market reform bill overview 3-21-2102 #5

7/31/2019 Market Reform Bill Overview 3-21-2102 #5

1/4

Overview of the Proposed Market Reform BillH 7892, An Act Relating to Insurance - Accident and Sickness

PoliciesIntroduced by Rep. Kennedy and others

March 21, 2012

The Governor and Lt. Governor, in consultation with the Office of the HealthInsurance Commissioner (OHIC), have proposed a Market Reform Bill - House Bill7892:AN ACT RELATING TO INSURANCE - Accident and Sickness Insurance Policies- to be considered by the Rhode Island General Assembly. This act would amendRhode Island laws so as to be consistent with health insurance market reformsestablished in the Patient Protection and Affordable Care Act of 2010 (the ACA).

The following is a description of the seven core elements of the bill, five of whichare required changes to insurance law in order to conform with Federal health

insurance rating requirements as specified in the ACA. Additional details areprovided for the last two elements which are optional elements of the ACA andare recommended by OHIC for consideration here in Rhode Island1:

1. Prohibits Gender as a Rating Factor (ACA required)Rhode Island law currently permits carriers serving small groups and individuals tounderwrite, or determine insurance rates, based on the age and gender of thegroup or individual. As required by the ACA, this bill prohibits gender-basedunderwriting in these markets.

2. Limits Allowable Variation in Community Rates to 3:1 (ACArequired)RI law currently permits small group and individual health insurance premiums tovary from the community rate by up to a 4:1 ratio. That is, the highest rate offeredcan be no more than four times the lowest rate offered to any Rhode Island smallemployer for the same insurance policy. As required by the ACA, this bill limitsallowable variation based on age to a 3:1 ratio. The current law's 4:1 ratio willcontinue to apply as an aggregate premium variation maximum.

3. Prohibits Pre-Existing Condition Limitations (ACA required)RI law currently prohibits carriers from imposing pre-existing condition limitations

on coverage for subscribers who have had continuous coverage, meaning thatservices covered by a plan cannot be denied because they relate to pre-existingconditions. Current law permits the use of pre-existing condition limitations fornew subscribers, or those who have had a significant break in coverage, resultingin the denial of claims. As required by the ACA, this bill prohibits the use of pre-

1 The ACA also allows (but does not require) states to include tobacco as an allowable rating factor. OHICdoes not recommend implementing such a factor, and as such has not included this in H7892.

103318647.doc Page 1


2/4

existing condition limitations in the large and small group markets.2

4. Limit on Waiting Periods for Coverage (ACA required)RI's small group law currently prescribes a maximum waiting period, limited to 60days. That is, Rhode Island small group carriers can only impose a waiting periodof up to 60 days, for any new/transitioning employee, before the employee mustbecome eligible for coverage. As required under the ACA, the Market Reform Billestablishes a maximum waiting period in the small group and large group markets.The 60 day period in the legislation is proposed for all group markets as acontinuation of Rhode Islands policy choice in the small employer market.

5. Exemption for Grandfathered Plans (ACA required)Under the ACA, some existing health insurance coverage plans that remainunchanged are considered grandfathered plans and therefore will be exemptfrom certain market reforms summarized above. The Market Reform Bill isintended to carry forward into RI law the exemptions established for grandfathered

plans under the ACA.

6. Merge Individual and Small Group Markets (ACA optional)As permitted by the ACA, this bill proposes to merge the individual and small groupmarkets in January 2014, when the Health Benefits Exchange begins to coverRhode Island residents. As examples, the Healthy New York program and the stateof Massachusetts3 have already merged individual and small group risk pools.

Specifically, Rhode Island would propose to merge the rating pools for individualsand small employers into one adjusted community rated pool. The concept ofmerging markets is based on pooling the risks under the currently separate

markets. There is pending federal guidance that will hopefully clarify whetherpremium rates in a merged market must be identical for individual and small grouppolicies that contain the same characteristics such as age and geography, or ifindividual and small employer group policies may differ based on temporaryreinsurance adjustments and variation in administrative expenses. Regardless ofthat clarification, merging markets involves combining the projected claim costsand risk attributes of individual and small employer group policies when developingpremium rates, as if they are one block of business.

An essential component of merging markets, therefore, is that carriers offeringsmall group policies would need to also offer individual policies, and vice versa.

