An Overview of Health Insurance Exchanges

• Jocelyn Guyer, Georgetown University Center for Children and Families

• Timothy Stoltzfus Jost, Washington and Lee University School of Law

• Nancy Turnbull, Harvard University School of Public Health

From Vision to Reality: State Strategies for Health Reform ImplementationNovember 11, 2010

Organized marketplace

Available to individuals and small businesses

State-based (mostly)

Target date: January 1, 2014

What is an insurance exchange?

Exchange Coverage

Employer Coverage

Exchange Coverage is a Key to Health Reform

Public Programs (Medicaid

/CHIP/

Medicare)

Public Programs (Medicaid

/CHIP/

Medicare)

Where Individuals/Families Will Obtain Coverage in 2019

Change in Coverage Sources, 2010-2019

16

-3

24

-5

-10

0

10

20

30

Medicaid/CHIP Employer Exchanges Nongroup/Other

Source: Georgetown Center for Children and Families analysis of Congressional Budget Office, “Cost Estimate of HR 4872, Reconciliation Act of 2010 (Final Health Care Legislation)” (March 20, 2010).

Unsubsidized

Subsidized

5

19

Timothy Stoltzfus Jost

Washington and Lee University School of Law

Health Insurance Exchanges and the Affordable Care Act: Eight Difficult Issues

1. Governance

How should exchanges be governed?

Should they be run by a state agency or a nonprofit entity?

2. Adverse Selection

The most significant problem exchanges have grappled with historically has been adverse selection.

What should be done to avoid adverse selection against and within exchanges?

3. Self-insured Plans

Opening exchanges to large employer plans, and in particular to formerly self-insured employee benefit plans, poses a significant threat to the exchanges.

What must be done to make self-insured plans compatible with exchanges?

4. Attracting Employers

Exchanges must attract employers as well as individual enrollees if they are to succeed.

What can be done to make exchanges attractive to employers?

5. Certifying Plans

The ACA requires exchanges to certify health plans that meet certain requirements for participation in the exchange.

How should exchanges exercise this regulatory authority?

6. Consumer Information

The ACA requires exchanges to make both descriptive and evaluative information available to consumers.

How should exchanges fulfill this responsibility?

7. Determining Eligibility

Exchanges play a central role in making eligibility determinations for premium tax credits and cost-sharing reduction payments and for the Medicaid and Children’s Health Insurance Programs.

How should eligibility determinations work under the Affordable Care Act?

8. Financing

Exchanges must find ways to hold down administrative costs and must identify funding sources if they are to succeed.

What can exchanges do to reduce administrative costs and attract funding?

How Massachusetts Answered Tim’s

Questions

Nancy Turnbull Harvard School of Public Health

Board Member of Massachusetts Health Insurance Connector November 11, 2010

Section 125 plansSmall Employers-

Unsubsidized

SubsidizedCommCare

Individual-Unsubsidized

Massachusetts ConnectorMassachusetts Connector

1717

Structure and Structure and Governance?Governance?

Independent public authorityIndependent public authority Governed by 10-person boardGoverned by 10-person board 4 government officials4 government officials

Chaired by secretary of administration and financeChaired by secretary of administration and finance Medicaid directorMedicaid director Commissioner of insuranceCommissioner of insurance Head of agency responsible for state worker and Head of agency responsible for state worker and

retiree benefitsretiree benefits 3 gubernatorial appointees: economist, small 3 gubernatorial appointees: economist, small

employer, actuaryemployer, actuary 3 Attorney General appointees: consumer, 3 Attorney General appointees: consumer,

union, health and welfare trust fundsunion, health and welfare trust funds Three-year terms for appointeesThree-year terms for appointees Broker will be added to board as of July 1, 2011Broker will be added to board as of July 1, 2011

PProtecting against adverse rotecting against adverse selection?selection?

Before the exchange:Before the exchange: Long history of insurance market reform Long history of insurance market reform

Guaranteed issue/renewalGuaranteed issue/renewal No rating on health status, medical claims, No rating on health status, medical claims,

gendergender Modified community ratingModified community rating

2:1 rating bands2:1 rating bands All products available to everyoneAll products available to everyone Major carriers must sell individual productsMajor carriers must sell individual products

All products at each carrier in one rating All products at each carrier in one rating poolpool

PProtecting against adverse rotecting against adverse selection?selection?

