A Presentation of the Colorado Health Institute 1576 Sherman Street, Suite 300 Denver, Colorado Hot Issues in Health Care Legislative Conference November 17-18, 2006 Colorados Private Health Insurance Market Hot Issues in Health Care Legislative Conference November 17-18, 2006

2 Overview Place private health insurance market in competitive market context Describe small group market trends Describe individual market trends Discuss market-driven versus publicly supported policy approaches Present various policy options

3 Health insurance markets compared to competitive markets The health care insurance market rarely meets conditions necessary for a competitive market Conditions for competitive markets include……

4 Competitive market Health insurance market Making informed purchases by having sufficient information regarding: Most health care consumers lack information regarding: Cost of services Cost Quantity Quality Scope of services they consume Variation in quality among providers

5 Competitive market Health insurance market Easy entry and exit of suppliers Suppliers seek consumers who will use products Difficult to enter the health care market Suppliers seek consumers who will minimize use of products

6 Competitive market Health insurance market Consumers pay for what they consume Consumers are free to purchase a product as long as costs are covered Some consumers pay for more than they consume; others pay for less than they consume Employer chooses products; limited employee choice Individual market closed to consumers with pre- existing conditions

7 In , Colorado regulated about 23% of private insurance market Source: Kaiser Commission on Medicaid and the Uninsured, Colorado Division of Insurance, Data from

8 Adults are more likely to be uninsured than children Source: U.S. Census Bureau, Current Population Survey

9 Trends in the U.S. insurance market: Increases in premiums relative to inflation and earnings Source: Kaiser Family Foundation, 2006.

10 Trends in Colorados employer-based market: Employee premium increases over time Source: Medical Expenditure Panel Survey

11 Trends in Colorados employer-based market: Family premium increases over time Source: Medical Expenditure Panel Survey

12 Trends in health insurer market in Colorado Enrollment in states top 10 health plans has increased: –1.8 million people at end of 1995 –2.9 million at end of 2005 For-profit health plans make up greater share of the market than nonprofit plans

13 Erosion of Colorados small group health insurance market,

14 What defines the small group health insurance market in Colorado? Small employers between 2 – 50 employees Business Groups of One (self-employed individuals) Guaranteed issue (cannot be denied coverage due to health status) Use of claims experience and health status to set rates is allowable Some rate-setting controls

15 Small group market The decline in participation corresponds with increasing premiums. Source: Medical Expenditure Survey and Colorado Division of Insurance, 2006.

16 Small group market Disagreement as to source of increasing premiums – Reforms passed by Colorado legislature in 1994 (HB ) or Inflationary market trends across the country mitigated by HB

17 Small group market: Impetus for H.B No limits on annual rate increases for small employers – premiums could double in one year based on health status of employees. Carriers could decline or limit coverage of individuals in the small group market. Led to very unstable market conditions.

18 Small group market: HB HB included various changes to the small group market: Guaranteed issue Market conduct rules Modified community rating with rate controls implemented over 3-year period Business Group of One added

19 Small group market: HB Since its passage, most of HB has been rescinded by the legislature or superseded by federal HIPAA rules Remaining/modified regulations from 1210: –Business Group of One remains, but greater controls on employment documentation –Premiums can range from an annual 25% reduction to a 10% increase based on health status (claims experience) on top of medical inflation, geographic region and industrial classification –All carriers must offer standard and basic plans

20 What is the individual health insurance market in Colorado? Roughly 11% of Colorados privately insured population is in the individual health insurance market No guaranteed issue; carriers allowed to deny applicant based on health status Very few mandates apply Health plans must file premiums with the state and must be found actuarially sound

21 Individual market Colorados high-risk pool: CoverColorado State established, subsidized health insurance plan for people uninsurable because of a pre- existing medical condition A few other qualifying circumstances (see CHI brief on high-risk pool) 23 states have a high-risk pool 180,000 participants nationwide; 5,000+ in Colorado

22 Individual market Funding for CoverColorado Premiums, state unclaimed property fund and assessment on insurers Premiums set between 100% and 150% of annual average small group premium rate High premiums, high deductibles In 2005, almost 50% of CoverColorado members had a deductible > $5,000

23 Individual market: High-risk pool claims vs. premiums

24 Two approaches to stimulate small group health insurance market Structure health insurance to operate more like a competitive market through greater consumer-directed health care purchasing Increase government involvement through regulatory mechanisms and subsidies to increase coverage for low-income workers

25 Consumer-directed purchasing High-deductible health plans can be coupled with health savings accounts (HSAs) Greater cost sharing, more out-of-pocket expenses when shopping for health care Consumers with more out-of-pocket expenses will require greater transparency in pricing and quality information, a Consumer Reports for health care consumers

26 Regulatory guidance and publicly financed subsidies Individual mandate to obtain health insurance coverage (same as auto insurance mandate) Employer mandate to provide coverage to employees Reinstate modified community rating/risk pooling Publicly financed premium subsidies for low-income workers

27 Now for the experts……… Ruth Benton - CEO, New West Physicians Bill Lindsay – President, Benefit Group, Lockton Companies of Colorado