'Everybody Was Surprised By Oct. 1'

A Q&A with the insurance industry's leader in Washington

Karen Ignagni, American Health Plans (©2008 Richard A. Bloom)

Other than President Obama himself, no one has more riding on the success of the Affordable Care Act than insurance companies.

The industry's relationship with the law is complicated -- it spent millions of dollars to try to defeat Obamacare in Congress, but has since emerged as the one of the strongest defenders of the law's fundamental structure, pushing back against changes from Republicans and the White House alike.

In the four years since Obama signed the Affordable Care Act into law, insurers have overhauled their products and business practices to comply with the law while trying to influence the massive regulatory undertaking of implementation. And then, in October, the launch of HealthCare.gov sent insurers scrambling.

National Journal recently sat down with Karen Ignagni, the president of America's Health Insurance Plans -- the industry's largest trade organization -- to discuss the law's fourth anniversary and its first open-enrollment period. What follows is a transcript of that conversation. It has been condensed and lightly edited for clarity.

NJ: Through earnings calls and other forums we've gotten some indications from some carriers who are feeling like the risk pool will be about what they expected, a little better, a little worse. If you can attribute one sentiment to your membership -- where are your companies now? Are they panicked? Are they nervous? Are the optimistic?

KI: No one knows right now. We're not going to know. About a month from now, we'll have a much better idea, but right now we don't know. We've always thought that March would be the time when the younger and the healthier would actually purchase insurance. And we are seeing an uptick in enrollment, which is very encouraging. We just don't know necessarily who those people are -- meaning, what their health care expenditure pattern will be like. Will they fall into the category of healthy or sick? We just don't know that yet.

But we've always thought that it was a marathon, not a sprint. And the people who are less likely to need insurance would be the last entrants. And from their economic perspective that's probably rational, because they feel that they don't need to actually sign up until the end. That's what we've always thought. And that's happened in the states, as well; we saw that in Massachusetts and we've seen it in other states. So it's very difficult. It's not a particularly sexy answer, but it's very difficult to know right now until we go through the end of the month and we see, what does that distribution look like.

And then the other issue that is a challenge going forward is the number of people who are in the so-called transitional policies. The reason that that's a challenge is that means that some of the healthier people in the market are not going to be part of the risk pool -- not only this year but going forward. So that's a challenge to be addressed going forward as well.

And this is why the temporary risk mitigation strategies are so important. Because just like Part D, in that new market, there were temporary risk mitigation strategies designed to offset the higher unanticipated expenditures, etc. So it is going to take, I think, that transition time that was foreseen in the legislation, just as it did under Part D.

NJ: What do you think the politcal/public perception climate is right now? You've seen those programs criticized from the right. Obviously the legislation was passed with a lot of criticism about insurers. Is there a way out of that box?

KI: I think a fundamental question -- and we saw this in the discussion of the transitional coverage last fall -- is what is the perception of an individual who has had coverage and is asked to buy 10 categories of coverage? Do they feel that that is too much? Do they feel it's too much in one fell swoop, to buy up? These are some of the observations we made back in 2009 and 2010. To some degree, the decision around transition coverage recognizes that there is concern on the part of certain individuals about being required to buy up in one giant step, as opposed to a more gradual process. Certainly the decision on transition coverage is one way to address that, and I think that there will be other ways that are looked at to address that issue, so that we can give people a more gradual way to get into the system.

NJ: Stepping back just a minute: March 23, 2010, when President Obama signed this into law, everyone sort of had their own assessment of what it was and what it was going to be, what the issues were, what it represented. From then until now, how has your assessment of the Affordable Care Act changed? What's been the biggest change?

KI: It hasn't. Our assessment is the same today as it was in 2009 and 2010, in terms of the architecture and some of the challenges associated with the architecture. We made several points then, which are playing out now in the public debate as well as on the ground in terms of the operations.

One, we suggested in 2009 and '10 that people were going to have concerns about the buy-up that they were going to be required to undergo. Meaning that ... individuals who are buying on their own in the insurance market, in the old insurance market, pre-ACA, expressed a very, very strong preference to buy more catastrophic coverage. They chose very high deductibles. They wanted to minimize their out-of-pocket premium, and to protect themselves from medical bankruptcy.

