SHOP Advisory Group

October 25, 2012

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10/25 Agenda

Welcome & Introductions 5 min Overview of Existing Requirements and 10/11 Meeting Review 10 min Discussion – Rating Issues, Participation, Contributions 60 min Public Forum 10 min Wrap-up 5 min

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Review of Contribution, Participation & Rating Requirements

Existing Contribution and Participation Requirements - Carriers require minimum employer contributions and minimum

employee participation to minimize adverse selection. - Federal guidelines state minimum participation in SHOP must

apply to the group, not the carrier. - Colorado market today

  Minimum contribution – 50% of premiums or $125/month   Minimum participation – 70% to 75%

Existing Rating Requirements -  If an employer has 10 or fewer employees, then the group is age-

rated -  If an employer has 10 or more employees, then the group is

composite-rated

**See Appendix for additional background

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10/11 Meeting Review

Public Forum – discussion from the group:

The advisory group generally supports mirroring the outside market as much as possible with respect to contribution and participation rates, while still allowing COHBE to be as competitive as possible.

There were concerns raised about the presence of employee choice which may create a challenge for carriers and employers to mirror contribution requirements in the outside market particularly given the impact on composite rating and concerns about the impact on certain age bands.

This then led to a discussion about the merits of a reference plan and how that might be enabled which will be the focus of the conversation today.

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Defined Contribution and Participation Requirements: What other States are Doing

State Minimum Contribution Minimum Participation

CA Exchange staff recommended to its Board contribution levels consistent with current market underwriting rules

Exchange staff recommended to its Board participation levels consistent with current market underwriting rules

CT (CBIA) ERs must make a contribution towards their EEs’ premiums that at least equals half of the lowest premium that an EE can pay each month from the suite of health plans selected by the ER.

At least 75% of the ER’s eligible EEs must participate, unless the ER contributes 100% of the EEs’ premium, in which case 100% of the EEs’ are enrolling in the program.

MA The Connector requires that ERs select a reference plan and agree to pay at least 50% of its premium, and EEs are then allowed to pick alternative insurers or plans only with the same benefit tier.

•  For all ERs, at least one FTE must enroll on the effective date of coverage.

•  For an ER with 1-5 FTEs, 100% of eligibles must enroll in an applicable Commonwealth Choice Health Plan on the effective date of coverage.

•  For an ER with 6-50 FTEs, 75% of eligibles must enroll in an applicable Commonwealth Choice Health Plan on the effective date of coverage.

UT ERs choose the level of contribution they make

Requires that at least 75% of EEs of a participating ER must join a plan

WA Exchange staff recommended to its SHOP Technical Advisory Committee a minimum ER contribution of 75% for employee coverage

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Definitions

1.  Age-based Rating – the process of rating health plans in 5 year age brackets (20-24, 25-29, 30-34, etc.)

2.  Composite Rating – the process of compiling rates into a single rate based on the “composite” (not the average) of all individual rates in the group

3.  Reference Plan – the selection of a single plan as part of a multi-plan offering, on which an employer will base their contribution. Employees are then able to elect other plans by electing to pay any premium differential.

4.  Defined Contribution – the practice of an employer setting their contribution level at a set dollar amount per employee.

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Defined Contribution

The concept of Defined Contribution has received lots of attention in recent months…

-  Allows employer to set a fixed budget for health plan expenses

-  Frees the employer from plan selection responsibilities

-  Gives employees a greater sense of control over their benefits

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Defined Contribution

Possible DC Challenges:

- Need for employer to revise contribution as rates rise

- Resistance from older employees

- Adjustment from composite to age-based rates

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Employer/Employee Resistance

- Most employers with 10 or more employees use composite rating.

-  It’s convenient for employers and employees.

-  They don’t want to lose that convenience.

- Older employees may resist age based rating

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-  Small firm – 10 employees   3 employees, 20 – 24 years old   4 employees, 40 – 49   3 employees, 60 – 64

-  As a group, $ 2,600 monthly premiums, $260 employee average

-  Within each age band, a different story . . .

Composite Rating Example

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Composite Rating Example Detail

Source – Barry Barack

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Composite Rating Example

Age #

employees Total $ Avg

$/Emp

20’s 3 $ 180 $ 60

40’s 4 950 238

60’s 3 1,470 490

Total 10 $ 2,600 $ 260

A small firm (10 employees) offering 3 plans can present significant risk to carriers if employees within a similar age band select the same plan.

88% over

average

77% below

average ($260)

Source – Barry Barack

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-  Small firm – 12 employees   4 employees, 25 years old   4 employees, 40 “   4 employees, 60 “

-  As a group, $ 4,800 monthly premiums, $400/employee average

-  A reference plan allows employees to select a plan that best suits them, while limiting risk for both the employer and the carrier;

Reference Plan Example

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Reference Plan Example

A small employer offering 3 plans can present significant risk to carriers if employees within a similar age band select the same plan.

