The moment President Obama signed the Affordable Care Act three years ago, health insurers began intense lobbying at the federal, state and even municipal levels to influence how the law would be implemented.
Among the most important policy goals for the industry from day one has been to control as much as possible how the health insurance exchanges -- the online marketplaces where individuals and small businesses will be able to shop for coverage beginning October 1, as mandated by the law -- will be set up and run. Whether those exchanges are of greater benefit to consumers or insurance companies will depend on the success of the industry's lobbying efforts, and nowhere is the pressure from a big insurance company more intense than in the District of Columbia, which is currently designing its own exchange.
Nothing is more important to a health insurer than its ability to be one of the dominant insurance carriers in any given state or metropolitan area. Market share has a big impact on profitability. The more customers you have, the easier it is to demand that hospitals and doctors give you better discounts than smaller insurers, enabling you to have a bigger profit margin than your competitors.
As a result of mergers and acquisitions over the past several years, one or two big companies now have the lion's share of the health insurance business in just about every city in the country, and the nation's capital is no exception. CareFirst BlueCross BlueShield is by far the biggest health insurer in the Washington area, controlling more than three-fourths of the individual and small group markets in the city, and, as its efforts to influence members of the Washington City Council make clear, it is determined to keep, and, if possible, increase, that market share.
The D.C. Council is scheduled to vote next week on a bill, proposed by Mayor Vincent Gray and backed by the D.C. Health Benefit Exchange Authority that will require insurers to sell all coverage to individuals and small businesses solely through the exchange. This requirement would be phased in over one to two years. The biggest opponents of the bill are insurers like CareFirst and some of the city's agents and brokers who prefer the current opaque world of health insurance shopping, a world that will become much more transparent after October 1.
D.C. is unique in that it has a very small insurance market due to its comparatively small population. In addition, the District has a relatively small number of people who remain uninsured thanks to extensive expansions of public programs for low-income residents. Most residents who do have coverage often work for larger employers like the federal government, which cannot purchase coverage in the exchanges for at least a few years.
D.C. officials and health policy experts believe that having a unified market for individuals and small businesses in the exchange will be necessary to create a big enough pool to generate adequate purchasing power and ensure that insurance risk is spread more evenly across the population. There is concern that without the requirement, the exchange will not be sustainable because insurers would be able to devote most of their sales and marketing resources to attract businesses they want most -- those with the youngest and healthiest employees -- outside of the exchange.
That would result in an older and less healthy population inside the exchange, making coverage for them more expensive. While this could occur in any state once exchanges are launched, it is especially concerning in a small jurisdiction like D.C. where even a small amount of this type of market fragmentation and dicing of risk can have a dramatic impact on the price of coverage for everyone.
Allowing insurers to sell coverage to small businesses outside of the exchange would enable them to continue "cherry-picking" the customers they want, a practice advocates of reform hoped the Affordable Care Act would end.
Dominant insurers like CareFirst are determined to protect their market share and the profit margins that cherry picking enables. After all, they've gone to great lengths over the years to become dominant and to keep competitors either out of the market or in their place as also-rans.
There is abundant evidence that dominant insurers do not always pass along to their customers the savings they generate by demanding greater discounts from doctors and hospitals. They might be forced to do so in a more transparent and competitive market that the exchanges will create, and that would cut in to their profit margins.
Dominant insurers, consequently, fear the level playing field created by exchanges, which allow consumers to make apples-to-apples comparisons among different plans and see how much each insurer is charging for the exact same policy. Conversely, dominant insurers would have more to gain from the failure of exchanges than some of their smaller competitors.
CareFirst and other industry representatives appear committed to persuading members of the DC Council that they should vote against or weaken Mayor Gray's bill. Although the few people who spoke against the bill at a hearing earlier this week were industry trade associations, agents and brokers and a few customers they recruited, they were greatly outnumbered by supporters of the mayor's bill that represented a diverse group of consumer advocates, providers, small businesses, non-profit organizations, and individual residents.
I was invited to testify at the hearing because of my experience as an insurance company executive who over the years helped develop a number of campaigns to kill legislation that might threaten insurers' profits. I cited as an example the industry's successful campaign in the early 2000s to make sure Congress would not pass a Patient's Bill of Rights, which would have required insurers to operate in a more consumer-friendly way. We hired a big PR firm to create a group that purported to represent the interests of small businesses but that in reality was a front group for insurers.
As I explained to the council, although the insurance industry professes support for "choice and competition," there are far fewer insurers today than just 20 years ago because of numerous mergers and acquisitions and the fact that dominant insurers have been able to force some competitors out of business. And after the passage of the ACA, insurers have redoubled their efforts to prevent a more competitive and transparent marketplace.
Health insurance exchanges represent the best hope we have of restoring choice and competition, and in fact, could likely take it to levels never seen before in the insurance marketplace. Although we're still 4½ months away from the date the exchanges must be up and running, we're already seeing evidence that they will work well for consumers under a new system of transparency and competition far better than today's unorganized marketplace in which dominant insurers enjoy an unfair advantage.
Last week, the Oregon insurance department published the proposed monthly premiums that insurance companies said they planned to charge on the Oregon exchange in 2014. Within 24 hours of seeing what their competitors were planning to charge, the companies that had proposed the highest premiums announced that they would cut their rates substantially.
The same thing could happen in D.C., but it probably won't if the industry-backed campaign against Mayor Gray's consumer-friendly proposal successfully weakens or blocks the legislation. If the bill is defeated, CareFirst will be the big winner -- and on its way to becoming even more dominant than it already is in the nation's capital.