UC Berkeley’s Dr. James C. Robinson on state exchanges adopting the active purchaser model
State of Reform sat down with Dr. James Robinson, Leonard D. Schaeffer Professor of Health Economics and Director of the UC Berkeley Center of Health Technology, to talk about state exchanges and the active purchaser model. Dr. Robinson co-authored the article “Whither Health Insurance Exchanges Under the Affordable Care Act? Active Purchasing Versus Passive Marketplaces” with Covered California’s Executive Director Peter Lee.
With the Kaiser Family Foundation estimating an increase in the weighted average cost of the second-lowest silver plan by approximately 10% in 2017, and many state based exchanges transitioning from start up organizations to more sophisticated value propositions, we asked Dr. Robinson to share lessons learned from Covered California’s successful active purchaser strategy. He also reflects on the feasibility of applying this model to other states.
JL: Thanks for joining us, James. There’s been a lot of concern with premium prices rising and affordability. Do you think more states will revisit the active purchaser model as a means of bringing cost control to their states?
James Robinson: I think where it gets adopted will depend mostly on the political culture of the state. Inherent in the active purchaser model is the notion that the insurance exchange, which is a public sector or quasi-public sector entity, is going to go out there and be the agent of the patient.
The concept is that the exchange will be active and do things on behalf of the consumer. That is a concept which some people are very comfortable with, the liberal world view that the government can be a force for good. Conversely, on the more conservative side, there is more skepticism, and leans towards the clearinghouse model. This is in general.
Honestly, I don’t know enough about Washington state politics to speak to adopting active purchaser there. But I can say that a requirement of being an active purchaser is leadership and a willingness on the part of state government to invest the upfront resources it takes to build the staff and the competency of the entity.
Active purchaser has more staff and does more things than a passive clearinghouse. There’s a start up cost associated with it. Then you have to recruit someone like a Peter Lee [Executive Director of Covered California], a real dynamo, who is willing to give one hundred speeches and travel up and down the state.
Another aspect of the active purchaser model is, aside from the role of “purchaser” or someone who vets products to decide which ones are good enough and raises the bar of plans, is to be a really aggressive marketer. I think this is really important and underappreciated.
The reason why some states are facing really high increases in premiums is not because they are not active purchasers, it’s because they haven’t aggressively marketed coverage to their whole population. Therefore, they have ended up with a sicker risk pool. The younger, healthier people are the ones that often don’t take insurance. If you want to have a successful insurance program you have to have both types.
Covered California has been very aggressive and phenomenal in marketing coverage up and down the state. If you are here, you’ll see everywhere billboards, radio, social media, storefront media centers. Covered California has 550 storefront offices to enroll people. A lot of the people they get are through campaigns targeted to young, healthy people.
I don’t think it’s because they bang on the table, and they tell insurance companies to reduce their prices. That helps a little bit, but the reality is that you cannot brow beat insurance companies into pricing their products below their costs. That’s not going to be sustainable. The way to ensure low average costs is to bring in healthy members.
JL: Now is Covered California simply able to do that because of the state’s sheer population size? Or is there an actual better marketing strategy that you see?
JR: It’s a will and sophistication. Of course, it’s a bigger state. There are more people in the South East corner of Los Angeles than in the state of Washington. It’s big down here. But I don’t care if it’s active or passive purchaser, if it’s going to be successful, an exchange has to constantly invest in and engage in marketing strategy.
I don’t mean marketing in a brass, commercial way. I mean actually teaching people that getting health insurance is both a wise and personal decision. It’s also a good social thing. You’ve got to reach out and do niche marketing to each sub group.
In California, this ethnic and linguistic diversity is quite remarkable. Most people are healthy; most people don’t have a lot of a lot of extra income. So they are wondering ‘why should I be paying several extra hundred dollars in insurance premiums when I see the doctor only a few times a year?’
JL: Could you speak to how the active purchaser model translates to transparency and consumer empowerment?
JR: The simplest way to think the about active purchaser versus the clearinghouse model is that the clearinghouse model is a one-level market, whereas the active purchaser model is a two-level market. In the clearinghouse, any health plan can offer any product design and then the consumer just picks among those products and that’s it.
In the active purchaser model, there are two things. First the, the health plan has to get their product approved by the exchange, and if they do, they become one of the offerings that go before consumers as a ‘successful candidate’ if you will.
What that two-level market does is levels the playing field in that the exchange has much more sophistication than the typical, individual consumer in understanding health insurance products. Insurance products are complicated. The average consumer just doesn’t understand even the basics of what an insurance product is and what it covers and what it doesn’t.
Put another way, the exchange becomes the agent of the consumer.
JL: Do you think that it’s easier for an exchange with an active purchaser model to argue its value proposition to its legislature than one with a clearinghouse model?
JR: It’s either a vicious cycle or a virtuous cycle of political support as you point out. The way to be successful in terms of premiums is to have scale and enrollment. To have enrollment, you have to invest in marketing, and you have to invest in the capabilities of innovation. So, it’s circular.
I would emphasize that the term active purchaser really involves two things. First, it’s about really aggressive, active marketing to the people. That brings in the healthy people, and that holds down the premium. The premium is based on the average risk.
Second, it’s about standardizing the benefit package. For each of the levels—gold, platinum, silver, bronze—there’s only one product design. It helps consumers not be confused by different deductibles and copays and coinsurances. It stops games and empowers consumers. You have more enrollments.
That ultimately creates a positive feedback loop.