sci reinsur inst, albany marriott 12 sept. 2006; slide 1 swartz-ideman -bovbjerg, implementation...

12 Sept. 2006; slide 1Swartz-Ideman -Bovbjerg, Implementation SCI Reinsur Inst, Albany Marriott

State Specific Conditions & Program Design:

Considerations for Successful Implementation

Presentation to Reinsurance Institute’s Kick-Off Meeting with States, Albany Marriott, NY, Tuesday, September 12, 2006

Katherine Swartz, Ph.D.Karl Ideman, M.B.A.

President, Pool Administrators, Inc.,subcontractor in UI Reinsurance Inst.Team

Randall R. Bovbjerg, J.D.


Roadmap

Crafting design to match resources with cost of achieving objectives (Swartz)– resources include not only funding but also other

state capabilities and administration Knowledge of and relations with insurance

sector (Ideman) Residual issues … and summing up

(Bovbjerg)


Criteria for Successful Reform

Any intervention recommended should: achieve a reasonable impact for the

expected cost be politically feasible, and encourage the maintenance of private

support for existing and expanded insurance coverage.

Source: DC State Planning Grant advisory panel


What Determines Cost?

Number of potential enrollees Threshold and range of expenses to be

covered – layers of coverage – and where the range is in distribution of medical costs

% of risk (costs) retained by originating insurer in layers

Relevant medical expenses


Why Excess-of-Loss Design?

Objective is to reduce insurers’ incentives to avoid adverse selection reduce their risk

Aligns incentives for insurers to manage individuals’ medical care

Aggregate-loss reinsurance does not address risk of extremely-high-cost individuals


Which Markets to Include?

Small group and individual markets – not large group

Goal is to address insurers’ concerns with potential for adverse selection want them to reduce use of selection mechanisms and lower premiums


Estimates of Costs National estimates - $5B - $20B for small group

& individual markets with $50,000 threshold Urban Institute reform plan for MA: state to

cover 75% above $35,000; only for individual and small group markets– cost estimated at $446 million - $632 million,

depending on voluntary vs required purchase– coupled with mandate to buy coverage, low-income

subsidy, at add’l cost Focus states’ cost estimates a key part of

Reinsurance Institute


Financing Mechanisms

Note: goals are to reduce insurers’ concerns about adverse selection and insureds’ premiums, so as to expand coverage

Need new funds – not fees or taxes on insurers

Broad tax base desired – extremely high medical costs are due to random events

Takeaway message: should design to meet your needs, and also to meet your resources


Next: State-Specific Market Conditions & Program Design

What is meant by State Specific Conditions? Characteristics that are key to access and

affordability in your state’s individual and small group markets– Characteristics that are the same as or different

from• Other states that are facing the same issues• Your state’s individual and your state’s small group

markets

– Any other things that will argue for or against a state public reinsurance program


Key Characteristics for Access and Affordability

Number of Carriers and Concentration of Carriers

Guarantee Issue Rating Structure Pre-existing Conditions, Elimination Riders,

Prior Coverage Safety Net Provisions


Market Structure

Number of Small Group Carriers and Concentration (See GAO Reports for 2002 and 2005)

– Declining number: 18% decrease in the average number

– Increasing Concentration: 27 of 31 states reported increase

– Neither access nor affordability are served by fewer competitors and greater market concentration

KEY TAKEAWAY: This concentration of the market also concentrates the risk in the market


Regulation for Access Guarantee Issue: Insurers are required to offer

and issue all products as long as premium is paid– Small group market is guarantee issue in all states– Individual market guarantee issue in 5 states (including

NY)– HIPAA Eligible Persons are guarantee issue if coming

from group coverage and have exhausted COBRA but states can opt for Alternative Mechanism or Federal Fallback

KEY TAKEAWAY: This is the most important access characteristic in your state (see chart in book)


