An Overview of Health Insurance Exchanges

• Joe Touschner, Georgetown University Center for Children and Families• Lynn Quincy, Consumers Union

• 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

6

Lynn QuincyNovember 11, 2010

Health Insurance Exchanges – Key Issues for States and Advocates

7

How is an Exchange different from the market we have now?

Depends on the exchange design… Might not be very different: like the HHS

portal showing plans available on the market today

Has potential to be better: high levels of participation and strong authorizing legislation potentially make the exchange a powerful negotiator--driving health plan improvements and reducing premium volatility

8

How are Exchange Rules Different from the Outside Market?

Inside the Exchange Outside the Exchange

Guaranteed Coverage with limited rating factors

Must Cover Essential Benefits*

Limits on cost-sharing

Health plans arrayed into tiers based on actuarial value*

Health Plan Quality Reporting

Tax Credits for those under 400% FPL

Tax Credits for small, low-wage businesses

Additional health plan reporting

* Does not apply to large employer plans

9

Exchange Success Affected by Many Factors --many outside the direct scope of Exchange

Exchange ??

Basic Health Plan?

Size of the market?

Is small group combined with individual?

Number of Insurers? How competitive?

Exchange governance & authority

Provider Supply?

HHS rules re: risk adjustment

& eligibility

10

Eight Difficult Issues Facing States*

governance health plan

certification making exchanges

attractive to small employers

consumer information minimize/avoid

adverse selection

eligibility determinations for premium tax credits & cost-sharing reductions and coordination with public insurance programs

reducing administrative costs

accommodating large employers

*List from Tim Jost’s paper: Health Insurance Exchanges and the Affordable Care Act:

Eight Difficult Issues, September 30, 2010

11

Issue: GovernanceQ: State agency or by a nonprofit entity? Important Goals:

Avoid conflicts of interest Independence – must not be subject to political winds

Recommendations: An independent agency Management: apolitical and professional Governing board: include representatives of state

agencies with which the exchanges must work, interested parties, and persons with relevant expertise

Outsourcing: only those services for which competitive markets exist and for which performance can be readily monitored

12

Issue: Health Plan CertificationGoal: Rules should encourage competition on price and

quality while ensuring a sufficient number of participating plans.

Recommendations: Authorizing legislation must NOT require exchanges

to admit all insurers in the market Authorizing legislation SHOULD give exchanges the

option of being an active purchaser, should market conditions permit

Authorizing legislation SHOULD permit further standardization of benefits

Develop better techniques for measuring local market conditions

Need clear delineation of regulatory roles between state insurance department and the exchange

13

Issue: Attracting Small Employers

Q: How to attract small employers, in light of past difficulties of small employer pools?

Note: Even though many fail, some pools succeed—HealthPass (NYC), Montana Small Business Purchasing Pool*

Recommendations: Administrative ease Offer aggregated billing and option for fixed

employer contribution Make stability of exchange offerings a priority

*See small employer chapter in Quincy, Designing Subsidized Health Coverage Programs to Attract Enrollment, Dec. 2009.

14

A closely related

Issue: Attracting IndividualsQ: How to attract individuals if their subsidy is

small or non-existent? Recommendations:

Manage expectations Make the exchange easy-to-use BUT also invest

in the navigator program Make stability of exchange offerings a priority Monitor consumer reactions and fine-tune as

needed Consider state-based subsidies as

uncompensated care needs shrink

15

Issue: Consumer InformationGoal: Provide usable, actionable information to

consumers without overwhelming them Recommendations:

Exchanges (in concert with HHS) should develop summary rating measures that permit accurate comparisons of health plan value

Patient satisfaction-survey programs must include and summarize separately the opinions of plan members who have serious health problems or financial problems

Continuously test/monitor consumer reactions*

*Forthcoming issue brief: A Radical Idea: Testing Consumer Reactions Prior to Launching New Initiatives

16

Issue: Adverse Selection

Goal: Avoid a “death spiral” whereby

premiums in the exchange become more expensive than the same coverage outside

Recommendations: Insurer market rules should be identical

outside and inside the exchange Use a sophisticated risk-adjustment

system (HHS) More details in separate session

17

Issue: Eligibility Determinations Goal: Make eligibility determinations accurate,

timely and hassle-free for consumers Recommendations:

No wrong door - individual may apply either to the exchange or to the state Medicaid agency

Minimize the need for paper documentation by using electronic data sharing

Interim assistance should be readily available in cases where eligibility cannot immediately be determined

18

Issue: Administrative CostsGoal:

Administrative costs—exchange costs and insurer cost—should be minimized. Better for consumer premiums and competitiveness v/v plans outside the exchange

Recommendations: Authorizing legislation should neither require nor

bar the use of agents and brokers for the purchase of insurance from the exchange

Consider uniform, flat dollar commissions

19

Issue: Large EmployersQ: When and how should large employers be allowed to

purchase in the exchange? Important Goals:

Don’t destabilize the exchange Recommendations:

The U.S. Department of Labor and Department of the Treasury should clarify that only employers who bear the substantial risk of the cost of health care for their group can characterized as self-insured.

A state could certainly permit an employer to switch to exchange coverage only during an open-enrollment period. It could also require plans that enter the exchange to remain for a fixed period of time, or face a waiting period if they tried to return after leaving prematurely.

20

Key Points For Advocates Allow time to become fluent in ”exchanges” Manage expectations -- be cautious about

affordability claims Tax credits will lower consumer cost but not

underlying premium

Rely on state specific data when possible Local market conditions affect exchange

approach

Get up to speed on the contentious issues specific to your state

21

Exchanges Resources for Advocates

Timeline (handout) What are states doing?

http://www.statereforum.org/implementation-strategy

NAIC Model Law (bare bones version):http://www.naic.org/committees_b_exchanges.htm

22

Health Insurance Exchanges – What Consumers Need To KnowStarting January 1, 2014:

Individuals and small businesses can shop in a new health insurance marketplace featuring:

standardized insurance products (and better peace of mind);

tools for comparing options and finding the best plan for you;

strong insurer oversight; and

tax credits for coverage (if your income qualifies)

How Massachusetts Answered the Eight

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

2525

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”

3030

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”

3131

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

3535

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