Merging the Massachusetts Non-Group and Small Group Health Insurance Markets

SCI Winter Meeting

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Background on previous MA reforms Overview of MA small group and non-group markets Key changes made to the markets The uninsured

Uptake assumptions Expected rate impacts of merger Identified issues

MAHCR - built upon earlier reforms

Employer Tax and MandateFunds UCP – expanded to CHCs,

Hospital Deregulation1988- 1992

Reform Private Insurance Market Small Group, Non-Group

1992-2000

Expand Public Programs MMC waiver,

SCHIP, IP, Sr. Pharmacy 1992-2002

Individual Mandate, Employer Fair Share, Connector

2006

MA nongroup market vs. national nongroup market

National MAPPO 83.4% 10.0%HMO/POS 14.9% 90.0%Indemnity 1.7% 0.0%< 19 5.6% 20.0%19-29 19.8% 15.0%30-39 21.1% 17.0%40-49 24.8% 17.0%50-59 20.2% 18.0%60-64 8.5% 14.0%

MA non group market

2 products are allowed to be sold Standard - very comprehensive with minimal cost sharing Alternative – increased cost sharing and no rx

Guaranteed issue/renewal with continuous open enrollment 6 mo. waiting period or pre-ex condition exclusion period, but offset

by prior continuous coverage 63 days prior to enrollment

No waiting period for “buy up” Overall MLR is 91%

94% for individuals and 83% for other rate basis types Deterioration from 83% in 2003 5% higher than for small group

MA non group market

42,500 subscribers Will comprise 11% of the merged market

90% of the market is with BCBS Non group membership decreased by 10% 2003-2005 Average premium is $650 for standard and $450 for

alternative Declining plan value

35% purchased alternative in 2003 45% purchased alternative in 2005

MA non group market

Average pmpm claim costs was approximately 40% higher than for small group in 2005 due to the following: Older than average subscriber age (1.13) Much lower number of children covered 77% of those that purchase buy Individual-only

Non group pmpm claims Average is $375 15% have pmpm claims greater than $650 15% have pmpm claims under $50 50% have PMPM claims under $200

MA Small group market

700,000 members in 2005, 92% of which are written by 7 not-for-profit HMOs Includes groups of 1-50 FTEs Overall small group claims pmpm is $262

11% of groups (which are 3% of members) have pmpm claims under $50

9% of groups (which are 5% of members) have pmpm claims of more than $650

50% of groups have pmpm claims under $200 16% of groups have PMPM claims greater than $350

2:1 rating band Age, geography, industry, size, 4 rate basis types – all inside the

band

MA Small group market Purchasing patterns

87.7% are HMO/POS 11.75% are PPO 0.54% are indemnity

Plan value 70% of small group members have “medium” plan values

between 0.85 and 0.92 $15-$20 office visit co-pays $250-500 in patient and out patient co-pays drug co-pays of $10/25/40

12% of small group membership has “low” plan values between 0.65 and 0.85

3% of small group membership has plan values between 0.65 and 0.75 (high deductible plans)

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Summary of 2005 data

Groups / Purchasers Subscribers Members

Average Family

Size

Average Premium

PMPM

Average Claims PMPM

Average MLR

Non-Group 42,500 42,500 66,000 1.55 $413 $375 91%Small Group 112,000 350,000 700,000 2.00 $304 $262 86%Combined 154,500 392,500 766,000 1.95 $313 $272 87%

Summary of 2005 Data

Note: Summary based on data received from the carriers. It has not been normalized to reflect the size of the entire market.

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Overview of Small Group by group size

Group Size

Number of

Groups Subscribers MembersClaim PMPM

Premium PMPM MLR

Age Factor

Industry Factor

Plan Value

1 52,000 52,000 112,000 $296 $305 97% 1.20 1.01 0.870 2 - 5 28,000 82,000 152,000 $273 $323 85% 1.03 1.01 0.890

6 - 10 8,000 60,000 117,000 $250 $309 81% 0.94 1.00 0.890 11 - 25 6,000 96,000 194,000 $251 $298 84% 0.94 1.00 0.900

26+ 2,000 59,000 119,000 $250 $287 87% 0.93 1.00 0.900

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Key changes to small group and non-group markets

Small Group and non-group risk pools to merge Connector empowered to arrange for sale of products to

individuals and small groups Commonwealth Care available for those at 300% FPL or below “Seal of Approval” products to small groups or individuals above

300% FPL Young Adult Plan available for purchase to those 19 to 26

Individuals considered groups of one Merged pool rating based on current small group

Group size adjustment for smallest groups increased from 1.05 to 1.10

Group size adjustment moved OUTSIDE the 2:1 band

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Uninsured uptake assumptions

Four Different Uptake Estimates Elasticity of Demand Low Medium High

Elasticity – based on changes in the price of insurance and the relative cost compared to a subscriber’s income Income level Age Penalty for not meeting Individual Mandate

Low, Medium, and High – based on a review of data, impacts of Chapter 58, and key informant interviews Individual mandate Income level Increasing cost of coverage Affordability & eligibility waivers Health Status Age

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Other key projection assumptions

