Preparing for Health Reform: State-Based Health Insurance Exchanges Bob Carey RLCarey Consulting January 22, 2010

Assumptions State-based exchanges Federal guidance, but (some) state flexibility Oversight/enforcement handled (initially) by the states 2

Developing a Baseline  Uninsured  Current publicly-subsidized health coverage programs  Insured 3

Uninsured Size of the population Demographics Geographic/regional variations Family income Employment status and availability of ESI Eligibility for publicly-subsidized health coverage programs 4

Public Health Coverage Programs Types of programs available Eligibility criteria Take-up rates Distribution methods Capacity Potential impact of exchange on existing programs Particular focus on premium subsidy programs for “non-traditional” groups 5

Insured Demographics Geographic/regional variations Employment status Types of coverage Distribution methods Carriers and market share ESI premiums and % paid by employees Take up rate of ESI Role of brokers/intermediaries, by market segment 6

Why the Baseline? Identify potential for program consolidation or elimination Highlight areas to focus “crowd out” efforts Leverage the market and existing infrastructure Optimize capacity and avoid duplication Inform outreach and marketing strategy 7

What Type of Exchange? Three basic models Market Organizer and Distribution Channel Utah Model Selective Contracting Agent Massachusetts Model Active Purchaser 1990s HIPC Model WeakStrong(Range of Government Involvement in Market) Ultimate Goal – shift the individual and small group markets from competition based on avoiding risk into competition based on price and quality. 8

Market Organizer & Distribution Channel Offers all plans and all carriers Serves as impartial source of information Facilitates plan/carrier comparisons Brokers insurance Streamlines administration and simplifies enrollment process Promotes defined contribution approach to ESI (?) 9

Selective Contracting Agent Offers “structured choice” of health plans and carriers Promotes competition among insurers, but does not “negotiate” premiums Serves as impartial source of information Facilitates plan/carrier comparison Brokers insurance Streamlines administration and simplifies enrollment process Potential for defined contribution ESI 10

Active Purchaser Sets benefits package and procures health insurance on behalf of enrollees Negotiates premiums with carriers Limits choice of plans/carriers Attempts to act like large employer  Viability contingent on covering large – and “risk neutral” or better – pool of members 11

Funding and Operating an Exchange Model selected will impact:  Roles and responsibilities  Administrative structure/governance  Staffing Initial investment of resources influenced by model selected AND capabilities/capacity of existing public and private entities 12

Building or Renting Administrative Capacity Medicaid agency to process eligibility for premium subsidy? Private sector intermediaries (third party administrators) to provide administrative services?  Quoting  Enrollment  Customer service  Premium billing, collection, remittance  Account management, etc… 13

Revenues to Support Operations Retention of a portion of the premiums  Typically 3% - 5% of premium Add-on fee to premiums Annual Appropriation 14

Subsidized Health Insurance Two main options  Stand-alone Medicaid-like health coverage o Commonwealth Care o Texas’ CHIP and Medicaid Buy-In programs  Premium subsidies for commercial insurance o Maryland’s Health Insurance Partnership o Insure Oklahoma 15

Outreach and Enrollment O&E likely determines success/sustainability of the exchange Impacts risk selection and potential for administrative efficiencies Use of health insurance brokers may be key, particularly for small group market Need to leverage multiple sources of information 16

Mitigating Risk of Adverse Selection Learn from past mistakes Rating rules and carriers’ underwriting guidelines must be comparable inside and outside the exchange Don’t separate risk pools Brokers have significant influence with employers 17

Conclusion “First do no harm” Each market – and each state – is different Recognize and leverage existing infrastructure Focus on end goal – shifting competition from one based on avoiding risk into one based on price and quality 18

Bob Carey RLCarey Consulting