What are Connectors and How do they work? April 26, 2007

2Agenda Introduction to Connectors –The vision for the Connector in Massachusetts –What data did MA use to think through the Connector’s structure and functions? Connectors, Exchanges and Employee Choice Pools –Washington DC Model - Robert Moffitt –Massachusetts Model – Robert Carey –Connecticut Model – Phil Vogel Digging Deeper: Connectors, Federal Law, and Moving Forward –A facilitated discussion among states and panelists

3 The “Connector” in Massachusetts What was and wasn’t working (background) –Understanding the insurance markets (small and nongroup) –Understanding who the uninsured are and the reasons they are uninsured –Understanding employer coverage Vision for functionality of the Connector (and how that grew) Connector in context of MA health care reform

4Data Individual data (age, insurance status, employment, income, family status, health status) Employer data (average price of plan, % contribution, offer rate by size) Insurance market (number, price, type of plans in each market, benefit coverage) Medicaid and other public program cost and benefit data Uncompensated Care Pool data

5 Questions asked about insurance markets Are the nongroup and small group markets functioning well? Is anything working well? What are the barriers to entry? What is the product availability? How many carriers are in the markets? Is there adequate competition? Is there choice, portability, flexibility? What is the state’s experience with adverse selection, risk pooling, reinsurance? What reforms have been made to the markets in the past, were they successful?

6 MA nongroup market vs. national National MA PPO83.4%10.0% HMO/POS14.9%90.0% Indemnity 1.7% 0.0% < %20.0% %15.0% %17.0% %17.0% %18.0% %14.0%

7 MA nongroup market - rules 2 products are allowed to be sold –Standard - very comprehensive with minimal cost sharing –Alternative – increased cost sharing and no Rx Guaranteed issue/renewal with continuous open enrollment –6 mo. waiting period or pre-ex condition exclusion period, offset by prior continuous coverage 63 days prior to enrollment –No waiting period for “buy up” Overall mlr is 91% –94% for individuals and 83% for other rate basis types –Deterioration from 83% in 2003 –5% higher than for small group

8 MA nongroup market – enrollment and premiums 42,500 subscribers –will comprise 11% of the merged market 90% of the market is with BCBS Nongroup membership decreased by 10% Average premium is $650 for Standard and $450 for Alternative –Declining plan value 35% purchased Alternative in % purchased Alternative in 2005

9 MA nongroup market – claims experience Average pmpm claim cost was approximately 40% higher than small group in 2005 due to the following: –Older than average subscriber age (1.13) –Much lower number of children covered –77% of those that purchase buy individual-only Nongroup pmpm claims –Average is $375 –15% have pmpm claims greater than $650 –15% have pmpm claims under $50 –50% have pmpm claims under $200

10 MA small group market – enrollment and premiums 700,000 members in % of are written by 7 not-for-profit HMOs 92% of which are written by 7 not-for-profit HMOs Includes groups of 1-50 FTEs Overall small group claims pmpm is $262 –11% of groups (which are 3% of members) have pmpm claims under $50 –9% of groups (which are 5% of members) have pmpm claims of more than $650 –50% of groups have pmpm claims under $200 –16% of groups have pmpm claims greater than $350 2:1 rating band –Age, geography, industry, size, 4 rate basis types – all inside the band

11 MA small group market - products Purchasing patterns –87.7% are HMO/POS –11.75% are PPO –0.54% are Indemnity Plan value –70% of small group members have “medium” plan values between 0.85 and 0.92 $15-$20 office visit co-pays $ in patient and out patient co-pays Drug co-pays of $10/25/40 –12% of small group membership has “low” plan values between 0.65 and 0.85 – 3% of small group membership has plan values between 0.65 and 0.75 (high deductible plans)

12 Small group enrollment by group size Group Claim PremiumAgePlan Size Members PMPM PMPMMLRFactorValue 1112,000$296 $30597% ,000$296 $30597% ,000$273 $32385% ,000$250 $30981% ,000$250 $30981% ,000$251 $29884% ,000$250 $28787% ,000$250 $28787% Source: Gorman Actuarial

13 Summary of findings Un-level playing field between employees of firms that don’t offer (nongroup purchase) and self-employed (small group purchase) Little choice of product in nongroup market No pre-tax payment for people purchasing in nongroup market Small employers have minimum participation and contribution requirements Very small groups are older and use more services

14 The “Connector” in Massachusetts What was and wasn’t working (background) –Understanding the Insurance markets (small and nongroup) –Understanding who the uninsured are and the reasons they are uninsured –Understanding employer coverage Vision for functionality of the Connector (and how that grew) Connector in context of MA health care reform

15 Key questions about the uninsured? Who are the uninsured? Why don’t they have health insurance? – –Are they employed, type of employment? – –Are they offered insurance by employer? – –If offered, do they choose not to purchase? Demographic profile? What is their health status? How do they receive and pay for care? Who uses the uncompensated care pool?

