Health Insurance Connectors: Lessons from Massachusetts Nancy Turnbull Harvard School of Public Health and Board Member of Massachusetts Health Insurance Connector Authority May 11, 2009

The Roles of the Massachusetts Connector Runs Commonwealth Care Runs Commonwealth Care Program of subsidized coverage for people up to 300% FPL Program of subsidized coverage for people up to 300% FPL Administers Commonwealth Choice Administers Commonwealth Choice Non-subsidized program for individuals Non-subsidized program for individuals Small employer plan “pilot” Small employer plan “pilot” Policy making body Policy making body Individual mandate Individual mandate Facilitates expansion of coverage in the state through information, outreach and marketing Facilitates expansion of coverage in the state through information, outreach and marketing

Four Lessons from the Connector in Massachusetts 1. Connector is just one piece Public/subsidized coverage for people with low and moderate income Public/subsidized coverage for people with low and moderate income Individual mandate Individual mandate 2. Must be built on strong foundation of insurance market reform 3. Exclusivity enhances the value of Connector 4. Setting benefit standards is important for adequate coverage and informed choice “Actuarial value” standard is insufficient

432,000 Newly Insured: Sept 2008 Employer Groups +148,000 members Commonwealth Care +169,000 members Individual Policies Outside Connector +20,000 members Medicaid +76,000 members Source: Division of Health Care Finance and Policy Commonwealth Choice +19,000 members 57% of newly insured in subsidized programs 43% of newly insured thru the Connector

Strong Foundation of Insurance Market Reforms Small group in 1989; individual market in 1996 Small group in 1989; individual market in 1996 Guaranteed issue and renewal Guaranteed issue and renewal No rating on gender, health status, medical claims No rating on gender, health status, medical claims Modified community rating: 2:1 rate bands Modified community rating: 2:1 rate bands Self-employed in small group market Self-employed in small group market Same risk pool for all products at each insurer Same risk pool for all products at each insurer 2006 reforms 2006 reforms Merger of small group and individual markets Merger of small group and individual markets Same insurance rules inside and outside Connector Same insurance rules inside and outside Connector One rating pool for people inside and outside Connector at each insurer One rating pool for people inside and outside Connector at each insurer Young Adult Plans can be sold only by carriers with 5,000+ lives and only through the Connector Young Adult Plans can be sold only by carriers with 5,000+ lives and only through the Connector

Connector Plays 2 Very Different Roles Commonwealth Care Commonwealth Care Exclusive Exclusive Active purchaser Active purchaser Standardized products Standardized products Aggressive price negotiator Aggressive price negotiator Commonwealth Choice Commonwealth Choice Non-exclusive distribution channel Non-exclusive distribution channel Same products and prices inside and outside Connector Same products and prices inside and outside Connector Insurers with 5,000+ small group members must offer plans through the Connector Insurers with 5,000+ small group members must offer plans through the Connector

Exclusivity Enhances Value of Connector Maximizes enrollment and ability to be active purchaser Maximizes enrollment and ability to be active purchaser Easier for consumers to understand and navigate Easier for consumers to understand and navigate Prevents gaming by insurers Prevents gaming by insurers Can compete based on risk selection by offering different plans outside the Connector Can compete based on risk selection by offering different plans outside the Connector Forces broader pooling of risk Forces broader pooling of risk Spreads benefits of younger people buying coverage Spreads benefits of younger people buying coverage Enables risk adjustment across carriers Enables risk adjustment across carriers Lowers administrative costs Lowers administrative costs Allows innovation without concerns about impact on/response of market outside of Connector Allows innovation without concerns about impact on/response of market outside of Connector

Connector’s Current Market Power Commonwealth Care as % Total Insurer Members Insurer Commonwealth Choice as % Total Insurer Members As of 12/31/08; non-Medicare members

Connector Potential Market Power Commonwealth Care as % Total Insurer Members All Individual as % Total Insurer Members

Connector Potential Market Power All Individual and Small Employer <50 as % Total Insurer Members Commonwealth Care as % Total Insurer Members

Benefit Standards in Commonwealth Choice Connector awards Seal of Approval to plans that are “good value” and “high quality” Connector awards Seal of Approval to plans that are “good value” and “high quality” Statute expressly allows limited network plans to encourage lower cost, high quality products Statute expressly allows limited network plans to encourage lower cost, high quality products Designed 4 benefit tiers: Gold, Silver, Bronze, YAP Designed 4 benefit tiers: Gold, Silver, Bronze, YAP Plan designs in each tier must meet “actuarial value” standard Plan designs in each tier must meet “actuarial value” standard Carriers must offer all product 4 tiers Carriers must offer all product 4 tiers

The Limits of Actuarial Value Premiums for 50-year-old resident of Boston for effective date of June 2009