Maine Health Exchange for Small Businesses Presentation by Terry Gardiner Small Business Majority for Maine Joint Select Committee on Health Care Reform “Health Insurance Exchanges: Key Policy Issues and Questions ” September 21, 2010

Small Business Majority is a nonprofit, nonpartisan small business advocacy organization founded and run by small business owners and focused on solving the biggest problem facing small businesses today: the skyrocketing cost of health coverage. We speak for the nearly 28 million Americans who are self- employed or own businesses of up to 100 employees. Our organization sponsors scientific research that guides us to understand and advocate on behalf of the interests of small businesses across the country. About Small Business Majority

Still an Employer-Based System CBO healthcare reform coverage projections (Millions of non-elderly people) Change o Employers 159M (-3)56% o Medicaid 51 (+16)18% o Nongroup 25 (-5) 9% o Exchanges 24 (+24) 9% o Uninsured 22 (-31) 8% Healthcare reform success depends on the success of employer health coverage o Affordability – Cost containment and delivery system reform o Exchanges that work for employers

Exchanges Can Expand Employer Coverage Rand simulation of healthcare reform found employer coverage would expand from 115M today to 129M Largest increases were small employers with fewer than 50 employees – 10.4M new workers Reasons: o Individual requirement increases employee demand for coverage o Exchange benefits to employers facilitates employer coverage Rand simulation: y=home y=home

22 million self-employed entrepreneurs nationally o 28% of self-employed entrepreneurs are uninsured Nationally, 5.9M employers with fewer than 100 employees employ 43M o 80% (4.8M) have fewer than 10 employees o 54% (2.6M) of employers with fewer than 10 employees do not offer health coverage Most small businesses are very small and lack sophisticated HR departments o Average employer in Connecticut exchange has 8 employees National Small Business Landscape

Maine Small Business Landscape Self-employed: 115,581 Small Businesses: 33,435 <50 employees o 45% of firms < 50 offer coverage o 98% of firms >50 offer coverage Employer coverage: 687,310 o 219,564 employees work at firms <100 employees Individual coverage: 63,175

# Employees# of Firms% > 1027,87578% 10 to 244,17511% 25 to 992,0466% ,7715% Maine Small Business Distribution Maine exchange will have large numbers of small employers to service.

Small Employer Health Coverage Choices in 2014 Purchase health coverage through the exchange Purchase health coverage in the outside market Maintain a “grandfathered” health plan Do not offer health coverage o Employers with 50 employees or fewer (94% of Maine employers) are exempt from any shared responsibility requirements

Small business owners are skeptical for many reasons o Recession has created a pessimistic atmosphere and the focus is on survival – “near death experience” o Multiple versions of reform and two years of debate have left most confused on the final outcome o Controversy over health reform has created lack of understanding and confusion o Our surveys find a lack of faith in any government solution It is vital that thousands of Maine small business owners learn about their exchange and their choices Convincing Small Business the Exchange will Work

Provide affordable health plans o Attract insurers to the exchange and create incentives for price/value competition among insurers o OPM is required to provide at least two “multi-state plans” o Create incentives for participants to select lower-cost plans Examples: Federal Employees Health Benefits plan, CalPERS for CA state employees and Wisconsin State Employees Health Plan have created consumer incentives Keep annual premiums stable Small Business Needs - Exchange

Offer choice of competitive plans to employees Single point of entry for small employer o All necessary information for employer and employees to make decisions on coverage o One application o One premium payment o One source for enrollment changes o Qualification and calculation of the small business tax credit o Provide additional “HR” services such as Cobra administration, Section 125 service, HAS/FSA/HRA Small Business Needs - Exchange

Effective Outreach & Education Direct contact – only half of employers belong to any business group o IRS postcard succeeded in helping make small businesses aware of the tax credit o Direct survey and focus groups of employers Trusted voices of peers – historical sources o Brokers, business groups, business media Navigators in ACA can work for employers o Case Study: Massachusetts Fishing Partnership Health Plan Uninsured rate dropped from 43% to 13%

Governance Independent agency Flexibility and agility to “market health insurance” Subject to state laws on transparency, accountability and public participation Governing board should represent cooperating state agencies, interested parties and relevant expertise, and prohibit conflicts of interest Annual independent audit

State or National Exchange? State management will be closer to local market conditions and needs of individuals and small businesses o Monitoring and adapting to market conditions is ongoing as outside market will continue to exist and evolve States regulate insurers and coordination with the exchange will be vital to prevent adverse selection and enforcement National exchange will require: o System for local stakeholder input & market knowledge o Coordinating mechanism with state insurance regulator o Coordinated risk adjustment (inside/outside exchange pools)

