manage competition. Somebody might say, "Why are you subsidizing the rich as well as the poor?" Of course through the tax system, right now we subsidize the rich a whole lot more than the poor through the exclusion of employer-contributions from the taxable income of employees. Various economists, myself included, have recommended that that exclusion be taken away.
HPN: Why do you think contract simplification and standardization is so important?
Enthoven: Practically nobody reads their health insurance contract. They kind of go on faith that if they need it it'll be there. If you can find one or two people who have actually read it, I believe they haven't understood it, because it's really very complex. How can we have a market if people can't read and understand the contract? I think part of the regulatory framework has to be standardization in the contracts. Non-standard contracts can be a serious problem. Among other things, with non-standard products, insurers can use complex contracts to confuse the customers to attract good risks and repel bad risks, to differentiate the market.
Back around 1990, when I was chairman of the health benefits advisory council for CALPERS, they had many HMOs, and one of the recommendations we made -- which CALPERS accepted -- was to have one standard contract for all the HMOs. Now, some insurers don't like that. They say, "That's going to prevent us from being able to innovate, or that you're going to make our product like a commodity." Well, of course, making it like a commodity I think is desirable. What I think the management of the competitive process needs to do is make it easy for people to switch, so that people will switch if there are price variations. The insurance market, if left free to its own devices, would not be good material for competition. I think you have to structure it and organize it in such a way as to make competition work.
HPN: How successful do you think the public exchanges will be in terms of enrollment, competition and affordability?
Enthoven: Something I'm very concerned about is I think they've been handed an extremely complex assignment, because they have to determine eligibility. They're not just running a market for health insurance, but also they're the agency through which subsidies will be administered. Whereas, lets say with CALPERS, which runs a big exchange successfully and efficiently, everybody has got their own deal with their employer. Hundreds of local government agencies buy through CALPERS. They have some minimum underwriting standards -- the employer has to contribute a certain amount; guaranteed issue is taken care of -- but CALPERS doesn't have any additional problems of consulting the IRS or the welfare offices or a lot of other people. That has made it all very complex for the public exchanges.
I think in California we have very smart people who are working very hard to make it work. If anyone can make it work anywhere, it'll be Peter Lee. But I am concerned about some of the other states. Of course some of them don't want to do it; the federal government can do it for them. I hope the federal government has the knowledge and competence to do it.
I think it could've been done it a whole lot more simple way. That's one of my reservations and concerns about the Affordable Care Act. I don't like to call it the Affordable Care Act, because I think it's the Unaffordable Healthcare Act.