Pricing Regulation

Rating Structure limits the factors carriers can use to raise premium or to lower premium for otherwise similarly situated persons (See chart)– Pure Community Rating: Everyone pays the same– Modified Community Rating: Demographic (objective)

factors only– Rating Bands: Non-demographic (subjective) factors

with band of max and min (range) KEY TAKEAWAY: ”without reasonable

affordability a state really doesn’t have access” (you can quote me on this)


Pricing Regulation, cont’d

Rating Structure also includes the regulatory control over carrier’s insurance rates (see your DOI)

– File and Approve states require carriers to file rates or to provide an “Actuarial Certification” and then the rates are reviewed/adjusted/approved

– Some states have File and Use for rates or sometimes just for benefit plans

– Other states have no filing requirements


Exclusions

Pre-Existing Conditions exclusions - limit carrier exposure to high cost health conditions for a period of time– Carriers “look back” for a high risk health

condition and, if found, exclude it for a period

– Small Group is 6/12 (look back/exclusion period) for all states per HIPAA

– 37 states have individual market pre-ex that is more restrictive than 6/12 (See chart)


Exclusions, cont’d

Elimination Riders allow insurers to exclude certain coverage or to modify the coverage (See chart)– Elimination Riders are not allowed in the small

group market

– Only 23 states prohibit elimination riders in their individual markets (NY prohibits)


Exclusions, cont’d Credit for Prior Coverage does not allow

carriers to apply pre-ex if the person has been covered under a plan considered to be creditable prior coverage– Applies only to “late enrollees” in small group

– Pre-ex is waived for HIPAA Eligible Persons

– It helps non-HIPAA Eligible Persons in the individual market

– Only 37 states do not provide individual market credit for prior coverage (NY does)


Safety Net Provisions Safety Nets catch the groups and individuals who

otherwise wouldn’t have access to coverage they can afford (they are not necessarily uninsurable)– Guarantee Issue & Community Rating states need no

safety net– 33 states have individual high risk pools– 32 states have enacted small group reinsurance pools

(some active, some repealed, some on shelf)• Different from Healthy New York• Mandatory have done well. Large carriers opt out of

Voluntary


Final Thoughts on State Specifics Characteristics that are the same as or different

from– Other states that are facing the same issues– Your state’s individual and your state’s small group

markets– Find your state’s similarities and differences from the

NAHU chart and the GAO reports from 2002 and 2005. KEY TAKEAWAY 1: You can deal with ALL of the

differences in the design of a reinsurance mechanism

KEY TAKEAWAY 2: Use similarities to collaborate


Final on State Specifics, cont’d

Arguments for and against state public reinsurance– Interest groups active in your state

• Agents and brokers• Legislators and of course, the Governor• Trade Associations, Chambers, Drs and Hospitals• Other proposals or proposed changes to insurance• Regulators and Agency Heads• Subject matter experts

LAST KEY TAKEAWAY: Don’t design in a vacuum


Add’l Practical Concerns Broad financing desirable, from outside the

insurance industry– spreads risk most broadly, creates true subsidy (not

just helping some insureds at expense of others) Need not only sufficient funding but also

credible persistence Tailor to state, especially WRT pricing,

selection, crowd-out Allow sufficient time & resources to plan,

persuade, implement Plan to monitor, make mid-course corrections


Credibility of Premium Subsidy (% uninsured DC firms likely to offer coverage, by amount of subsidy)

84.6

69.9

61.8

40.4

0

20

40

60

80

100

25% 50% 75% 100%

Perc

ent

Of

Fir

ms L

ikely

To O

ffer

Percent of Premium Covered

Source: DC SPG small business survey, Aug 2005


Illustration of Potential Selection (Predicted DC Medical Spending of Uninsured - 2004 $, by Age and Health)

* Note: Uninsured = 6 or more months; their spending adjusted to match pattern of insureds with similar incomes; Source: Urban Institute tabulations from statistical models estimated with 2000-2002 Medical Expenditure Panel Survey data, re-weighted to reflect D.C. population characteristics.