Regional Exchange Advantages Larger exchange has many scale of economy advantages o Lower administrative costs o Reduce risk of adverse selection o Create more stable risk pools o Attract more insurers o Be a driver in the overall health system for improved value

Regional Exchange Complexities Need to align structure and rules of individual and small group markets in all states Need for enforcement consistency of insurance regulators Will a regional exchange actually result in more insurers marketing in another state? o Do insurers have networks in more than one state? Transitions likely needed to prevent rate shock to different individuals and groups in each state Risk adjustment system will be more complex Plan pricing may need to vary based on geographic cost differences of medical costs

Regional Cost Differences States have different starting points for individual and small group market plans, rates and costs StateIndividualSmall Group Maine$4,061$4,320 New Hampshire$3,427$5,040 Massachusetts$5,143$5,496 Rhode Island$4,779$5,184 Connecticut$3,503$4,656 Vermont$3,986$4,260 Average Annual Premium - AHIP

Regional Exchange Option States may resist merging risk pools Regional exchange could “administer” a regional pool achieving scale of economy advantages but state risk pools could remain separate

Separate or Combined Exchanges Evaluation of market regulatory differences between small group and individual market o Guaranteed issue, rating, benefits Evaluation of market differences between individual and small group market o Size of markets (Massachusetts had a small individual market) o Profile of risk pools

Adverse Selection - Factors Adverse selection between exchange and outside market o Exchange plan standards may differ from plans outside exchange o “Grandfathered plans” o Self-insured health plans have expanded to smaller employers Between plans inside the exchange o Different plan offerings by insurers may be more popular with different individuals

Adverse Selection Strong and clear direction to exchange governing boards and managers to create an active and ongoing process to guard against adverse selection Regulate the individual and small group market identically inside and outside of the exchange. Sophisticated but practical risk adjustment system: adjusts risk among insurers inside and outside the exchange to discourage adverse selection against and within the exchange. o Utah has implemented a “prospective” risk adjustment system that encourages insurers to participate A larger exchange generally will reduce the risk of adverse selection

Role of Brokers No brokers could lower costs Different roles of brokers for individuals and small employers o Communication with employees o Brokers provide other products and services to employers Historical experience of exchanges and pools has found brokers necessary Middle ground – defining the new roles and costs of brokers under the exchange o Differentiate between individuals and employers

Cost Containment Helen Darling, president of the National Business Group on Health, also said during the HHS panel discussion that the exchanges could serve as a "force for transformation in the health care system," one that could lead to a primary care-based system. "If we take overuse, waste and inappropriate nonevidence-based medicine out of the health care system, we will have a lot more money to pay for all of the things we have already committed to pay for," said Darling. "We shouldn't waste this moment."

Cost Containment Large exchange -- 20% of market Active purchaser o “Clearinghouse” model unlikely to drive lower costs o Selective plan offering can drive change Plan rating system that works for employers and employees Employer indexing to base health plan Exchange should set “high standards” for insurers, including use of innovative provider payment systems to improve quality and reduce costs Develop prevention & wellness programs that fit small employers

Other Options & Issues Healthcare co-ops o Interest by employers as well as consumers OPM and national plans – special role in small states and non-competitive markets Large employers o Self-insured plans have adverse selection risks o “Free choice” voucher may prove successful o All employers have stake in exchange potential to drive delivery system reform

General Resources - Exchanges National Association of Insurance Commissioners (NAIC) has special committees implementing healthcare reform-exchanges: o Prof. Tim Jost and Commonwealth Fund reports: o Reports/2010/Jul/Health-Insurance-Exchanges-and-the-Affordable-Care- Act.aspx Reports/2010/Jul/Health-Insurance-Exchanges-and-the-Affordable-Care- Act.aspx Recent: California enabling legislation for their state exchange: o 0FINAL.pdf 0FINAL.pdf HHS office of healthcare reform (OCIIO) exchange conference: o Jon Kingsdale former director of the Massachusetts Connector has produced a exchange timeline for states: o

Exchange Models in Action Massachusetts Connector – largest individual exchange and growing small employer exchange: o Connecticut (CBIA) – largest and oldest small employer exchange: o Utah exchange – newest small employer exchange has just expanded operations: o million federal employees, retirees and family members choose plans from FEHBP exchange: o

Info for Small Businesses Frequently asked questions: o Small business healthcare reform summary: o For more information: o (866) or