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Onesies, Twosies and MoreConsiderations in Rhode Island for merging existing Small Group and Direct Pay markets
Presentation
Christopher F. Koller
Health Insurance Commissioner, State of RI
January, 2007
SmGdirectpay_SCI
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Agenda
I. Background: Market Overview
II. Small Group Market Conduct Study Overview
III. Small Group & Direct Pay Intersection: Groups of One
IV. Small Group & Direct Pay Intersection: Options to Consider
V. Where we are: Next Steps
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I. Background: Rhode Island by the numbers
TOTAL POPULATION NUMBER OF RHODE ISLANDERS
PERCENT OF RHODE ISLANDERS
Total Commercially Insured 600,000 54.5% Total Medicare or Medicaid 400,000 36.4% Total Uninsured 100,000 9.1% Total Population 1,100,000
COMMERCIALLY INSURED NUMBER OF COMMERCIALLY INSURED
RHODE ISLANDERS
PERCENT OF COMMERCIALLY INSURED
RHODE ISLANDERS Total Large Group (50+) 475,000 79.2% Total Small Group (<50) 110,000 18.3% Total Direct Pay 15,000 2.5% Total Commercial Insured 600,000
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I. Background: Small Group Market Overview
Statutory Group size: 1-50 employees
Insurance Market: Two Players (UHP & BCBSRI)BCBSRI accounts for ~80 percent of small group covered lives
Distribution: Broker, intermediary dominatedRoughly two-thirds of small group accounts are sold through brokers/intermediaries
Regulatory Controls -- you betcha
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I. Background: Small Group Market Overview
Small Employer Health Insurance Availability ActRIGL 27-50…
Policy Goal of SmG Reform 2000: Treat SmG as one large pool. Allow rates to be adjusted by only four key factors, within a specified range
Allowable rate factors
Maximum rate band
Guaranteed Issue
Association rating
Preex allowed?
Pre-2000
• Class of business (e.g., assoc)• “Case characteristics” (e.g., demog, size)• Industry• Claims exp., health status, duration• Etc…
• Rate review?
None
No
Yes
Yes
Post-2000
• Adjusted Community Rating. Demographics – specifically age, sex, family size
• Health status (+/- 10%) • Rate review: Annual actuary
letter plus periodic examination
• 4:1Yes
No
• Only if no prior coverage• Limited to those with claims
up to 6 mos prior• Exclusion limited to 6 mos
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I. Background: Direct Pay Market Overview
Guaranteed Issue – open enrollment period
Single CarrierOnly BCBSRI, as carrier of last resort, is required by law to participate in Direct Pay. Other carriers may choose to participate (but have not done so to date)
Medical Underwriting: Two pools, heavily cross-subsidizedThose that pass medical underwriting are given age/sex adjusted rates. Those that do not pass medical underwriting are given one unadjusted rate.
Regulated Line of BusinessState rate approval authority, public rate hearing process
Relatively Well-Functioning Direct Pay Market
• 15,000 enrollees (or 0.15% of population; vs 65,000 or 0.10% in Mass)
• Relatively affordable rates for young, healthy individuals: A 21 year old male who passes medical underwriting can buy comprehensive coverage (HM400) for $185 per month
• Reasonably subsidized rates for comprehensive coverage for older, sicker individuals: Individuals who do not pass medical underwriting can buy comprehensive coverage (HM400) for $618 per month
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I. Background: Market Trends
Low and declining employer offer ratedecrease in employer offer rate from 91% to 84% over last 6 years for employers with 10-50 employees – vs. steady 98% for large employers
High premiumsAverage commercial small group premium rate of $420 vs. large group average of $374 – a twelve percent gap
Declining membershipTotal RI small group membership has declined from 136,000 in 2003 to 117,000 in 2005 – a fourteen percent decrease over two years
Market trends are troubling, both in small group and direct pay markets
Declining MembershipDown about 5 percent since last year, long term trend is down
High and rising premiums Proposed increases for 2007 are 9% (pool 1) and 5% (pool 2)
Low take up in higher deductible products – Eligibles choosing to go bare.
Direct Pay Small Group
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1. Background: Small Group Innovation
The Wellness Health Benefit Plan
Why it Works • Small businesses finally get large business deals and purchasing savvy.
• State role creates savings for small businesses:
• Benefit design based on Principles of Affordability – take costs out of system.
