OR Senate Cmte makes lousy sausage

Carla Axtman

The analogy that the ins and outs of creating public policy is akin to making sausage is an apt one. Alas, just as it takes the right combination of key ingredients to make good sausage, so it goes with public policy. When one of those ingredients is missing or the combination is wrong....well, it's not so good.

For example take Senate Bill 99, which creates a healthcare exchange as a public corporation. It would include a governing board and would be key to state and federal efforts to reform healthcare. Unfortunately, some main elements of the bill appear to be problematic to a number of watchdog organizations.

Bill Graves, The Oregonian:

Consumer groups, unions and nonprofit organizations, including AARP and Children First for Oregon, said they opposed the bill because it would allow a conflict of interest by letting two members of the exchange's nine-member governing board be insurance company employees. They also said the bill does not allow the board to uses the clout of the exchange's collective membership to negotiate lower premium prices from insurers.

"It is supposed to set up a market solution," said Laura Etherton, health policy advocate for the Oregon State Public Interest Research Group, "and one way it can do that is by leveraging the buying power of the consumers."

The conflict of interest piece raised by AARP and Children First for Oregon should be a red flag for Senators all on its own. But barring the negotiation of lower premiums from insurers ought to be a nonstarter for Oregon legislators. The exchange is supposed to leverage the buying power of consumers and small businesses to lower costs. But this bill seems little better than the status quo. Apparently, there's a talented group of health care lobbyists working things in Salem. Sources tell me that lobbyists convinced the committee to insert language in the bill effectively prohibiting the exchange from using any type of bidding process to increase competition between insurers.

This bill is headed to the Senate floor, which means it probably has a pretty good chance of passing.

Chair of the House Healthcare Committee, Rep. Mitch Greenlick, appears ready to at least take on the problems of insurance flunkies on the governing board. Hopefully there'll be enough concern on the House side about the premium negotiation ban to get that changed as well.

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      That's not necessarily a bad idea, Kari, but it's not what health exchanges are about. See the Kaiser Foundations explanation of health exchanges at http://www.kff.org/healthreform/upload/7908.pdf for what seems to be the generally accepted understanding of this term.

      What you are describing is a cooperative or combined risk pool, not an exchange.

      Basically, a health exhange is a market where people can shop for the plan they want. By definition, it coes not combine purchasing power for the purposes of negotiating premiums because each participant gets to choose the best plan for them. Since the exchange doesn't dictate which policy is chosen, there is no vehicle for negotiating rates as a group.

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        Jack, I've been digging into this.

        I'm still studying, but I'm not sure that I'm prepared to defend my earlier comment any longer.


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    Absolutely. Without negotiating power, what is the point? And the potential conflicts of interest on the board should be a red flag to say the least. Let's clean up this bill and give Oregonians what they really deserve- a health insurance exchange that they can trust to keep premiums from rising like they are now.

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    Can someone please explain the public interest rationale for not allowing insurance exchanges to negotiate a better rate on behalf of ratepayers?

    Regarding the governing board of such exchanges...

    Any such board is already a prime target for the appointment of industry lapdogs. One need look no further than the OPUC for how much worse these boards can make things for consumers, even without allowing industry employees to sit on them.

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    Where is the language in SB 99 that specifies seats going to industry? Or is it the absence of language preventing it? A Statesman-Journal article describes it a little differently:

    "Oregon State Public Interest Research Group questioned whether two of the seven seats should go to insurers or health-care providers, as would be allowed under SB 99."

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    From my perspective SB99 has become a really bad bill. If Mitch Greenlick's House commitee can not correct these 2 glaring errors then I think SB99 should die and Oregon should cast its lot with the Federal version of the exchange. I can't see how the Fed. version could be any worse. The damnable thing is that Oregon had been at the forefront of the effort to create a small business/consumer oriented model for the exchange. Oregon stands to lose considerable Federal dollars if we can't follow through. The insurance agents and brokers have been having a screaming fit over the exchange as they stand to make far less working for the exchange than they can make in the private market. Creating an insurance-centric exchange does not help anyone (except the insurance brokers and agents). I had expected the Democratically- controlled Senate to pass a balanced exchanged bill (or not pass anything at all) and allow Greenlick's committee to pass a good bill. It appears the insurance companies continue have as much power in Salem as they have always had. Let's hope Mitch (and the health care coalition) can get 'er done.

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    Let me try and explain why the exchange is not pointless without a formal negotiation process. First, I assume that the model that Carla and others would like is something along these lines (correct me if I'm wrong): The Exchange would approach insurers and say, provide us with the best benefits you possibly can at the lowest possible costs, knowing that the winners will get a huge amount of business. The Exchange leadership will evaluate bids and pick two or three options, which Oregonians will be able to select. This is not that different than what PEBB and OEBB do for public employees. There are advantages to this model, but disadvantages as well as beneficiaries don't get a lot of choice if they are not happy with the network or service.

