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State Specific Conditions

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Allow sufficient administrative start-up time ... to craft politically successful new program - one that matches perceived need ... – PowerPoint PPT presentation

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Title: State Specific Conditions


1
State Specific Conditions Program
DesignConsiderations for Successful
Implementation
Katherine Swartz, Ph.D. Karl Ideman,
M.B.A. President, Pool Administrators,
Inc., subcontractor in UI Reinsurance
Inst.Team Randall R. Bovbjerg, J.D.
  • Presentation to Reinsurance Institutes Kick-Off
    Meeting with States, Albany Marriott, NY,
    Tuesday, September 12, 2006

2
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)

3
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
4
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

5
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

6
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

7
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 addl cost
  • Focus states cost estimates a key part of
    Reinsurance Institute

8
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
9
Next State-Specific Market Conditions Program
Design
  • What is meant by State Specific Conditions?
  • Characteristics that are key to access and
    affordability in your states individual and
    small group markets
  • Characteristics that are the same as or different
    from
  • Other states that are facing the same issues
  • Your states individual and your states small
    group markets
  • Any other things that will argue for or against a
    state public reinsurance program

10
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

11
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

12
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)

13
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 doesnt have access (you can
    quote me on this)

14
Pricing Regulation, contd
  • Rating Structure also includes the regulatory
    control over carriers 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

15
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)

16
Exclusions, contd
  • 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)

17
Exclusions, contd
  • 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)

18
Safety Net Provisions
  • Safety Nets catch the groups and individuals who
    otherwise wouldnt 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

19
Final Thoughts on State Specifics
  • Characteristics that are the same as or different
    from
  • Other states that are facing the same issues
  • Your states individual and your states small
    group markets
  • Find your states 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

20
Final on State Specifics, contd
  • 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 Dont design in a vacuum

21
Addl 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

22
Credibility of Premium Subsidy ( uninsured DC
firms likely to offer coverage, by amount of
subsidy)
Percent of Premium Covered
Source DC SPG small business survey, Aug 2005
23
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.
24
Potential Crowd-Out DC Example(Public Support
May Displace Private)
25
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

26
Many Steps, contd
  • Plan
  • Legislate
  • Administer
  • Sell
  • Monitor
  • Adapt
  • PLASMA
  • Assure your team enough time and resources to see
    this through
  • Your newly insured will thank you

27
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

28
End
29
Following for backup only
30
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?

31
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