Joe Swedish is the chief executive of Wellpoint, one of the country's largest health insurance plans. As an insurer selling on 14 state exchanges, he has had a first-row seat to HealthCare.gov's botched rollout -- and is also seeing the health-care law's expansion of Medicaid transform his business. And even with the rocky start, Swedish says his plan still sees the exchanges as a growth opportunity that, in time, will work well.
We spoke Tuesday afternoon at the JP Morgan Healthcare Conference in San Francisco. What follows is a transcript of that discussion, lightly edited for clarity.
Sarah Kliff: Can you tell me a little bit about your long-term outlook on the exchanges? It sounded like you were relatively optimistic in your presentation that this could be a growth opportunity.
Joe Swedish: No. 1, we believe that over time a lot of these bumps will work themselves out. We always expected it to have sort of a lumpiness to it, to the rollout. It's certainly become more lumpy than one would have predicted, and I don't think that's applicable to just us, that's just the nature of how this has evolved. Over time, this will work out.
Some have asked are we committed to the exchanges going forward, and just to underscore our view, it is the law, it will be executed albeit continued lumpiness over a period of time.
Rather than saying I'm optimistic, I think the better term is cautiously optimistic. Very cautiously optimistic. We're a multi-dimensional health plan so it's not all about exchanges for us. Proportionally speaking it's part of our business portfolio, but, for instance, our government division includes 45 percent of our revenue. Not many people appreciate that. And that's an ever-growing part of our business. Exchanges are not included in government business.
SK: Even when it gets to its full potential, the exchange population will still be a relatively small segment of the market. Will the marketplaces ever be a big part of Wellpoint's strategy and business plan?
JS: Maybe a better way to approach that question is to be able to say to you that, in our market, we're in 14 states, we know that two-thirds of the population are eligible for government subsidies. So that's Medicare, Medicaid, exchange subsidies. Some kind of subsidies. So I think exchanges are a slice of the bigger pie here. And that's how we look at engagement in the marketplace, both in terms of alignment with government and partnering with government, but, on the other side of the coin, we know that commercial will still be a very vibrant part of our portfolio and some of that is migrating to exchanges over time as well, in various forms.
Our portfolio is changing, and we're adapting to those changes.
SK: Can you talk a little bit about your Medicaid business, and how the state decisions about expanding Medicaid impact you?
JS: Looking at 2015, we were just awarded a contract in Tennessee, and that's about a $1 billion uptick in our revenue, where we're going to be servicing the state in Medicaid. In Florida, we were just awarded a very strong position in the state regarding being active in four regions. We've got a very strong presence there, as well. We're very actively engaged in the pursuit of dual eligibles, as well. We're going to be playing in the duals space quite a bit. Medicaid is a substantial part of our portfolio by way of the Amerigroup transaction. What's interesting, two years ago, government represented 10 percent of our revenue. Today it's 45 percent. Again, we're moving with the momentum that's occurring, in terms of being more actively engaged in the government space, which includes Medicaid.
Last point I'll make is there are many states that have opted out of Medicaid expansion. Over the long term, we believe Medicaid will have an ever growing presence in many more states, and I think out of our 14 states, about half aren't expanding Medicaid. Our sense is that half will shrink to less than half. I think we see a growing engagement in Medicaid among all of our states.
SK: When you talk about going from 10 percent of your revenue in government to 45 percent, do you see that as a longer term trend that's going to continue?
JS: I think the trend is clearly going to escalate. As the elderly become more prominent, 10,000 new seniors enter Medicare every day, so yes, it will continue to grow. It's a fact of life in our nation.
SK: You talked a bit in your session about research that you all did leading up to the exchanges, in terms of surveying potential shoppers about what would be important to them in the exchange. What did you learn there, and how did that shape the insurance plans you now offer on the exchanges?
JS: The research pointed to purchasing behavior and purchasing preferences, so it's too early to really examine if our analytics translated to reality. But statistically, given the volume of survey responses we saw from 55,000 consumers, we believe that what we uncovered will certainly play out to be true with three major takeaways: price is preeminent, brand and then network configuration.
