Howard Adams, who runs a farm equipment business in Lubbock, was in good health most of his life.
Then, 13 years ago, he lost sensation in both legs. A neurologist told him he had multiple sclerosis, a disorder causing periodic loss of muscle control, eyesight and speech.
After his diagnosis, Adams’ insurance premiums for himself and his five employees shot up from $22,000 annually to $74,300.
“We were forced to drop the insurance,” Adams said. “All of my employees lost their health insurance.”
Today, Adams gets around using wheelchairs, walkers and canes. He drives a car equipped with hand controls. He pays $1,200 a month for insurance through the Texas Health Insurance Pool, a state insurance program for people with chronic illnesses. His hefty insurance premiums are a burden, but “without the medicine, no one would be doing as good as you are doing right now,” his neurologist assured him.
Not everyone with multiple sclerosis or other chronic diseases can afford the high premiums of the risk pool. Some resort to purchasing cheaper supplies of multiple sclerosis medication from Canada; others go without treatment.
A few months ago, Adams, now an advocate for the National Multiple Sclerosis Society, joined representatives of hospitals, physicians, insurance companies and brokers in the Texas Legislature to push for the creation of a Texas health exchange to help people like him and his employees gain access to affordable insurance.
The Patient Protection and Affordable Care Act directs each state to show substantial progress in setting up a health exchange to serve as a marketplace to compare and purchase insurance by Jan. 1, 2013. Although many groups such as hospitals and insurance companies support establishing a state exchange, political opposition to health care reform has dampened hopes of creating a statewide exchange by 2014.
Contrary to some beliefs, the new law does not end the private insurance system. People who are satisfied with their insurance can keep it and employers who want to retain their group plans may do so. And insurance brokers are expected to play a role in the new federal health care program, helping consumers find coverage.
In the health risk pool, Adams’ $1,200 monthly payments are twice the base premium, with a $5,000 deductible. But in a health exchange, Adams might pay the same premium as anyone else. In 2014, plans will no longer be able to charge different premiums based on health conditions.
“They would not have zeroed in on my disease, and we’d all have insurance at a normal rate,” Adams said.
Moreover, his employees could obtain less-expensive coverage in an exchange. Buying individual or small group insurance, even for healthy people, is both expensive and cumbersome in Texas. Insurance seekers are required to disclose numerous details about themselves, their lifestyle and their personal health history, including existing health conditions, health habits, health history, work history, insurance history and other personal information.
“Right now in most states, when you go to apply for insurance, you don’t get quick and valid information about what it’s going to cost you,” said Sonya Schwartz, spokeswoman for the National Academy for State Health Policy, a nonpartisan, nonprofit think tank. “You have to apply and go through the whole process to get a quote.”
Comparison shopping is often confusing because most health insurance companies offer a smorgasbord of plans with annual premiums that can fluctuate depending on the costs of their medical services each year, frequency of use and other variables. One plan, for example, may be cheaper than another but cover fewer services and prescriptions. An exchange like the one operating in Massachusetts, on the other hand, would make it “easier to understand your options, understand the differences between them and make a choice,” Schwartz said.
Under the new health care legislation, each state would determine the level of services and benefits insurance carriers must provide to consumers. But a basic health coverage package, known as essential health benefits, is designed to assure consumers that at least minimum benefits are provided by every insurance company participating in their state’s exchange.
To purchase insurance through a Massachusetts-style exchange, Adams would visit a website, type in how many people he wants to cover and view a list of plans that offer similar benefits for ease of comparison. The main difference between plans is the price. A hotline would help applicants who are not tech-savvy, don’t understand English or have questions.
The federal government will subsidize premiums for those who have incomes between 133 percent and 400 percent of the federal poverty level. For a family of four, that annual income is between $29,000 and $88,200.
In Texas and other states, the exchange would be responsible for deciding which insurers participate and for determining benefit levels and premiums. Plans must be organized into platinum, gold, silver, bronze and catastrophic levels, depending on the average portion of medical spending paid by the insurance company. Each category would provide different benefits and different pricing.
Under the new health care law, the state must supply the technology and manpower to accept and post plans, add subsidies in real time and inform those who qualify for Medicaid of their eligibility.
