Las Vegas -- The “health insurance exchanges” in the Patient Protection and Affordable Care Act of 2010 (PPACA) are descended from individual and small group purchasing health insurance alliances that have been around for decades.
David Smith has been there.
Smith, who is now a Morrisville, N.C., employee benefits advisor, helped revise North Carolina’s small group health insurance laws in the early 1990s, and he was policy director for the North Carolina State Health Plan Purchasing Alliance Board.
“My belief was that it was going to work,” Smith said recently during an interview here at the annual convention of the National Association of Health Underwriters (NAHU), Washington.
Smith said he sincerely believed that the alliance could lower small group health insurance prices by helping small employers join to bargain for better rates.
Smith said he lesson he actually learned as that pushing carriers to set rates too low can backfire.
In the real world, most carriers seem to use community rates as the basis for setting small group rates, and the carriers may add to the premiums for especially poor risks and lower the premiums for especially good risks, Smith said.
If a carrier tries to set prices any other way, “it just doesn’t work,” Smith said.
In North Carolina, when carriers gave the alliance great rates, “they charged too little money for the amount of risk they took,” Smith said.
Smith, who has worked with Blue Cross and Blue Shield of North Carolina, Chapel Hill, N.C., said he also has learned that comparing for-profit plans and nonprofit plans can be complicated.
A nonprofit plan may certainly a different, service-oriented culture, but, in some cases, a for-profit plan may have more money, Smith said.
“Money is pretty important,” and having it can help a carrier invest in innovative programs, such as wellness programs, Smith said.
The market itself tends to affect how all carriers in a given market handle their operations, Smith added.
In a competitive health insurance market, “you can’t get away with being too draconian about denying claims,” Smith said.
PPACA gives states a choice between running their own exchanges and letting the federal government provide exchange services for their residents.
If the PPACA exchange system is going to work, a state-based exchange that reflects its state’s culture seems as if it would do a better job than an exchange run by the federal government Smith said.
Correction: An earlier version of this article described NAHU's location incorrectly. NAHU has moved to Washington.