• Cut administration – facilitate RFP process.
• Stronger role for rate oversight.
Insurers are required to offer the Wellness Health Benefit Plan, a publicly defined affordable health insurance product for small group and direct pay participants
• State bargains with insurers to design a product ~ 20% cheaper than standard small business offerings
• State sets a price – 10% of average wages in RI ($314/month) and works with Advisory Committee to develop requirements
• Product offered as a Commercial choice alongside existing options
Description
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II. Market Conduct Study Overview
Study Objectives:
• Describe the overall state of the small group health insurance market in RI
• Assess the effectiveness of 2000 reforms
• Make recommendations for policy changes to assist in achieving the purposes of the Act
• Assess insurer compliance with SmG Law, RIGL 27-50 (not discussed here)
First study performed in June, 2002 based on 2000 data. Preliminary findings:
• Effectiveness of 2000 Reforms: Too early to tell
• 2000 Reforms DID NOT contribute to the large rate increases experienced by some groups
• State mandated low cost plan designs were NOT available due to non-compliance by the plans
Latest study was performed by Hinckley Allen & Tringale LP (HAT), and DeWeese Consulting, Inc (DCI), under contract with the Office of the Health Insurance Commissioner (OHIC)
• Provides information about small employer health insurance in RI from 2003 to 2005
This question was considered as part of a broader Market Conduct Study performed this year in Rhode Island
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II. Summary of Key Recommendations
1. Rate Regulation (“Adjusted Community Rating”)o Maintain status quo. Require more transparent rating, underwriting practices, with vigilant oversight
o Standardize medical history collection tool
o Future considerations: rate review authority, reinsurance/risk adjustors
2. Managing groups by sizeo Do not further segment the small group market by group size
o Maintain existing treatment of groups of one. Perform detailed assessment of SmG/direct pay merger impact
o Take steps to better align direct pay with small group rate structure
o Further investigate differences in claims experience for very small groups between UHC and BCBSRI
3. Product Portfolioo Permit carriers to discontinue unpopular products and streamline their product portfolios
o Enable carriers to provide information about selected products to prospects at renewal
o Encourage joint OHIC/insurer educational effort re: trade-offs involved in choosing a product with more cost-sharing than they are currently purchasing
4. Distribution systemo Require producers to disclose to their clients the monthly and projected annual commission he/she will receive as
a result of placing the client’s business
o Require that all carriers file their small employer commission schedules with OHIC. BCBSRI is required to do this as a result of its enabling legislation, but other carriers are not
o Require that each carrier itemize the external distribution costs in its proposals and renewals to all employers
o Prohibit volume and/or persistency-based bonuses in the small employer market
o Longer term, work with the producer community to consider the following options: Make the external marketing costs a rating variable that is not subject to compression; Have producers bill clients directly for their services
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III. Small Group & Direct Pay Intersection: Groups of One
Key Challenge: Adverse Selection in a Voluntary Market
• In a voluntary market, only those who anticipate needing coverage will pay for it• Exacerbated in Groups of 1. Buyers can shop between direct pay and small group – but pricing is
disconnected. Healthy ones go bare.