However, under the merger model being considered, carriers could continue tooffer different plan designs for individuals vs. small employers RI regulators andpolicy-makers are continuing to discuss the market merger issue with a healthinsurance carrier work group; implementation details under consideration include:

2 A technical amendment will be needed to accomplish the intent of this portion of the legislation.3

Massachusetts merged the individual and small group markets as part of their reform efforts. Specifically,

they merged both rates and products (with the exception of the young adult plan). MA small group rates aresubject to 2:1 compression, and allow the following rate adjustment factors: age, industry, rate basis type,group size, geography, wellness program usage and tobacco usage.

103318647.doc Page 2


3/4

Whether a transition process should be designed to mitigate any significantrate impacts at the individual policyholder or small employer level.

Whether any administrative cost components should remain separate, suchas broker fees allocated to small group policies.

Whether rates in a merged market should vary based on the differentadministrative costs of individuals and small groups.

Whether rates in a merged market should vary based on reinsurance revenueavailable to individual policyholders.

If rates are allowed to vary, how should such variations apply to soleproprietors in the current small group market.

For Rhode Island, the primary considerations driving this recommendation are:

o Increased Choice for Individuals: BCBSRI is the only carrier offeringcoverage in the individual market; whereas in the small group market, coverageis offered by BCBSRI, United, and Tufts. Combining the markets would thereforelikely offer additional choice of carriers for Rhode Islanders without access toaffordable employer-based coverage.

o Stability of Rating Pool: We estimate that, post 2014, there will be a

sizeable increase in the individual market increasing from 14,000 to ~ 69,000individuals seeking coverage without access to employer-based coverage.4

Absent a market merger, this sizeable swing in enrollment could result insignificant rate volatility.5 Combining the individual market segment with the~85,000 covered lives in the small group market should serve to stabilize the

individual market, minimizing annual rate fluctuations due to changes inparticipation rates, enrollee characteristics.

o Consistency: Post 2014, with the advent of the Exchange and theavailability of individual tax credits, individuals will be encouraged to shopamongst their health insurance options. Combining the pools would ensureconsistency of options for individuals and small groups particularly amonggroups of one -- thereby limiting the opportunity for adverse selection betweenthe two pools.

Impact on Rates: Analysis performed by actuaries with the Statescontractor, Wakely, suggests different rate impacts depending upon theassumptions used to analyze a merged market. Using some assumptions,individuals would see an overall, average 40% (Pool 1) or 8% (Pool 2) decreasein rates in a merged market in 2014, and small employers would see an overall,average 2% decrease in rates in a merged market in 2014. Using otherassumptions, in 2014 individual rates would decrease by 41% or 10%, pending

4 Who Goes Where Under Federal Healthcare Reform: RI Population Insurance Status Projections, 2014 &Beyond, OHIC, Oct 24, 2011.5 The ACA anticipated this volatility and includes some protective measures risk adjustment andreinsurance . Merging the market would provide an added protection.

103318647.doc Page 3


4/4

upon the pool, and small group rates would remain unchanged. Furtherdiscussions with RI health insurance carriers are needed to develop the set ofassumptions for a merged market that is in the best interests of Rhode Island.

7. Product Consistency Inside/Outside the Exchange (ACAoptional)Markets inside and outside the Exchange for an insurer will share a common riskpool for rating, but careful thought is needed to prevent financial incentives forconsumers, carriers, or employers to prefer transactions outside rather than insidethe Exchange. Some refinements of commercial market rules are needed tominimize adverse selection that is, the Exchange having a sicker and thereforehigher-cost pool - and ensure a vibrant insurance market. Toward this end, theACA requires that the same rating rules apply inside and outside the Exchange and OHIC recommends two added refinements to this protection:

Same Products Outside as Inside:Would require carriers offering qualifiedproducts inside the Health Benefits Exchange to offer those same productsoutside the Exchange, if the carrier elects to offer any plans outside theExchange. This would protect against variations in product offerings thatmight disproportionately attract high risk individuals/groups to enroll throughthe Exchange. It will also help to ensure that carriers apply consistent ratingrules inside and outside the Exchange.

Catastrophic Products offered Outside must be Offered Inside (not inbill as introduced): Would require carriers offering plans that qualify ascatastrophic coverage outside the Exchange to offer that same option inside

the Exchange6

. If catastrophic plans are available outside the Exchange and notinside the Exchange, the healthiest and therefore lowest-cost consumers mayselect against the Exchange.

6 Individuals under age 30, or who are exempt from the individual mandate because of hardship or lack ofaffordable coverage may enroll in catastrophic plans. Catastrophic plans are allowed to be less than the 60%Bronze actuarial value requirement, although they must provide essential health benefits.

103318647.doc Page 4

market reform bill overview 3-21-2102 #5

Documents