age # premium ER EE premium ER EE premium ER EE

25 4 $ 400 $ 200 $ 200 $ 200 $ 200 — $200 — $ 200

40 4 400 200 200 400 200 200 400 200 200

60 4 400 200 200 600 200 400 600 400 200

Total 12 $ 4,800 $ 2,400 $ 2,400 $ 4,800 $ 2,400 $ 2,400 $ 4,800 $ 2,400 $ 2,400

Composite Rating Age-Based Rating Reference Plan

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Reference Plan Example one member “buys up”

age # premium ER EE premium ER EE premium ER EE

25 4 $ 400 $ 200 $ 200 $ 200 $ 200 — $ 200 — $ 200

40 4 400 200 200 400 200 200 400 200 200

60 4 400 200 200 600 200 400 600 400 200

Total 12 $ 4,800 $ 2,400 $ 2,400 $ 4,800 $ 2,400 $ 2,400 $ 4,800 $ 2,400 $ 2,400

Composite Rating Age-Based Rating Reference Plan

“buy-up” impact $ 300 $ 0 $ 300

New Totals $ 5,100 $ 2,400 $ 2,700

A member in the 60 year age group elects to “buy-up” into a plan with a $900 premium ($300 increase). With the reference plan model, the employer (nor the carrier) bears no additional risk—the employee pays 100% of the extra cost.

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Reference Plan Example Part. 2: What Happens if an Employee Buys Up

age premium ER EE premium ER EE premium ER EE

25 $ 400 $ 200 $ 200 $ 200 $ 200 — $ 200 — $ 200

25 $ 400 $ 200 $ 200 $ 200 $ 200 0 $ 200 $ 200

25 $ 400 $ 200 $ 200 $ 200 $ 200 0 $ 200 $ 200

25 $ 400 $ 200 $ 200 $ 200 $ 200 0 $ 200 $ 200

40 $ 400 $ 200 $ 200 $400 $ 200 $ 200 $ 400 $ 200 $ 200

40 $ 400 $ 200 $ 200 $400 $ 200 $ 200 $ 400 $ 200 $ 200

40 $ 400 $ 200 $ 200 $400 $ 200 $ 200 $ 400 $ 200 $ 200

40 $ 400 $ 200 $ 200 $ 400 $ 200 $ 200 $ 400 $ 200 $ 200

60 $ 400 $ 200 $ 200 $ 600 $ 200 $ 400 $ 600 $ 400 $ 200

60 $ 400 $ 200 $ 200 $ 600 $ 200 $ 400 $ 600 $ 400 $ 200

60 $ 400 $ 200 $ 200 $ 600 $ 200 $ 400 $ 600 $ 400 $ 200

60 $ 400 $ 200 $200 $ 600 $ 200 $ 400 $ 900 $ 400 $ 500

Total $ 4,800 $ 2,400 $ 2,400 $ 4,800 $ 2,400 $ 2,400 $ 5,100 $ 2,400 $ 2,700

Composite Rating Age-Based Rating Reference Plan

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COHBE and Reference Plans

-  COHBE is exploring ways to illustrate reference plans within the constraints of our system.

-  Broker tools are being created to assist employers in exploring their contribution options

-  Tools for employees are being created to assist them in understanding their options and selecting the best plan/contribution combinations

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Future Meetings

-  Every other Thursday, 10a – noon; -  Location – 3773 Cherry Creek Dr. N., Suite 290

11/8 TBD – 11/22, Thanksgiving 12/6

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Appendix: Employer Contribution and

Participation Rules

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Contributions & Participation

-  Should COHBE require a minimum contribution level for employers or mirror the outside market?

July 9th 2012: COHBE recommended to Board adopting contribution requirements that are in line with the outside market.

July 9th 2012: COHBE recommended to Board adopting participation requirements that are in line with the outside market.

-  Should COHBE require a minimum participation level for employers or mirror the outside market?

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Colorado Colorado law does not require a minimum employer contribution towards employees’ premiums, but it does allow the carrier of a small employer insurance plan to mandate a certain contribution. CRS 10-16-105(7.4) requires that minimum participation and minimum employer contributions be applied uniformly among all small employers with the same number of eligible employees applying for or receiving coverage from the carrier. A carrier may vary the minimum participation and contribution rates by the size of a small employer group and by product, but cannot increase the participation or contribution rate after the employer has been accepted for coverage.

Federal The final Exchange Rule holds that the SHOP must collect the employer contributions and deliver them to the issuers of the health plan(s).

The final Exchange Rule also holds that the SHOP must provide qualified employers with at least 30 days before the plan year ends in which they “may change its participation in the SHOP for the next plan year.” Employers may change their contributions level of coverage they offer (along with the QHPs they offer, and/or the method by which they make available QHPs for employees, as discussed earlier in this report).

Additionally, under the Age Discrimination in Employment Act, the percentage of the total premium cost paid by employees who are at least 40 years old may not exceed that paid by employees under age 40. (This law applies only to employers with at least 20 employees.)

Employer Minimum Contribution

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Colorado Colorado state law does not require any minimum participation rate in the small group market. Some carriers impose participation rates as high as 60 or 75 percent. However, Ins. Reg. 4-6-8 caps the participation rate a carrier can require at 75 percent of eligible employees. The participation rate required of an employer may vary with employer size underneath the 75 percent cap in the small group market.

Federal 45 CFR Section 155.705(b)(6)(ii) allows states to specify a minimum employee participation rate for participation in the SHOP and not on the rate of employee participation in any particular QHP or QHPs of any particular issuer.

Minimum Participation