Utah leads out with new virtual health insurance exchange

Exchange (ĭks-chānj’) n.

1. To give in return for something received; trade
2. To give and receive reciprocally; interchange
3. A place where things are exchanged, especially a center where securities or commodities are bought and sold

There have been several interesting health finance innovations that have been announced recently which have relevance to health reform in general and the some of my work at the Healthcare X PRIZE specifically. I wanted to first start with an announcement from the State of Utah that their version of a Health Insurance Exchange is now “open for business”. The Utah Health Exchange is based on a multi-year, multi-stage health reform effort in the very progressive but conservative state (is that possible?). The plan has three main components:

• Defined Contribution
• Virtual Health Insurance Exchange
• Risk Adjustment

Each element is described in a detailed communication from Edmund Haisimaier, a Senior Fellow Research Fellow in the Center for Health Policy Studies at the Heritage Foundation. Before you dismiss this effort as some conservative schtick from the right, you should actually look at what they are doing and how they are doing it. It is actually a fascinating read.

My take: BRAVO! What Utah is doing in health financing is something we should be seeing alot more of in the future. Couple points of comment:

Defined Contribution. I also love the notion of a “defined contribution” coming from employers. This is also a no-brainer – let the employees both see how much you are contributing to their health as well as give them the flexibility to make their own choice. These ideas were made popular by Definity Health, and I love seeing this concept move forward. For me, this will be the “death knell” of employer based insurance if this concept takes off – which I see as a very positive outcome.  I have already ranted about Employer Based Insurance in the past and the sooner we decouple this unnatural relationship the better off our country will be.

Virtual Health Insurance Exchange. Leveraging a technology platform (eInsurance in this case) to bring together all the disparate information to make an apples to apples comparison of various health insurance options. This allows the consumer to make rational choices based on their own preference sensitivity of price, features, benefits, and other metrics. I love that insurers, and the brokers who push their products, will have to do more than convince an HR manager who makes a company wide decision, but rather have to compete consumer by consumer by offering the best value. The technology makes it possible to compare dozens of different plans based on age and family status simultaneously. The agent role turns much more into that of a value added advisor.

Risk Adjustment. This is actually much harder to follow. Essentially, Utah is laying the foundation to create a state wide pool with everyone who has insurance being a part of a single pool. On the “front end” when the consumer purchases the insurance there will be some variation in pricing based solely on age and family status. However, on the “back end” the insurer taking the diabetic will actually get a little bit more of the premium. Furthermore, any insurer who has an inordinate amount of large expenses or wide variations in claims will receive additional credits from the other insurers. This innovative wrinkle can actually entice other insurers to participate as these “adjustments” further minimizes the risk that their “pool” performs worse or costs more than others. Essentially, the Utah Health Exchange pools premiums from all the consumers, each insurer provides coverage during the year, and at the end of the year they redistribute a portion of their premiums to any insurer who took an excessive hit during the year. The details of how this will work in practice were not included but the concept is very interesting.

This is exactly the type of health financing innovation we need to be seeing. New ways to pay for insurance, new ways to acquire insurance, new ways to spread and pool risk, and new business models that will allow these concepts to flourish.