Medical Trend 11% annually

Benefit Buy-down 1.5% annually One time adjustment for those groups that receive high premium

increase due to merger 1.5% buy-down if increase is between 2.5 and 5% 3.0% buy-down if increase is greater than 5%

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Rate impacts

With Market merger only Change in non-group due only to claims and conversion factor alone: -

21.1% Change in small group due only to claims and conversion factor: +2.0%

With Market merger + new rating rules For Non-group this corresponds to a decrease of approximately 15% For Small group this corresponds to an increase of approximately 1 to

1.5%

With assumptions of individual mandate Merged market rates anywhere between -3% to +6%

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Summary of findings

Merger will lead to a decrease in non-group rates of approximately 15% and an increase in small group rates of approximately 1 to 1.5%

Average book of business rate impact will vary substantially by carrier -2% to -50% for Non-group +1 to +4% for Small Group

Given assumptions, adding currently uninsured will lead to rate impacts of from approximately -3% to +6%, depending on: Current number of uninsured Number of uninsured purchasing coverage Morbidity of the newly insured Presence or absence of 10% group size load on groups of one

$30 to $45 million in reinsurance dollars required to offset increase in Small Group rates due to merger

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Issues remaining List billing and composite rating in the same marketplace Underwriting and product selection requirements for the

Connector Decreasing plan values Administrative expenses Young Adult Plan and 2:1 compression Robustness of individual mandate: want healthy lives in

MA Health Market Pre-Reform Total Population 6,400,000 Currently insured (93%) 5,940,000

Employer, individual, Medicaid, Medicare

Currently Uninsured (7%) 460,000

_________________

≤ 100% FPL Medicaid eligible 106,000* 100-300% FPL Subsidy eligible 150,000* >300% FPL 204, 000

* FFP eligible under waiverNote: Based on August 2004 Division of Health Care Finance Data

Key Questions to designing any Health Care Reform

Who are the 460,000 uninsured? Why don’t they purchase it?

Are they not offered by employer? If offered, do they choose not to purchase?

What is their health status? What is their employment status?

Characteristics of MA Uninsured

23% are income eligible for Medicaid 33% have incomes between 100-300% FPL and

unless they have children are not eligible for traditional Medicaid

54% have incomes above 300% FPL 16% are employed part-time

Ch. 58 of Acts of 2006 Merge Non Group and Small Group Markets

15% decrease in Non Group Rate 1 to 1.5% increase in Small Group Rate (can be offset

with purchase of $33-48 million reinsurance plan) Represents $25-$38 million subsidy from small group

to non group New distribution channel (Health Connector) Individual Mandate

Loss of tax deduction in 2007 Assessed 50% cost of MCC in 2008+

Fair share employer assessment & Free rider surcharge,

Commonwealth Care (subsidized coverage)

Role of the Health Connector Nexus between buyers and sellers

Premiums paid with pre-tax dollars (125 Cafeteria Plan)

Pay premium assistance for 100-300% FPL Mechanism for reaching non-traditional

workersPart-timers and seasonal workersContractors and sole-proprietors Individuals with more than one job

Alternative distribution system

Eligibility for Accessing Health Insurance via the Connector

Uninsured resident (6 mo.) Not eligible for any MassHealth program,

Medicare, or S-CHIP program. Employer has not provided health insurance in

the last 6 mo. for which the employee is eligible and for which the employer covers at least 20% of annual family premium or 33% of individual premium. (Board Waiver)

Individual has not accepted a financial incentive from his employer to decline employer’s plan.

Health Connector Commonwealth Care Subsidy Program

$300 target monthly premium Assumption is that 260,000 will be eligible for subsidy payment

which will be between 80-85% of monthly premium $795.6 M/year subsidy (50% FFP - $398 M net cost)

Premium Assistance Program <100% $ 0 monthly enrollee contribution >100% - 150% $ 18 monthly enrollee contribution >150% - 200% $ 40 monthly enrollee contribution >200% - 250% $ 70 monthly enrollee contribution >250% - 300% $106 monthly enrollee contribution

Provides “Seal of Approval” for commercial products

Challenges with Selection List billing vs. composite rating

Connector list bills charge each subscriber a rate specific to his demographic

characteristics – age, industry, geography) Other major sector rates using composite billing

a group is charged a rate based on the average demographic characteristics of its membership as a whole.

This can create adverse selection. Continuous Open Enrollment

Ability for individuals to change products at any time creates an opportunity for adverse selection – groups are limited to open enrollment period.

Things that will impact “Take Up” Rate

Individual Mandate and Waiver policies Affordability waivers from requirements of individual

mandate Waivers for enrollment into Commonwealth Care for

persons eligible for employer sponsored coverage, but employer covers only 33%

Employer sponsored coverage Increasing costs of coverage over time Income and health status of currently uninsured Subscriber age

Access + Benefits = Cost Current monthly premium for Non Group is $650

($450 w/o drugs) and $350 for Small Group. Assuming 15% reduction is correct – average monthly

premium drops to $553 ($383) – still $253 ($83) above target.

Legislation requires all existing mandates to be included.

Cost sharing is forbidden for certain income classes (≤100% FPL) and limited for others (100-300% FPL).

Limited Access networks have not “sold” well in past.