Today, the Massachusetts Connector is the only health exchange operating in the U.S. that meets the new federal law’s requirements. The Connector headquarters consists of 45 people who occupy a one-floor office in Boston. The tiny staff is responsible for seeing that the insurance needs of the state’s 200,000 customers enrolled in the exchange are met each day. Hundreds more are engaged in website development, customer enrollment, premium billing, customer service and segmented marketing.
Consultants for the exchange planners in Texas estimate that 1.7 million people would purchase insurance through the exchange. That creates a huge market for Aetna and other insurance companies that want to offer new health insurance plans through the exchange.
“Texas is a good market,” said Ralph Holmes, president of Aetna Health Inc. of Texas. “We have some concerns about how it may be set up, but generally it’s our intent to participate. We have created a project management office in our Hartford, Conn., headquarters, which is staffed with a number of people whose entire job is to ensure we are ready to meet exchange requirements and comply with the law in 2014.”
Tom Banning, CEO of the Texas Academy of Physicians, is among those doctors and Texas hospitals that expect patients and caregivers to benefit from the creation of health exchanges.
“Ideally, the individuals with insurance will become more sophisticated users of health care and health insurance and focus on preventive measures so those more acute problems are addressed early and at less cost,” Banning said.
The prospect of having more of the present-day uninsured with insurance coverage is particularly appealing to Texas hospitals. Hospitals currently are required to provide medical care whether a patient has insurance or not. Hospital administrators say the new system would mean they wouldn’t have to pass on or eat the cost of treating someone who couldn’t pay.
“The amount of uncompensated care provided by hospitals is significant because we have so many people uninsured,” said Charles Bailey of the Texas Hospital Association. “If [patients] are not insured, [hospitals] will get little to no payment.”
Proponents say exchanges will create more competitive pricing.
“Better competition will help drive down insurance premiums, and that’s exactly what exchanges do,” said Blake Hutson, an Austin organizer of Consumers Union, a consumer advocacy group. “We need a new way to help families and workers, small businesses get health insurance and to help people who already have insurance but struggle with high rates. [A] health insurance exchange in Texas is the way to do that.”
Yet despite some of the advantages of a statewide exchange, Texas has not made any significant progress in establishing one. In the last legislative session, House Bill 636 — a bill to create the exchange — was held up in committee. Gov. Rick Perry made it clear he would veto bills creating the exchange.
The governor believes federal health insurance reform is “a misguided, unconstitutional and unsustainable government takeover of our health care,” said Lucy Nashed, his deputy press secretary.
The individual mandate provision of the health law stipulates that everyone must purchase insurance or pay a fine of $95 or 2 percent of income in 2014, with fines increasing in later years. Texas has joined other states in challenging the constitutionality of the individual mandate in the U.S. Supreme Court. “People shouldn’t be mandated to purchase anything they don’t need,” said Spenser Harris, a policy analyst with the Texas Public Policy Foundation, a conservative, nonpartisan think tank. “They should have the freedom of choice and take on the risk of any benefit they do not pay for.”
But without the individual mandate, premiums could become prohibitively expensive, mandate supporters say. Only those who are sick purchase insurance, while those who are healthy elect to pay the fine — a phenomenon called adverse selection.
“The whole idea around why the individual mandate was put into place was inherently based on the law of large numbers,” said Holmes, the Aetna executive.
In other words, the greater the number of people insured, the less risky it is to insure those people.
To pay for insuring people with illnesses, like Howard Adams with multiple sclerosis, many more healthy people also must buy into the exchange and at a higher price than if people with illnesses were excluded. That’s the rub, according to critics of the exchange. If there are more people with chronic illnesses and high health costs than healthy people, premiums could skyrocket.
The federal health law pays for the new subsidies and cost of running exchanges by imposing higher taxes on medical industries including insurance companies, medical device manufacturers and even tanning salons.
“There is an $8 billion tax that goes into effect in 2014, and that will be spread across the insurance industry,” Holmes said. “You can be fairly sure some element of it will be passed along.”
The new system is unsustainable, according to Harris, of the Texas Public Policy Foundation.
“All of these new taxes passed down to customers in addition to new insurance regulations are going to raise the cost of health care,” he said.