So we made the point back in 2009 and 2010 that because of that preference, that had been strongly demonstrated by consumers -- not by us in the industry, but by consumers -- that was a recipe for concern going forward. And indeed some of the debate around the transition coverage actually sheds light on that concern. And that's why I think there's going to be more dialogue in the policy community about how to address that concern so people can have more of a gradual transition into the market.

Number two: We raised significant concern about the premium tax. You're probably sick of hearing us talk about the premium tax. And the reason was, and is, that it adds to the cost of the product, at a time when consumers are very specifically price-sensitive. All of the research that's been done on consumer purchasing in the exchange demonstrates that their number one concern is having affordable premiums.

The third issue that we were very concerned about, and have been concerned throughout the regulatory process, is the issue of rating bands for younger people. Prior to the ACA, in 40 states "¦ the rating band -- which is the ratio of what older to younger pay -- was 5 to 1. Some states had 7, 7.5, 8, 9, others didn't have caps on their rating bands. So if you compress that overnight to 3 to 1, that means that the younger people will pay that much more than they were paying prior to the ACA.

NJ: There were some meetings before Oct. 1, and then a lot more after it seemed like, with you and some CEOs, where the White House message was always: We're on the same page now, carriers and the administration. How has your relationship with the administration changed over the last four years? "¦ As you said, plans did what they had to do, it was the law of the land, and then nobody could sign up for the plan. And then you've seen all of these [changes]. Some are bigger than others. All of that, I would imagine, has to strain that relationship.

KI: Well, it strained resources at the plan level. I mean, their human and financial resources. Because there are two sides to the operating environment, right? What consumers see, which is the front end, the front door of the website. And then the back end, which consumers don't see as much. But to work intensively through the challenges, to take a website that was going to largely work in an electronic fashion, and to actually be required to do quite a number of the functions by hand, essentially -- that's a very different state of affairs than what was expected, what was predicted, etc.

So the challenge has been on the ground for the plans to actually work on just the number of the back-end issues in a way that they never expected. And to their credit, we have a number of technology experts, operations experts, that are working very, very hard to provide input to CMS and advice about what they're seeing, whether the testing is working, whether certain strategies are working, etc. And that's been a very important part of the process, certainly for the agency.

NJ: When you mentioned earlier that you think we're going to see more discussion in the policy community around transitional [policies], what do you mean by that?

KI: I think the question is, what do people want to buy, and what options should they have? And do we have enough options for them at present? And one of the things that became very clear in the fall is a concern on the part of people who did have coverage -- they didn't want to lose it. And in part they were concerned about moving from coverage they had, which had not necessarily included all 10 categories of coverage, and buying up. So now the question, from a policy perspective, is how do you address those challenges? Are there additional options that are offered to individuals? What can we do to make people feel more comfortable in having a broader set of options? And I think that will be a subject that's discussed quite a lot in the policy community, as it should be, because I think people just generally like to have a more gradual adjustment.

NJ: Would you take away some essential health benefits, or expand age rating? What would you do?

KI: I think it's not a question of taking away benefits, but it's a question of whether or not there could be alternatives that would allow people to -- whether its to purchase coverage that is, from an actuarial perspective, is a little less than the actuarial value of a bronze plan. Things of that sort.

NJ: To that point, most of the people who have signed up so far have been picking silver plans. They haven't been choosing the bronze "¦ Why do you think more people haven't chosen the less expensive plans?

KI: It's the old adage, where you stand depends on where you sit. So if individuals have high health care costs and have incomes that ensure they are getting subsidies, then I think they'll make a decision to purchase a more generous plan. For people who are not necessarily eligible for subsidies, or eligible only for small subsidies, then they become very economically sensitive. They're looking at price very specifically. And I think those individuals are more likely to buy something a little less than silver.

NJ: Are you concerned at all that there could be an HMO-style backlash against some of the narrow provider networks in some of these plans?

KI: I think that it's very different now than it was back in the 90s. Back in the 90s, what health plans were doing was focusing on the price side of the premium. Now, I know of no plan that is negotiating with doctors and hospitals and only looking at price. Because of the advent of technology, data, and the maturity of the quality-measurement enterprise in this country, plans are looking -- as they are thinking about new payment arrangements with hospitals and physicians -- they're looking at high-value networks, they're looking at tiering, they're looking at a variety of strategies. And they're looking at price, because consumers want affordable pricing in premiums, but they're also looking at quality, because consumers also want high-quality providers. And that's very, very different than what was going on back in the 90s.