Obviously we believe price is a key determinate regarding the choices that people make, but given the strength of our blue brand, we felt in terms of what we uncovered being a Blue Cross Blue Shield plan brought a lot of credibility to what we were offering. So we think that will have an impact on the choices people make. Again, network is a consideration, but it varies. If you've got a lot of illness, your acuity is very high, you may shift network to No. 1, and price may be second. In the main, it's going to be price, brand, then network.
SK: How do you think the new subscribers coming into your plans are going to react to the Wellpoint networks? I know there's been a lot of discussion of networks narrowing. Is that happening with your exchange products?
JS: The tradition for the Blues is we have large, broad networks. In some markets that certainly will continue, and in others narrow networks have evolved, and it is the standard of practice in those communities. Narrow networks are an active part of networks that are offered. Narrow networks is certainly more of a standard in markets now.
To back up a bit, our belief about consumers is there are two huge drivers in the marketplace going forward. Consumer engagement, and then we spoke to this point earlier, the influence of government whether that be Medicare or Medicaid. We're working actively on consumer engagement, so network configuration such that we have quality network design, all of that are key ingredients in how we're going to build presence in markets going forward.
SK: Are your networks narrowing in exchange products?
JS: Generally speaking yes, but you've got to understand if you've seen one market, you've seen one market. There are some markets where narrow networks are the rule, and others where it's still fairly broad. It does vary by market.
SK: Are you planning any sort of advertising push now that HealthCare.gov seems to be working better?
JS: We had a substantial marketing effort ready to go October, November, December. And then in October, November, December we pulled back because, quite frankly, people who would try to enroll, you wouldn't know where to send them. What we delayed now will be activated going into the finalization of this enrollment period and beyond.
SK: Can you talk a little bit about how the back end of HealthCare.gov is working? Are you still seeing problems?
JS: We're the recipient of files, enrollment files. We're still getting files. When we get the enrollment files -- last week, we're talking about tens of thousands of those files. Once we get the files, we're talking about many days of processing to get all of that pushed through the system. It's a combination of challenges to get the files processed and then deliver, based on premium payment, the ID card to the member.
So you can image how complicated this administrative process is. A lot of people who don't have their card assume that the backlog is with us. So they're calling us as they should, so we're figuring out how to engage with the member to make sure they get the benefits they need as quickly as they can. Each call is, on average, a half hour when we finally engage with the member, trying to figure out enrollment.
We got last week, Thursday and Friday, a million calls each day. So we've mobilized. We've added 1,000 people to our call centers in addition to what we had before. We believe that once we can get ID cards out, in members' hands, then this will probably lessen the amount of anxiety because people will know they're enrolled. We still have a lot of work to do to get from here to there.
We don't wake up in the morning trying to think of ways to complicate life for our members. Our primary objective is to make a member's engagement with us a satisfying event, especially when they rely on pharmaceuticals or have chronic diseases. We're hyper-sensitive to this. In many respects, our hands are tied trying to make this happen as efficiently and as effectively as possible for the members. At the end of the day, it's all about member satisfaction.
SK: Do you get the back end of HealthCare.gov getting better? How would you describe the problems that still exist?
JS: It has gotten better because people can actually engage in the application process. Then there are downstream effects. I think complications, difficulties and systems on the front end beget problems downstream. It all flows down. Just because the system was theoretically fixed on the front end doesn't mean everything works perfectly on the back end. It's a cascading effect, that's what we're managing our way through right now. It's kind of like that ice flow coming out of Minneapolis down the Mississippi. Eventually, it's going to get down to New Orleans.
SK: Do you see your exchange participation changing at all in 2015? Would you add new markets or plans?
JS: A lot depends on enrollment, a lot depends on the marketplace, there are just a lot of characteristics we're going to have to consider regarding the product design, pricing how we market the product, and it's really dynamic. Once enrollment is locked down March 31. Pricing will have to be submitted in May 15.
SK: What's most surprised you about your first-year experience with the exchanges?
JS: I think the complexity of the enrollment process. Certainly, I think the complexity has become a much bigger challenge than I ever anticipated. It's certainly of great concern that the front end became so complicated, and, in terms of consumer engagement and friction, became very much of a headwind compared to how the system was supposed to work.