16 Insurance status of MA residents Total Population6,400,000 Currently insured (93%)5,940,000 –Employer, individual, Medicaid, Medicare Currently Uninsured(7%) 460,000 _________________ ≤ 100% FPL Medicaid eligible 106,000* % FPL Subsidy eligible 150,000* >300% FPL 204, 000 * FFP eligible under waiver Note: Based on August 2004 Division of Health Care Finance and Policy Data

17 Uninsured rates by age ( ) Younger adults have higher uninsured rates although significant increases were also found in the older age groups in 2004.

18 Distribution of uninsured by age (2004) The uninsured span all ages with 67% between the ages of 25 and 64.

19 Uninsured rates by gender and marital status, Males have higher rates of uninsurance than females. Never married people have higher rates of uninsurance. Married people saw a significant increase in their rate of uninsurance from 2002 to 2004.

20 Uninsured rates by education and employment status ( ) Rates of uninsurance are much higher for those without a high school degree and lowest for those with a college degree. Rates of uninsurance are lowest for those working full- time jobs.

21 Distribution of the uninsured by education and employment status (2004) Most of the uninsured are high school graduates; almost one fifth have college degrees. A little more than two thirds of the uninsured work, and most of those who do work hold full-time jobs.

22 Uninsured rates by size of firm People working for small firms are more likely to be uninsured than those working for larger firms. Increases in uninsured rates were found for both large and small firms from 2002 to 2004.

23 Distribution of employed uninsured by size of firm (2004) While the rate of uninsurance is far greater for people working in small firms, a significant percent of the working uninsured are employed by firms with greater than 50 employees.

24 Distribution of uninsured and ucp users by region

25 Components of UCP demand

26 Distribution of ucp claims by site of service (2006) 67% of pool users are between the ages of 25 and 64.

27 What we learned about the uninsured The uninsured are not a homogenous group; however, they are likely: –to be employed –to have been born in the U.S. –to be single –to be white –to be between 25 and 64 –to have at least a high school education –to have moderate incomes and reportedly willing to pay for health insurance. –more likely to use free care pool if they live close to Boston.

28 The “Connector” in Massachusetts What was and wasn’t working (background) –Understanding the Insurance markets (small and nongroup) –Understanding who the uninsured are and the reasons they were uninsured –Understanding employer coverage Vision for functionality of the Connector (and how that grew) Connector in context of MA health care reform

29 Questions to ask about employer- coverage Who does and doesn’t offer? Are they dropping or likely to drop coverage? Reasons for not offering What do they offer? How much do they subsidize? How many employees take up offer of coverage? Do they offer pre-tax payment of premium? How much choice?

30 Employers that offer health insurance  The change in offer rate is not statistically significant.

31 Employers that offer health insurance by employer size Employer Size All employee sizes 69%68%70% 2 to 9 employees 59%57%60% 10 to 24 employees 88%89%88% 25 to 50 employees 93%87%95% 51 to 249 employees 96%100%96% 250 or more employees 97%99%99%

32 Employers that offer health insurance to full-time employees only  The change in offer rates is not statistically significant. 75% 76% 0% 20% 40% 60% 80% 100%

33 Hours required to qualify for health insurance

34 Total monthly premium for indiv. plans

35 Monthly employer contribution to individual plan $78 $88 Employee pays

36 Total monthly premium for family plans

37 Monthly employer contribution to family premium $237 $269 Employee pays

38 Employers offering pre-tax plan for hi premiums (2005) 45% 80% 0% 20% 40% 60% 80% 100% 2-50 Employees50+ Employees

39 Eligible employees who enroll in employer’s health insurance

40 Employers ask for proof of hi if employee turns down insurance 20% 22% 23% 0% 10% 20% 30% 40%

41 Employers that offer compensation to employees who turn down hi 12% 11% 12% 0% 10% 20% 30%

42 Employers impose a waiting period

43 Waiting periods

44 Does employee contribution to health insurance premium vary by? Reason Seniority2%4% Part-time/ Full-time status 6%9% Surcharge for spouse if other insurance available -3% Contribute higher portion of premium for dependents 6% - Pay -3% Whether employee is executive staff 2% - Union/ non-union status 1%1% Other4%4% Employer pays 100% of premium 17%20% Employee contribution does not vary 65%62%

45 Reasons for not offering health insurance Reason Premiums too high 81%94%85% Turnover too great 37%41%39% Employees covered elsewhere 79%85%88% Administrative hassle 25%39%30% Most employees are not full-time 55%58%56% Can attract good employees without 40%44%51% Organization newly established 23%21%16% Financial status prohibits offering 57%82%72% Past negative experience w/ offering insurance 12%10%6% Employees prefer higher pay - -40%