    The theory underwhich the exchange would work under SB 99 is different. There would not be formal negotiations (they are not banned as the bill is written, but there may be amendments I don't know about). Instead, the Exchange board would approve rules establishing minimum standards for insurance offered under the exchange. These must meet federal minimums, but the state exchange can go beyond those minimums. At that point, insurance companies are allowed to offer plans in the exchange as long as they meet those minimums. (The Exchange has the power to bar any insurer from the exchange or limit the number of plans in order to enforce standards and benefit consumers.) Consumers will get to pick from a variety of comparable plans (to prevent plan designs that encourage cherry picking) and the expectation is that plans will compete on price, network and service, instead of competing on low levels of coverage (and denial of coverage) like they do now. Having more choices in the exchange will theoretically result in stiffer competition, as consumers will be more easily able to switch plans. Contrast that with the PEBB model, where if you don't like Providence or Kaiser you have no recourse (and even less if Kaiser doesn't serve your area).

    So yes, Carla is right that negotiation really isn't a big part of the exchange design. But that doesn't mean that the exchange board will not have powerful regulatory tools available to ensure good behavior by insurance companies.

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      Brian, this is a very useful (and, as I understand it, accurate) description.

      I'm not sure I agree entirely with your conclusion, but as I noted above, I'm still studying.

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    At OSPIRG, we support Oregon having a health insurance exchange. But, after careful analysis and multiple attempts to improve the bill, we (and 16 other groups) pulled our support for SB 99-5. Here are two big reasons why:

    1. The bill effectively bars the exchange from negotiating on costs.

    While some would like to restrict exchanges to be nothing more than insurance shopping malls, states do in fact have the ability to operate exchanges to negotiate for lower costs. Multiple states have, or are designing, exchanges in just this way. Last week Maryland joined their ranks, passing a law ensuring their exchange “(a)chieves the maximum benefit from the purchasing power of the exchange.”

    Oregon’s exchange should leverage its buying power and drive the best value for our health care dollars. It should set standards, go out for bids, and then offer the plans that do the best job of meeting those standards, at the best price. But under SB 99-5, the exchange has to offer the same number of plans from each insurer (section 11(4)) as long as they meet minimum standards, regardless of the price. That simply won’t create the competition we need to lower costs.

    1. The bill allows people on the board with conflicts of interest.

    How can the exchange board fulfill its mission to serve the interest of the individuals and small businesses who buy coverage in the exchange, if it has board members that are in a near-constant state of conflict of interest? The bill allows two seats on the board to be filled by people with conflicts of interest, including insurance company representatives and brokers (section 4(5)).

    This means that two of the seats on the board could be occupied by individuals representing interests that the board may be contracting directly with, or interests with a financial stake in the details of those contract negotiations.

    When it comes to health coverage, consumers, small businesses and taxpayers can’t keep paying more and more and getting less and less. We need an exchange that stands up for us, not the insurance companies. Oregon lawmakers need to strengthen this bill.

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      Is Brian right that including a negotiating process (prior to entry into the exchange) would necessarily lead to fewer choices available within the exchange?

      Is it wrong to assume that giving consumers flexibility and lots of good choices would lead to downward market pressure?

      Seems to me that we're talking about two fundamentally different strategies -- negotiate a couple of best options at the administrative level, or approve a bunch of good options and let consumers choose among them.

      What's the argument for the former instead of the latter?

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        I think the key phrase in your question here is "good choices." Good quality, decent prices. Do consumers and businesses get better prices when we negotiate as a group like a large business, or when we're divided up as we are now?

        Some quick background: The bill already gives the exchange board the ability to limit the number of insurance products offered. It will take the numbers down from about a thousand mind boggling options, to perhaps a manageable dozen or so. No one is talking about taking it down to 2 or 3 options.

        Here is where there is a decision between two different strategies: How does the board decide which, say, 15 insurance products to offer?

        Does it take the products that have the best value? That would foster competition between insurers to get in the exchange, by offering good quality at the best price.

        Or, does it take the same number of products from each insurer? It's understandable insurers like this approach. As long as they meet minimum standards, they'd get a fixed number of products in the exchange no matter what prices they charged.

        With a buying pool of 350,000 in the exchange, small businesses and individuals finally would have the kind of buying power to negotiate lower costs. Do we throw that opportunity away? Can we afford to?

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        The negotiation between the insurer and care providers is at least as important as the negotiation between insurers and insureds. Insurance plans with more members can negotiate harder with providers, leading to lower prices. That's the tradeoff- fewer, bigger, cheaper plans or more, smaller, expensive plans.

        Without the leverage effect people could find value by just sorting plans of equal coverage by price.

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    Currently, small businesses face premiums that are 18 percent higher than large businesses pay. Small businesses are at a disadvantage in negotiating with insurance companies because they lack bargaining power. The health insurance exchange is intended to provide small businesses and individual consumers the ability to pool their buying power and negotiate with insurance companies. The Oregon Senate sub-committee on health care is denying us that opportunity. (And, there is absolutely no excuse for carving out health exchange board positions for insurance excutives, lobbyists and brokers.)

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    For the wonks among us, here is a link to the version of the bill that passed the Senate committee: http://www.leg.state.or.us/committees/exhib2web/2011reg/SHH_SUB/03-31-2011meetingmaterials/sb0099-5amendment03-31-2011.pdf

    It appears the Legislature's website isn't up to date on this one yet.

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