Employees enrolled as groups of one in SmG
Direct Pay enrollees
Total
Total Subscribers
6,000
9,500
15,500
Note: Groups of one account for over 30% of groups & ~10% of SmG subscribers
Total Members
13,500
14,500
28,000
Where these two markets intersect: Sole Proprietors – may choose to buy direct pay or as a group of one
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III. Small Group & Direct Pay Intersection: Groups of OneKey Question: How best to improve options, affordability, take up for this “bleeding edge” population, given two very different starting points
Groups of One in SmG
Individuals in Direct Pay
Adjusted community rated
Two Carriers
Wide range of products offered
Modest regulatory oversight
Distribution: Heavily broker, intermediary
Medical Underwriting: Two pools, heavily cross subsidized
Single Carrier
Limited set of products offered
Regulated line of business
Distribution: Direct purchase from BCBSRI
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IV. Small Group & Direct Pay Intersection: Options to Consider
1) Move toward a Direct Pay model for small group
2) Segment into Multiple, Smaller Rating Pools by Size
3) Eliminate Sole Proprietors from Small Group(require all to buy Direct Pay)
4) Merge Direct Pay and Small Group Markets
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IV. Small Group & Direct Pay Intersection: Options to Consider (1)
• Community rating• Aggressive price regulation (à la Direct Pay)• Guaranteed issue
Key Risks: • Participation: Healthy people
may exit the pool
• Lack of insurer participation, benefit innovation
• Loose underwriting rules• No guaranteed issue• High risk pool
Key Risks: • Access: High risk consumers may be
excluded or priced out
• Insurer success is a function of risk identification – not changing underlying medical trend
Recommendation: Do not pursue
Small Group reform efforts must strike a delicate balance between protecting high risk consumers and maintaining participation of low risk individuals
More Insurer Competition
Less Insurer Competition
Rhode Island: Current SmG Status
Option 1: Move toward a direct pay model for small group
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IV. Small Group & Direct Pay Intersection: Options to Consider (2)
98%
91%
78%
81%80%
82%84%
69% 68%
77%
70%
81% 82%
77%
60%
70%
80%
90%
100%
1 2 3 to 5 6 to 10 11 to 25 26+ Total
Blue Cross United
Small Employer Loss Ratio by Group Size
Source: Market Conduct Study data and analysis, 2005. United total also includes another category of accounts, “other”, which includes groups with premium and claims during the experience period but not active on Dec 31, 2004. BCBSRI data is based on July 2004 through June 2005 Incurred claims paid through August 2005. United data based on 2005 renewal summary.
Employer Group Size Segment
• BCBSRI: 7% of groups and 39% of subscribers were in groups of 11 or more• United: 14% of groups and 52% of subscribers were in groups of 11 or more
• Are cross subsidies by group size appropriate?• Is United’s experience of policy concern?
Option 2: Segment into multiple smaller rating pools by size
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IV. Small Group & Direct Pay Intersection: Options to Consider (2)
Estimated Impact: 3% increase for smaller groups and a 2% decrease for larger groups
Factors to Consider:
+ Would better align premium to cost, as group rate would more directly reflect its experience
+ Could help to attract younger, healthier groups
- Counter to expressed purposes of SmG law – to prevent segmentation of health insurance based on risk; and to spread health insurance risk more broadly
- Hurts very small groups -- those most at risk of dropping coverage
Recommendation: Do Not Pursue
Option 2: Should we segment into multiple smaller rating pools by size?
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IV. Small Group & Direct Pay Intersection: Options to Consider (2)
+ Would reduce SmG rates by an estimated ~ 2.2% Could help to attract younger, healthier groups
- Reduced choice (of carriers and products) for sole proprietors Significant cost increase for most groups of one Dislocation related to change in rate structure Risk increase in the uninsured
- Politically unpopular
Option 3: Eliminate Sole Proprietors: Require all to buy direct pay
Recommendation: Do Not Pursue
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IV. Small Group & Direct Pay Intersection: Options to Consider (2)
Recommendation: Maintain status quo, but study merger
• Currently reasonable balance between direct pay and small group coverage• Perform detailed assessment of SmG/direct pay merger impact• Take steps to better align direct pay with SmG rate structure
Option 4: Merge Direct Pay and Small Group Markets
+ Estimate modest impact: 1.5% to 2.5% increase in SmG rates
+ Could provide more choice for direct pay purchasers – choice of carriers and products
+ Consistent with stated objectives Small Group Law: Spread health insurance risk more broadly
- Likely impact is complicated by the following:-- Single vs. multiple carriers-- Differences in rate structure between two pools-- Commissions paid in SmG market, not direct pay-- Differences in benefit plans offered
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Probable Impact of Merger
Products Rates Policy Issues
Direct Pay High Risk (7500)
More choices, broker driven
Down • Winners and losers among enrollees. Determining and mitigating impact.
• Adverse selection: high risk groups in Direct Pay likely to stay with BCBSRI. Reinsurance pool?
• Distribution Channel – brokers vs direct. How paid.
• Greater regulation = less competition. Do we care?
• Link to Rite Care and strategy for uninsured – designing the “Exchange”
Direct Pay Low Risk (7500)
More choices broker driven
Some up / some down
Small Group (116,000)
No change Up (1.5-2.5%)
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V. Next Steps
Develop legislative proposal: Study commission to evaluate possible direct pay/small group merger
Part of Broader Initiative targeting Affordable Health Insurance for All Rhode Islanders