Section 125 Plans in Minnesota’s 2008 Health Reform Bill Julie Sonier Director, Health Economics Program Minnesota Department of Health July 18, 2008

Background Minnesota Governor Tim Pawlenty proposed a Section 125 plan requirement for employers and a health insurance exchange in 2007 The 2007 Legislature required further study of these ideas, along with the development of comprehensive plans to improve health care access, cost, and quality We contracted with Mathematica Policy Research for modeling, legal analysis, and operational analysis of issues related to Section 125 plans, health insurance exchanges, and some broader insurance market reforms

Among Minnesota employers that offer health insurance benefits: Findings from Mathematica Study: How Common Are Section 125 Plans in Minnesota Now? Among Minnesota employers that offer health insurance benefits: 64% of employers with self-insured health plans (typically large employers) offer a Section 125 plan 40% of employers with fully-insured health plans offer a Section 125 plan Employers that do not offer health insurance generally do not offer Section 125 plans either In other words, substantial numbers of Minnesota employers do not currently offer these pre-tax benefits to their employees Source: Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey Insurance Component, Minnesota data for 2003-2005.

Research Conducted for This Study: Mathematica Policy Research, Inc. Modeled a variety of options related to the scope and operation of a health insurance exchange, and interaction with other potential insurance market changes: Guaranteed issue and modified community rating (age & geography only) in the individual and small group insurance markets; Individual responsibility to obtain health insurance coverage With and without exemption for affordability; Requiring firms with more than 10 employees to offer a Section 125 plan

Estimated Reduction in Number of Uninsured, 2009 Final model results as of June 2008.

Legal Issues: Interaction of State and Federal Laws and Regulations HIPAA nondiscrimination: “Group health plans” as defined under ERISA cannot restrict access or vary premiums based on health status A Section 125 plan could be considered a “group health plan,” even if the employer does not contribute to the cost of premiums This is problematic since Minnesota allows health rating and rejection of applications in the individual market Possible responses Market reforms to require guaranteed issue and community rating More limited: guaranteed issue/no health rating during a limited annual open enrollment period for people buying coverage through a Section 125 plan

2008 Legislation: Final Result Employers required to offer Section 125 plans: More than 10 FTEs Not offering health insurance benefits Employers may “opt out” of the Section 125 requirement, but must certify that they have received education and information on the advantages of Section 125 plans Grants to small employers to cover the cost of establishing a Section 125 plan – up to $350 Agreement to establish a tax credit for the uninsured to purchase coverage through a Section 125 plan No changes to insurance market issuance/rating rules No insurance exchange

Contact Information Julie Sonier, Director Health Economics Program Minnesota Department of Health 651 201-3561 julie.sonier@state.mn.us Website: www.health.state.mn.us/healtheconomics