It's quite amazing to see the reaction to the health insurance/benefit exchanges that have been mandated by the health reform bill, to be created and maintained by each state to manage its uninsured population. There were seven states/coalitions that had received the early innovator grants, ranging from just above $6 million to Maryland, all the way in excess of $50 million to Oklahoma. Now that is some range of innovation, I must say. But I deviate. The point is that two of the top three grantees—Oklahoma and Kansas--have since returned the grants. And by the looks of the conversations we have been hearing in the corridors of power, there may be others who are contemplating a similar response. On the other hand, the second round of grants provided additional funding to the smallest grantee, Maryland, in excess of $20 million. That brings me to my original question.

What's going on?

Now, I always have had an ear for conspiracy theories. I still watch Oliver Stone’s JFK almost religiously and freeze frame during the shooting incidence. But this time around, even I cannot start to consider a red-state vs blue-state conspiracy. The more I look at it, the more obvious the answer becomes. It's simple economics, that greatest leveler of them all.

States simply do not have money to support an insurance exchange once the federal support runs out at the end of 2014. For them to accept the grants, thereby committing them to an operational exchange, is an unthinkable option at this stage. They simply cannot perceive the ROI on this.

At one stage it sounded pretty good because the grants would have given the states the opportunity to modernize their age-old legacy systems for other social services such as TANF, CHIP and Medicaid, while working on the implementation of exchanges. I am sure everybody thought, however briefly, that there could be an opportunity to integrate them all under a single state-of-the-art system. And why not, if the ‘no door left closed’ policy had to be implemented, it would have required significant integration between the existing systems and the new exchanges. Why not go a step further and bring them all in, under a big and beautiful single system.
The problem is that the states started realizing that on one hand it was not that easy to integrate those systems (I will leave the horror stories that a very knowledgeable big-4 consultant told me about the possibility of integration in one southern state, for a later post) and on the other hand, even if one succeeded, one still could not see the offsetting revenue source for the incremental support cost for the uninsured population. I am sure, once the economic reality became clear, the sheen started to come off of the federal offer and we ended up in the situation we are in today.

Can something be done here?

I take you back to my last post about why states need to pay anything for the exchanges. The answer has to come from an economic viability perspective and the only thing my little brain can think of is for the payers to pay a PMPM fee for each member enrolled into their programs through the exchange. That fee must replace the brokerage fee that the payers pay for group insured members (after all there is hardly any brokerage services needed/envisioned for individual ensuring through the exchanges), thereby making the payers whole and in some cases actually coming out better off. Of course the solution is based on the premise that it is almost an exclusive Web play (which can happen and has historic precedence such as auto insurance, mortgages etc) supported by call-center based hand-holding for people who cannot do it on their own (Have some brokers manning the lines, I guess).

As we all know that the economy of scale plays a huge part in any such endeavor, let me propose a slightly radical idea here. Why have 50 exchanges in 50 states? Why not have a national exchange, or if it is too onerous a task, why not have say five or six regional exchanges? This will have other beneficial side effects.

1. The geographical restrictions borne by some national payers and of most all local payers will be alleviated to a large extent. You play on the national/regional exchange and if you get a set of members from a region that you have ignored hitherto, tough luck. For you to participate in the opportunity to grab a share of 40+ million uninsured prospective members, be prepared to support those areas that you have consciously ignored till now.

2. The feds don’t have to spend the hundreds of millions of dollars on these early innovation grants. I am sure some smart people sitting in HHS can come out with a services-oriented architecture that can accommodate the core requirements of all states (after all they are quite similar, aren’t they?) with enough open hooks to accommodate unique state-specific characteristics as add-on. I know this can be done because I know of a group who seems to have done exactly that.

I know I may be proposing a simplistic solution to the seemingly insurmountable problem of ever-increasing healthcare cost and social responsibility to provide cover for all, but didn’t a wise man once say, that if all else fails, the simplest solution is the correct solution in all likelihood?

Rajiv Sabharwal is the chief solution architect in the Healthcare and Life Sciences unit at Infosys Technologies LTD. He can be reached at


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