The cost of creating an insurance exchange is a concern to officials. The model specified by HB 636 would have cost $12 million annually in 2013 and 2014. Almost $4 million would have come from the state’s general revenue fund, and the rest would be funded by the federal government. Rep. John Zerwas, R-Simonton, author of the bill, says the model proposed by the bill has broad stakeholder approval and support.
Zerwas sports a small, sparkling lapel pin — a pair of red, white and blue flags joined at the stem. One has 50 stars, the other just a lone one. He opposes the federal health insurance law, maintaining that the state government can better meet the needs of Texans and Texas companies. Federal law dictates that if the state does not create an exchange, the federal government will step in to create one for the state or partner with the state to perform some exchange functions.
If an exchange has to exist, Zerwas wants Texas at the helm. His bill is “more about protecting the state’s oversight of the health insurance market as opposed to ceding it to the federal government,” he said. An exchange is just a marketplace to better connect buyers and sellers. But in Texas, Zerwas said, the idea of creating an exchange triggers political “radioactivity.” Still, Zerwas holds out hope that Texas lawmakers will establish an exchange before the federal government creates one for the state.
Many health providers and insurance companies also believe that a state-based exchange could better respond to the needs of Texans.
“It would allow the state’s insurance commissioner, who is appointed by the governor and overseen by the Texas Legislature, to draft rules for how the operation of the exchange would run as opposed to a bureaucrat or bureaucratic organization in Washington,” said Tom Banning, who represents Texas family physicians. “If issues arose that needed to be addressed in terms of how an insurance plan is behaving or performing, it would be easier to assess that change through a state-level exchange simply because we have a relationship with Texas Department of Insurance. We could engage our Legislature to intervene in those problems and not have to run to Washington.”
Bailey, with the hospital association, and Holmes, with Aetna, say much the same thing. The state can more easily settle local disputes between insurance companies and providers and account for local nuances. Under the federal law, states have choices when it comes to the structure of the exchange.
The main choice is between active purchasing and open market — each providing different benefits. In an active purchasing model, states are far more selective in picking plans for the exchange. In an open market model, officials allow any plan meeting minimum benefit requirements to participate in the exchange.
Consumers Union prefers an active purchasing model.
“Having health insurance companies submit bids and try to be the lowest bidder to provide health insurance in the exchange will result in the lowest-cost health insurance and best-value health insurance provided in the exchange,” said Hutson, the consumer advocate. “The competition is in the front end.”
Conversely, Aetna believes that active purchasing will stifle competition because the state would decide which insurers are allowed to sell products in the exchange.
“When the exchanges are set up, the state sets up criteria that anyone who meets can participate if you don’t want to limit competition in the exchange,” Holmes said.
Even though the federal government hasn’t provided states any blueprint for what a federal exchange would look like or how it would run it if states like Texas decide to not create their own, Zerwas and other legislators say they fear the worst.
“They [the federal government] would pursue the path of least resistance, which would be a one-size-fits-all model that could be applied to any state,” he said.
Fourteen states have passed legislation or executive orders to create state-based exchanges. When Texas received $1 million in federal grants to study exchanges, it spent $96,000 and gave the rest back, according to John Greeley, spokesman for the Texas Department of Insurance.
Meanwhile, many states are pushing ahead to create health exchanges. Texas is one of nine states making no significant progress, according to the Kaiser Family Foundation. Louisiana and Arkansas decided to not create exchanges.
Even if the Supreme Court rules the individual mandate unconstitutional, lawmakers’ failure to agree on a plan for creating some sort of insurance exchange in Texas means about 25,000 Texans likely will continue to pay premiums at twice the base premium other Texans pay. And insurance companies will continue to split the pool’s losses, which came to $98 million in 2010, according to the latest data available from the Texas Health Insurance Pool.
For people like Howard Adams, coping with major illnesses that strain their bank accounts, the uncertainty about health care in Texas is depleting their emotional health, as well.
“It’s really frightening for people with chronic disease when the market is changing so dramatically,” says Kim Suiter, vice president of the National Multiple Sclerosis Society. “When we are talking about MS, this is a disease for which there are no cures and you’re going to live your whole life with it.
“It’s not normal business and commerce,” Suiter said. “This is people’s lives.”