46 Employers who do not offer hi: what would motivate? Ways to Motivate Lower premium rates 69% - - Lower premium rates: plan with only basic hospital coverage -54% - Lower premium rates: plan with limited networks and high copayments - -50% Eliminate required minimum participation 57%60%64% Government subsidy for low-income employees 55%67%60% Tax credits 63%82%74% Fee requirement -28%31% Legal mandate - -44%

47 Employers who do not offer health insurance: ways to constrain costs Acceptable Ways to Limit Costs 2005 Limit benefits 75% Limit provider network 75% Impose high copayments 62% Impose higher copayments for higher- wage earners 70% Impose high deductible 49% Impose higher deductibles for higher- wage earners 58%

48 What we learned about employer hi coverage Employers have not been dropping coverage in MA Many small employers who offer hi do not offer pre-tax treatment of premium payments Many employers have difficulty providing hi for part time workers Waiting periods have increased slightly Most employers do not vary contribution or cost sharing by employee characteristics Employers who do not offer insurance are looking for lower cost alternatives Most employers do not ask for proof of coverage if employees turn down coverage

49 The Connector in Massachusetts What was and wasn’t working (background) –Understanding the insurance markets (small and nongroup) –Understanding who the uninsured are and the reasons they are uninsured –Understanding employer coverage Connector in context of MA health care reform Vision for functionality of the Connector (and how that grew)

50 Medicaid Cost/Quality Improvements Commonwealth Care Insurance Reforms Shared Responsibility Connector Authority Massachusetts Health Care Reform

51 Ch. 58 of Acts of 2006 Merge nongroup and small group markets –15% decrease in nongroup rates –1 to 1.5% increase in small group rates (can be offset with purchase of $33-48 million reinsurance plan) –Represents $25-$38 million subsidy from small group to non group New distribution channel (Connector) Individual Mandate –Loss of tax deduction in 2007 –Assessed 50% cost of MCC in Fair share employer assessment & Free Rider surcharge Commonwealth Care (subsidized coverage)

52 Ch. 58 of Acts of 2006 Section 125 Plan is required of employers with more than 10 FTEs –Excused from Free Rider Surcharge –Allows employees to pay with pre-tax dollars Expanded dependency status for health insurance purposes to 2 years past loss of tax dependency status or age 26 Young Adults Plan Moratorium on mandated benefits HMOs can use coinsurance

53 Key changes made to small group and nongroup markets Small group and nongroup risk pools to merge Connector empowered to arrange for sale of products to individuals and small groups –Commonwealth Care available for those at 300% FPL or below –“Seal of Approval” products to small groups or individuals above 300% FPL –Young Adult Plan available for purchase to those 19 to 26 All individuals considered groups of one Merged pool rating based on current small group –Group size adjustment for smallest groups increased from 1.05 to 1.10 –Group size adjustment moved OUTSIDE the 2:1 band

54 Rate impact on the merged market with the new rating rules Merger will lead to a decrease in nongroup rates of approximately 15% and an increase in small group rates of approximately 1 to 1.5% Average book of business rate impact will vary substantially by carrier –-2% to -50% for nongroup –+1 to +4% for small group Adding currently uninsured will lead to rate impacts of - 3% to +6%, depending on: –Current number of uninsured –Number of uninsured purchasing coverage –Morbidity of the newly insured $30 to $45 million in reinsurance dollars required to offset increase in small group rates due to merger

55 The Connector in Massachusetts What was and wasn’t working (background) –Understanding the insurance markets (small and nongroup) –Understanding who the uninsured are and the reasons they are uninsured –Understanding employer coverage Connector in context of MA health care reform Vision for functionality of the Connector (and how that grew)

56 Non-offered Individuals Small Businesses Sole Proprietors Non-working Individuals Blue Cross Blue Shield Fallon Harvard Pilgrim Insurance Connector The Connector makes it work New Entrants MMCOs Tufts NHP

57 Governor’s vision for the Connector Nexus between buyers and sellers –Premiums paid with pre-tax dollars (125 Cafeteria Plan) –Facilitate premium assistance for % FPL Mechanism for reaching non-traditional workers –Part-timers and seasonal workers –Contractors and sole-proprietors –Spouses with two employers wanting to contribute towards family plan –Individuals with more than one job Alternative distribution system Promotes shift to defined contribution

58 Eligibility for accessing subsidized health insurance via the Connector Uninsured resident of MA (6 mo.) Not eligible for any MassHealth program, Medicare, QSHIP, or SCHIP program. Legal citizen Employer has not provided health insurance in the last 6 mo. for which the employee is eligible and for which the employer covers at least 20% of annual family premium or 33% of individual premium. (Board can waive in future)

59 But, some wanted more Really wanted purchasing pool Final legislation did not allow as much flexibility in product design as we would have liked Open meetings Ambitious timelines Change in administration Tension between the “business plan” of connector and regulatory authority –Defining affordability –Defining minimum creditable coverage