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

0-18 19-34 35-49 0-18 50-64 19-34 0-18 19-34 35-49 50-64 35-49 50-64 19-34 35-49 0-18 50-64

Excel. Excel. Excel. VeryGood

Excel. VeryGood

Good Good VeryGood

VeryGood

Good Good Fair orPoor

Fair orPoor

Fair orPoor

Fair orPoor

8.9 15.3 8.4 4.0 3.1 13.5 3.1 10.5 7.0 3.6 7.7 4.6 3.2 4.4 0.6 2.3

Out of Pocket Payments

Insurance Payments

Linear (Avg. Ins.Payments)

Age

Health

% Pop

Avg. Insurance Payment, All People: $1,645


Potential Crowd-Out: DC Example(Public Support May Displace Private)

full time, full year

part time

no worker

Medicaid, other public

Private

0-99 3,396 9,854 18,326 31,576 63,690 24,376 88,066

100-199 10,953 6,464 1,032 18,450 26,267 29,503 55,770

200-299 9,711 6,632 41,932 48,564

300-399 4,735 3,202 40,864 44,066

400+ 8,585 658 --* 9,243 5,838 166,836 172,675

TOTAL UNINSURED 73,714 409,141

Source: same as Exhibit 2

82,796

Subsidy target Potential crowd-out (some displacement of private dollars)

13,396

TOTAL INSURED

10,251 3,145 --*

(residents 0-64 by income and insurance)

Work StatusTotal

uninsuredTotal

insured

Number of UNinsured Number of INsured (residents 0-64 by income and work status)

Source of InsuranceFamily Income (% FPL)


Many Steps in Design and Implementation

Design all the many components of reform Pass enabling legislation Set the basic framework for reinsurance Establish policymaking responsibility for implementation Allow sufficient administrative start-up time Provide funding for implementation planning before operational roll-out Plan for implementation of reinsurance Hire or designate the state official with lead responsibility for reinsurance Constitute the reinsurance advisory/governing board Determine small-employer eligibility Determine insurer or health plan eligibility Decide how to deal with self-insurers Establish the final reinsurance threshold and coinsurance level Maintain insurers' incentives to economize appropriately Hold down transaction costs Specify the precise risks to be reinsured Determine what functions should be contracted out Acquire and test appropriate data systems Estimate budget needs for benefits and ongoing administration Hire a private reinsurance administrator Establish methods of assuring compliance and imposing sanctions Ongoing monitoring

Source: Bovbjerg, 2006 (MO report)


Many Steps, cont’d

PlanLegislateAdministerSellMonitorAdapt

PLASMA

Assure your team enough time and resources to see this through

Your newly insured will thank you


Summing up Can reinsurance work in your state? Of course …

with sufficient commitment, investment Challenge is to craft politically successful new

program - one that matches perceived need with available resources

Good design, planning can deal with most issues Right-size, reliable resources and knowing the

territory are key Need leadership as well


End


Following for backup only


Reinsurance Design Check List

1. Define the target population " Define the risk pool: small groups, sole proprietors, individuals, other? " Low wage recipients? " Previously uninsured? (See question #3)

2. Benefit package " Set benefit package? Multiple benefit packages? " Existing commercial insurance or new product?

3. Relationship to the commercial market: will the subsidized product compete against the market or remain shielded from the market? " Regulation " Go-bare period " Other crowd out provisions

4. Insurer participation: Who will deliver the product? " NFP insurers " Managed care organizations (commercial, Medicaid)

5. How will the pool manage medical risk? " Managed care, disease management, and tiered networks?

6. Relationship to existing coverage programs (Medicaid, SCHIP, or high-risk pool)?

7. Reinsurance design " Aggregate stop-loss versus individual stop-loss " Subsidy size: What percentage of costs will the primary insurer retain? 8. Regulatory Authority and building the public/private partnership " What regulatory powers does the department require? " Does the program require rate review? " What are the data requirements? " Who performs eligibility determinations and who reviews reimbursement claims?

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