Until There’s a Federal Law…

State Regulation for Insurance Markets and Medical Cost Control

Christopher F. KollerHealth Insurance Commissioner – State Of RI

Presentation Overview

1. State Perspectives on Underwriting Rules

2. Efforts in RI for Insurance Affordability:

- Rate Regulation- Primary Care System Investment

Underwriting Factors (or on what basis can you vary insurance

rates?)Risk (think Rumsfeld…)

- “known knowns” (things that drive costs - underwriting factors) and “known unknowns” (random events)

Underwriting Interest – Predict risk as accurately as possible and charge appropriate cost.

Insurers/Employers have multiple interests: - Price risk accurately- Limit/shift risk if you can

Public Interest: - Fairness, Equity- Don’t confuse risk with systemic cost drivers.

Underwriting Efforts to Price and Limit Risk

Pricing Risk:- Age, Gender, Family Size, Medical History, Smoking Status, Group experience, industry, geography (Genetics, BMI…)

Limiting Risk- Exclusions for Pre-existing Conditions, Delayed eligibility, Proof of continuous coverage/ enrollment periods, Refusal to Quote.

Policy Conflict:- Who pays: what is fair and what is equitable (within and between groups)?- What will create more uninsurance?

Commercial Underwriting in RIMarket Allowable

UnderwritingAssessment

Individual Market (15k, single carrier and single pool)

Age, gender, family size, medical history, annual open enrollment period (two sub-pools; low risk subsidizes high)

Good policy, bad politics

Small Group (Under 50 employees - 90k total spread across three carriers)

Adjusted Community Rating (age, gender, family size). Guaranteed issue, no pre-ex. 4-1 rate band

Tighter eligibility guidelines and common rules. Large declines in micro groups. Tough politics (“group purchasing” and width of rate bands)

Large Group (> 50 ees)

Guaranteed Issue, no Pre-ex. Experience rating with approval of rate manuals.

Broker Driven – Little public oversight of underwriting.

Effect of Federal Underwriting Reforms

Highly State-Dependent- Enormous variation exists (due mostly to local politics) See NAIC Chart- Length of ramp-up period- “Federal floor”

Lessons from RI (did this in 2000):- Clarify the rules.- Audit the plans vigorously. - Expect market push-back.

II. What About the Costs?

Efforts in RI to Address Underlying Cost Trend:1. Health Plan Rate Review2. Primary Care Affordability Standards

Health Plan Rate Factor ReviewIdea:

- Health Plans in RI have unique standard (“Policies to promote affordability”)- Synch up rate factor review to educate public and align interests of health plans to get at underlying cost drivers.

Elements:- Annual review of large and small group rate factors.- Public disclosure of information.

Office of the Health Insurance Commissioner 2009 Health Plan Rate Factor Review Template : Submissions for Small Group

Blue Cross/Blue

Shield of RI United Health Care Tufts Health Plan

2008 req.

2008 apprvd

2009 req.

2008 req.

2008 apprvd

2009 req.

2008 req.

2008 apprvd

2009 req.

Category: Hospital Inpatient Annual Rate of Price Inflation (%)

5.8 5.8 8.5 8.0 8.0 10.0 N/A N/A 7.4

Annual Rate of Utilization Inflation (%)

3.0 3.0 1.0 6.0 6.0 4.9 N/A N/A 1.3

Composite Inflation Rate (%)

9.0 9.0 9.6 14.4 12.0 15.5 N/A N/A 8.8

Category: Hospital Outpatient Annual Rate of Price Inflation (%)

5.8 5.8 7.9 5.4 5.4 7.8 N/A N/A 7.5

Annual Rate of Utilization Inflation (%)

1.9 1.9 5.3 7.1 7.1 4.7 N/A N/A 4.2

Composite Inflation Rate (%)

7.9 7.9 13.6 13.1 12.6 12.9 N/A N/A 12.0

Category: Pharmacy Annual Rate of Price Inflation (%)

-- -- -- -- -- 4.8 N/A N/A 7.3

Annual Rate of Utilization Inflation (%)

-- -- -- -- -- 5.8 N/A N/A 2.6

Composite Inflation Rate (%)

11.6 11.6 11.5 12.5 12.5 11.0 N/A N/A 10.1

Category: Primary Care Annual Rate of Price Inflation (%)

N/A N/A 19.3 N/A N/A 3.8 N/A N/A 6.7

Annual Rate of Utilization Inflation (%)

N/A N/A 3.5 N/A N/A 5.9 N/A N/A 1.3

Composite Inflation Rate (%)

N/A N/A 23.5 N/A N/A 10.1 N/A N/A 8.1

Category: All Other Medical Annual Rate of Price Inflation (%)

4.0 4.0 3.0 1.8 1.8 3.8 N/A N/A 5.8

Annual Rate of Utilization Inflation (%)

5.0 5.0 3.5 6.3 6.3 5.9 N/A N/A 2.7

Composite Inflation 9.2 9.2 6.6 8.5 7.9 10.1 N/A N/A 8.7 Projected Portion of Premium for Administrative Costs

14.3 14.3 17.6 18.4 17.4 17.4 N/A N/A 13.0

Projected Portion of Premium for Reserves and Profit

2.3 1.3 2.3 1.6 1.0 1.0 N/A N/A 0

Overall avg. premium increase (OHIC estimated)

9.7 8.3 13.9 12.6 9.5 13.2 N/A N/A N/A

1.8%3.1%

2.7%

3.4%

1.8%2.0%

3.7%

-1.0%

1.0%

2.0%

-2%

0%

2%

4%

6%

8%

10%

12%

14%

16%

BCBSRI United

Com

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rem

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Profit & Reserves

Admin

Other Med

Pri Care

RX

Hosp OP

Hosp Inpatient

Net Increase: 13.2%

Contributions by Cost Category to Proposed Small Group Premium Increase: 2009

Source: OHIC analysis of 2009 health plan rate factor filings. Comparison is 2008 approved factors. Tufts omitted because no 2008 submission available.