Second thing that's different is that, based on what we learned during the Part D experience, this idea of providing people choices. In a sense, bronze, silver, gold -- it's a tiering system, if you will, that provides people and individuals choices -- of network, of individual physicians, of hospitals, and so on, so that they can make fully informed decisions about what is the way they want to receive care. So they, as consumers, just as in Part D, can balance price and acces.

NJ: That's a lot for consumers to understand, though.

KI: But now, for the first time, consumers are making the choice. In the 90s it was largely a system where employers were choosing. Now we're talking about a market that has changed radically in the area of individual insurance particularly, where people are making their own decisions. And they are looking at these variables. And they're looking at these variables at the kitchen table, and it's important and health plans spend a great deal of time in terms of educating people about the choices, about their alternatives, and we'll be continuing to do a great deal of that.

Just a final postscript: If those are the tools that we have -- disease management, care coordination, and new payment arrangements and new benefit structures -- and you basically tie one hand behind the health plans' back, whether it be at the state level or the federal level, and you create such requirements where we can't do high-value networks, then that will have a very significant impact in increasing costs. There's no question about that. Whereas on the other side, if regulators and legislators continue to allow the tiering, the new benefit structures, the new payment arrangements, then I think consumers will continue to see affordable products and a number of alternatives that they are going to find affordable and high-quality.

NJ: You were saying your assessment of the law has played out basically the same as what your assessment was in 2009. What has been the biggest surprise to you in the past four years?

KI: I think everybody was surprised by Oct. 1. Without a doubt. We had no way to evaluate the front door of the exchange, because our side of this is more on the side that consumers don't see, the back end. I think nobody had any idea about people not being able to go on and sign up, etc., etc. I think that's probably the thing that was most surprising.

NJ: To what extent did you know that the back-end problems were as severe as they were, or was that exacerbated by the front-end problems?

KI: Well, maybe to some degree it was exacerbated by the front-end problems because all these individuals were stacked up and we didn't know who had signed in and so on and so forth, but our plans could tell in the summer that there were issues with not having enough testing and so on and so forth, so that was of concern. The back-end side of things. And not having enough time for testing compared to what plans would normally do in a rollout in the private sector.

NJ: And did those seem like manageable issues? On Sept. 30, were you all thinking, "All right, this is going to really go poorly once you open the door here, because we know the back end hasn't been built."

KI: It wasn't completely built, there's no question about that. But I think the operations leaders in the plans were just concerned about the crunch in terms of testing, and they were raising concerns because of that, and not knowing what was going to happen based on that, what they perceived to be inadequate testing schedule. And then, what happened is now history. The front end was problematic and certainly the back end was very problematic, too. And we still have major challenges on the back-end side that we're working through.

NJ: Aside from that -- aside from "build a website that works" -- what do you think is the biggest lesson of the open enrollment period that we've had?

KI: I think the biggest lesson is, of course, making sure that if something so large is starting, that it will work. That's clearly a lesson that everyone has pointed to. What our operations people tell us is that they don't generally bring out something so comprehensive in one fell swoop, that they bring things out more gradually. Whether that meant they would have given people time to shop without actually having the sign-up period at the same time, and so on and so forth -- it could mean a variety of things. But generally what you hear in the private sector, in the health plan community, is that if they're going to move forward with something so large, they do it in a more gradual way. That's what we hear from the ground.

NJ: And do you feel confident from your perspective that we're at a place now to move ahead to 2015 and 2016, with risk corridors and risk adjustment in place -- do you feel like we've sort of cleared the tower?

KI: We still have a number of things to do and quite a lot of work to do to get the back end built. As I said, our plans are working very actively with the agency on that. So that's number one. And then number two, I think that these risk mitigation strategies are very important to address both the uncertainty of who's in the plan and the proportion of healthy to sick. But there are still some challenges ahead with how does, what does the risk profile actually look like? How does that drive your pricing for 2015? And our plans are looking at all of that. And then, how do you absorb a 40 percent increase in the premium tax? So they're working through that now; they'll be working through that over the next couple of months.