Since reformSince reform Same insurance rules inside and outside the Same insurance rules inside and outside the

exchangeexchange Same rating pool inside and outside ConnectorSame rating pool inside and outside Connector Merged small employer and individual marketsMerged small employer and individual markets Insurer must sell “Seal of Approval” products Insurer must sell “Seal of Approval” products

inside and outside the Connectorinside and outside the Connector Individual mandateIndividual mandate Standardized products in the Connector Standardized products in the Connector

LACKING Insurers can sell non-standardized products Insurers can sell non-standardized products

outside the Connectoroutside the Connector No risk adjustment across insurers (except in No risk adjustment across insurers (except in

subsidized Commonwealth Care) subsidized Commonwealth Care)

Making exchange attractive to Making exchange attractive to small employers?small employers?

~6000 members in small employer plans~6000 members in small employer plans Biggest value: Easy to compare what’s Biggest value: Easy to compare what’s

available from many carriers available from many carriers Many challengesMany challenges

Opposition by BCBSMA (60% market share)Opposition by BCBSMA (60% market share) Concern about adverse selection if BCBS sits outConcern about adverse selection if BCBS sits out Opposition by most brokers (lower commissions)Opposition by most brokers (lower commissions) Whining about standardized productsWhining about standardized products

New 5% state premium subsidy for New 5% state premium subsidy for participation in Connector plan with wellness participation in Connector plan with wellness programprogram

How much will federal tax credits help?How much will federal tax credits help?

How to pick health carriers How to pick health carriers and products?and products?

Subsidized programSubsidized program Only Medicaid Managed Care plans initiallyOnly Medicaid Managed Care plans initially Robust competitive procurementRobust competitive procurement

Unsubsidized programUnsubsidized program Standardized products: Gold, Silver, Bronze, Standardized products: Gold, Silver, Bronze,

YAPYAP Carriers with 5,000+ lives in small employer Carriers with 5,000+ lives in small employer

market must bidmarket must bid Must bid for all lines of business and all Must bid for all lines of business and all

productsproducts ““Seal of Approval” to plans that provide “good Seal of Approval” to plans that provide “good

value” and “high quality”value” and “high quality”

2222

Information for Information for Consumers?Consumers?

Premiums for 50-year-old resident of Boston for effective date of June 2009

Massachusetts 1.0: “Actuarial Value”Massachusetts 1.0: “Actuarial Value”

2323

Mass 2.0: Standardized Mass 2.0: Standardized ProductsProducts

Eligibility across Eligibility across programs?programs?

Single application for all health programsSingle application for all health programs Electronic application, sort ofElectronic application, sort of ““Passive enrollment” – use information from Passive enrollment” – use information from

other state agencies to verify eligibilityother state agencies to verify eligibility Same health insurers in Medicaid and Same health insurers in Medicaid and

exchangeexchange Disconnect between “Medicaid approach” with Disconnect between “Medicaid approach” with

retroactive eligibility and exchange “private retroactive eligibility and exchange “private insurance” approach with coverage starting on first insurance” approach with coverage starting on first of next monthof next month

Auto enrollment for subsidized plan– enroll Auto enrollment for subsidized plan– enroll into cheapest plan if consumer doesn’t pick a into cheapest plan if consumer doesn’t pick a planplan

Outreach grants to community organizations Outreach grants to community organizations across state: big pay-offacross state: big pay-off

Reducing Administrative Costs Reducing Administrative Costs and Finding Funding?and Finding Funding?

$25 million start-up funding$25 million start-up funding Collects administrative feesCollects administrative fees

3.5% of premium3.5% of premium Cut of premium not an add-on: reduces revenue paid to health Cut of premium not an add-on: reduces revenue paid to health

insurersinsurers Self-sufficient since 2008—most through subsidized Self-sufficient since 2008—most through subsidized

productsproducts Broker commissions Broker commissions

$10 per subscriber per month: groups 1-6 lives$10 per subscriber per month: groups 1-6 lives 2.5% premium: groups with 6+ lives2.5% premium: groups with 6+ lives 90% of Connector small group sales are 90% of Connector small group sales are notnot through brokers through brokers

Scale/size is critical to lowering administrative costsScale/size is critical to lowering administrative costs Tensions about disrupting existing business practices: Tensions about disrupting existing business practices:

Duplicative? More expensive? Adding value?Duplicative? More expensive? Adding value? Is it cheaper to run programs through an existing state Is it cheaper to run programs through an existing state

agency?agency?

Role for Brokers?Role for Brokers?

BROKERSCONSUMER ADVOCATE WHO PROPOSED EXCLUSIVITY FOR THE EXCHANGE

EXCHANGE OFFICIAL WHO PROPOSED LOWERING BROKER COMMISSIONS

2727

Eyes on the PrizeMassachusetts: Uninsured as % of Population

10.20%

11.30%

9.2%

10.4%

5.4%

2003 2004 2005 2006 2007

Source: Current Population Survey, 2003-2008, US Census Bureau

2.7%2009

Source: Massachusetts Division of Health Care Finance and Policy, 2009 Household Insurance survey