Net Increase: 13.9%

Rate Factor Review: So Far

Mid May – Factors filedLate May – Increased Business awareness.

Governor and Candidates weigh in: “Withdraw rates”, “Proceed right to hearing (AG)”, “Negotiate a deal (LG)”. Front pages.

Early June – Second “Public Forum”Late June – OHIC calls on insurers to

withdraw rates or face rate hearing.July 3 – All three insurers withdraw filings;

announce plans to refile in six months.

Rate Factor Review: AssessmentEffect of withdrawal – Reprieve onlyPro:

- More scrutiny of insurers- More public education.- Good way to get the attention of Insurers:

• Opportunity to squeeze administrative costs and profits (cost shift back to self-insured)

• Opportunity to push harder on payment reform.

Con:- Greater politicization of process. Potential for unpredictable, non-rational decisions. - Low rate factors now may mean big jumps later.

II. OHIC Affordability StandardsQuestion: What can health plans in RI uniquely

do to address underlying cost trends?Process Elements

- OHIC’s Health Insurance Advisory Council.- Grant-funded consulting staff, Expert opinion and health services research.- Off line work with health insurers- Consequences tied to rate factor review- Result: “Affordability Standards”

Option 1: Delivery System Focus

Option 2: User Focus

Option 3: Infrastructure Focus

Description: Focus on payment levers of the health plans to realign incentives for care delivery in Rhode Island. Begin with primary care.

Focus on health plans' ability to change consumer behavior and reduce unnecessary services through information and benefit design.

Use health plan funds, national standards to upgrade and simplify the admin and clinical information processing and analysis functions in the medical care system

Short-Term Ideas:

1. Primary Care Spend (Limit ability to pass on in premiums)

2. Chronic care model style medical home

4. Select Wellness Performance Standards: Increased smoking cessation counseling

5. Reduce Ambulatory Sensitive ER visits

7. Standardized EMR Incentive

8. Standardized E-Prescribing Incentive

LT Ideas: : 3. Fundamental Payment Reform 6. Evidence-Based Coverage 9. RHIO/Health Information Exchange

Rationale

Primary Care Spend

++ General decline in choosing primary care residencies

++ A higher ratio of primary care doctors results in better health outcomes

++ Increasing share of primary care physicians would result in overall healthcare cost savings

? Increasing primary care payments will stem declines in primary care MDs, shift to PC-centric

Wellness Performance Standards, esp. Smoking

++ Tobacco use, obesity results in higher health care costs

++ Increased smoking cessation counseling will reduce costs

? Less evidence of the value of other wellness- related interventions

Reduce Ambulatory Sensitive ER visits

++ Solid evidence of overuse of ERs

Standardized EMR Incentive

++ Solid evidence of the cost-effectiveness of EMR investments

Standardized e-Prescribing Incentive

++ Adoption of e-prescribing both saves money and reduced medical errors

Final Recommended System Affordability Priorities

Health plans will improve the affordability of health care in Rhode Island by focusing their efforts upon provider payment reform, beginning with primary care. Achievement of this goal will not add to overall medical spend in the short-term, and is expected to produce savings thereafter. Specific areas of focus in support of this goal are as follows:

1. - Expand and improve the primary care infrastructure in the state -- with limitations on ability to pass on in premiums

2.      - Spread Adoption of the Chronic Care Model-Style Medical Home

3.      - Standardize EMR incentives

4.      - Work toward comprehensive payment reform across the delivery system

•Final Recommended Affordability Standards     Health plans are to be held accountable for increasing the proportion of their medical expenses spent on primary care by five percentage points over the next five years. This money is an investment in improved care coordination, not a simple shift in fee schedules.        As part of that, health plans will promote the expansion of the CSI-Rhode Island project by at least 15 physicians in the coming year and promote EMR incentive programs that meet or exceed a minimum value.       Health plans commit to participation in a broader payment reform initiative as convened by public officials in the future

Value of Primary Care Spend Target

0

5

10

15

20

25

30

Pri

Care

Sp

en

d (

%)

Mass GpPractices

Spain RI-now RI- 2014

Incremental Value of Increase (beyond inflation): >$150 million over five years (plus other lines of business)

PCP Standards: Significant $ For Primary Care Over Time

0%

20%

40%

60%

80%

100%

2009 2010 2011 2012 2013 2014

Projected increase in annual payments for Pri Care over 2008; NET of inflation

But these $ are for system goals – not just PCP payments…..

Next Steps

1. How do the health plans invest the money?• Work with Health Plans on options• Use Department of Health’s Primary Care leadership

group to vet ideas, drive alignment (among PCPs as well as plans…)

2. Monitoring • System Outcomes (Inpatient

Readmissions, ER visits, Primary Care Supply and System Costs)

• Process– Health Insurance Advisory Council

For More Informationwww.ohic.ri.gov

Rate factor review: http://www.ohic.ri.gov/2009%20RateFactorReview.php

Affordability Standards:http://www.ohic.ri.gov/

Committees_HealthInsuranceAdvisoryCouncil_%20Materials%202009.php