An Overview of Health Insurance Exchanges Jocelyn Guyer, Georgetown University Center for Children and Families Timothy Stoltzfus Jost, Washington and Lee University School of Law Nancy Turnbull, Harvard University School of Public Health From Vision to Reality: State Strategies for Health Reform Implementation November 11, 2010

Organized marketplace Available to individuals and small businesses State-based (mostly) Target date: January 1, 2014 What is an insurance exchange?

Exchange Coverage Employer Coverage Exchange Coverage is a Key to Health Reform Public Programs (Medicaid/ CHIP/Medi care) Public Programs (Medicaid/ CHIP/Medi care)

Where Individuals/Families Will Obtain Coverage in 2019

Change in Coverage Sources, Source: Georgetown Center for Children and Families analysis of Congressional Budget Office, Cost Estimate of HR 4872, Reconciliation Act of 2010 (Final Health Care Legislation) (March 20, 2010). Millions Unsubsidized Subsidized 5 19

Timothy Stoltzfus Jost Washington and Lee University School of Law Health Insurance Exchanges and the Affordable Care Act: Eight Difficult Issues

1. Governance How should exchanges be governed? Should they be run by a state agency or a nonprofit entity?

2. Adverse Selection The most significant problem exchanges have grappled with historically has been adverse selection. What should be done to avoid adverse selection against and within exchanges?

3. Self-insured Plans Opening exchanges to large employer plans, and in particular to formerly self-insured employee benefit plans, poses a significant threat to the exchanges. What must be done to make self-insured plans compatible with exchanges?

4. Attracting Employers Exchanges must attract employers as well as individual enrollees if they are to succeed. What can be done to make exchanges attractive to employers?

5. Certifying Plans The ACA requires exchanges to certify health plans that meet certain requirements for participation in the exchange. How should exchanges exercise this regulatory authority?

6. Consumer Information The ACA requires exchanges to make both descriptive and evaluative information available to consumers. How should exchanges fulfill this responsibility?

7. Determining Eligibility Exchanges play a central role in making eligibility determinations for premium tax credits and cost-sharing reduction payments and for the Medicaid and Childrens Health Insurance Programs. How should eligibility determinations work under the Affordable Care Act?

8. Financing Exchanges must find ways to hold down administrative costs and must identify funding sources if they are to succeed. What can exchanges do to reduce administrative costs and attract funding?

How Massachusetts Answered Tims Questions Nancy Turnbull Harvard School of Public Health Board Member of Massachusetts Health Insurance Connector November 11, 2010

Section 125 plans Small Employers- Unsubsidized Subsidized CommCare Individual- Unsubsidized Massachusetts Connector

17 Structure and Governance? Independent public authority Independent public authority Governed by 10-person board Governed by 10-person board 4 government officials 4 government officials Chaired by secretary of administration and finance Chaired by secretary of administration and finance Medicaid director Medicaid director Commissioner of insurance Commissioner of insurance Head of agency responsible for state worker and retiree benefits Head of agency responsible for state worker and retiree benefits 3 gubernatorial appointees: economist, small employer, actuary 3 gubernatorial appointees: economist, small employer, actuary 3 Attorney General appointees: consumer, union, health and welfare trust funds 3 Attorney General appointees: consumer, union, health and welfare trust funds Three-year terms for appointees Three-year terms for appointees Broker will be added to board as of July 1, 2011 Broker will be added to board as of July 1, 2011

P rotecting against adverse selection? Before the exchange: Long history of insurance market reform Long history of insurance market reform Guaranteed issue/renewal Guaranteed issue/renewal No rating on health status, medical claims, gender No rating on health status, medical claims, gender Modified community rating Modified community rating 2:1 rating bands 2:1 rating bands All products available to everyone All products available to everyone Major carriers must sell individual products Major carriers must sell individual products All products at each carrier in one rating pool All products at each carrier in one rating pool

P rotecting against adverse selection? P rotecting against adverse selection? Since reform Same insurance rules inside and outside the exchange Same insurance rules inside and outside the exchange Same rating pool inside and outside Connector Same rating pool inside and outside Connector Merged small employer and individual markets Merged small employer and individual markets Insurer must sell Seal of Approval products inside and outside the Connector Insurer must sell Seal of Approval products inside and outside the Connector Individual mandate Individual mandate Standardized products in the Connector Standardized products in the Connector LACKING Insurers can sell non-standardized products outside the Connector Insurers can sell non-standardized products outside the Connector No risk adjustment across insurers (except in subsidized Commonwealth Care) No risk adjustment across insurers (except in subsidized Commonwealth Care)

Making exchange attractive to small employers? ~6000 members in small employer plans ~6000 members in small employer plans Biggest value: Easy to compare whats available from many carriers Biggest value: Easy to compare whats available from many carriers Many challenges Many challenges Opposition by BCBSMA (60% market share) Opposition by BCBSMA (60% market share) Concern about adverse selection if BCBS sits out Concern about adverse selection if BCBS sits out Opposition by most brokers (lower commissions) Opposition by most brokers (lower commissions) Whining about standardized products Whining about standardized products New 5% state premium subsidy for participation in Connector plan with wellness program New 5% state premium subsidy for participation in Connector plan with wellness program How much will federal tax credits help? How much will federal tax credits help?

How to pick health carriers and products? Subsidized program Subsidized program Only Medicaid Managed Care plans initially Only Medicaid Managed Care plans initially Robust competitive procurement Robust competitive procurement Unsubsidized program Unsubsidized program Standardized products: Gold, Silver, Bronze, YAP Standardized products: Gold, Silver, Bronze, YAP Carriers with 5,000+ lives in small employer market must bid Carriers with 5,000+ lives in small employer market must bid Must bid for all lines of business and all products Must bid for all lines of business and all products Seal of Approval to plans that provide good value and high quality Seal of Approval to plans that provide good value and high quality

22 Information for Consumers? Premiums for 50-year-old resident of Boston for effective date of June 2009 Massachusetts 1.0: Actuarial Value

23 Mass 2.0: Standardized Products

Eligibility across programs? Single application for all health programs Single application for all health programs Electronic application, sort of Electronic application, sort of Passive enrollment – use information from other state agencies to verify eligibility Passive enrollment – use information from other state agencies to verify eligibility Same health insurers in Medicaid and exchange Same health insurers in Medicaid and exchange Disconnect between Medicaid approach with retroactive eligibility and exchange private insurance approach with coverage starting on first of next month Disconnect between Medicaid approach with retroactive eligibility and exchange private insurance approach with coverage starting on first of next month Auto enrollment for subsidized plan– enroll into cheapest plan if consumer doesnt pick a plan Auto enrollment for subsidized plan– enroll into cheapest plan if consumer doesnt pick a plan Outreach grants to community organizations across state: big pay-off Outreach grants to community organizations across state: big pay-off

Reducing Administrative Costs and Finding Funding? $25 million start-up funding $25 million start-up funding Collects administrative fees Collects administrative fees 3.5% of premium 3.5% of premium Cut of premium not an add-on: reduces revenue paid to health insurers Cut of premium not an add-on: reduces revenue paid to health insurers Self-sufficient since 2008most through subsidized products Self-sufficient since 2008most through subsidized products Broker commissions Broker commissions $10 per subscriber per month: groups 1-6 lives $10 per subscriber per month: groups 1-6 lives 2.5% premium: groups with 6+ lives 2.5% premium: groups with 6+ lives 90% of Connector small group sales are not through brokers 90% of Connector small group sales are not through brokers Scale/size is critical to lowering administrative costs Scale/size is critical to lowering administrative costs Tensions about disrupting existing business practices: Duplicative? More expensive? Adding value? Tensions about disrupting existing business practices: Duplicative? More expensive? Adding value? Is it cheaper to run programs through an existing state agency? Is it cheaper to run programs through an existing state agency?

Role for Brokers? BROKERS CONSUMER ADVOCATE WHO PROPOSED EXCLUSIVITY FOR THE EXCHANGE EXCHANGE OFFICIAL WHO PROPOSED LOWERING BROKER COMMISSIONS

27 Eyes on the Prize 2.7% 2009 Source: Massachusetts Division of Health Care Finance and Policy, 2009 Household Insurance survey