Benefit Trends in Minnesota’s Small Group and Individual Health Insurance Markets State Health Research and Policy Interest Group Meeting June 24, 2006 Elizabeth Lukanen Senior Research Economist Health Economics Program Minnesota Department of Health

Outline Why Monitor Benefit Structures in the Private Insurance Market? Data Source Changes in the Benefit Structures of the Small Group and Individual Markets Evaluating Coverage Adequacy: Method 1: Benchmark System Method 2: Weighted Points System

Why Monitor Benefit Structures in the Private Insurance Market? In 2004, the growth in per person premiums in Minnesota and in the Nation was 11.2% Cost pressures may lead to a shift in enrollment to plans with higher levels of enrollee cost sharing Higher cost sharing may discourage people from seeking care when they need it and disproportionately affects high users of care such as the elderly and chronically ill Source: MDH Health Economics Program and The Kaiser Family Foundation and Health Research and Educational Trust, “Employer Health Benefits: 2004 Annual Survey,” September 2004.

Data Source Survey of health plans in the Minnesota’s small group and individual market with an earned premium of greater than $5 Million Information was collected on each plan offered by the company Surveys were conducted in 2002 and 2005 Small group and individual markets were targeted because of historic concerns about adequacy Mandatory rate filing in the small group and individual market acts to limit the number of plans offered Use of administrative data to assess adequacy of benefits is unique and different from other studies

Changes in the Structure of Cost Sharing and Benefit Levels in Minnesota’s Small Group and Individual Health Insurance Markets, 2002 to 2005

Per Person Annual Deductibles in the Small Group Market, 2002 to 2005 (by share of total enrollment) Source: MDH, Health Economics Program * For plans with separate deductibles for drugs, the limits are combined. Median calculation excludes enrollees with no deductible Range: $100 to $2,500Range $100 to $5,000 Median: $500 No Deductible65.6%52.1% Less than $ %16.5% $500 to $ %16.9% $1,000 to $1,9996.2%10.3% $2,000 or More0.2%4.2% 100.0%

Office Visit Cost Sharing Requirements in the Small Group Market, 2002 and 2005 (by share of total enrollment) Source: MDH, Health Economics Program None2.0%4.2% Copayment68.9%89.0% Tiered Copayment0.0%0.3% 20% Coinsurance27.3%5.7% Other Coinsurance0.1%0.5% Copayment and Coinsurance1.7%0.4% 100.0%100.1%

Distribution of Office Visit Copayments in the Small Group Market, 2002 and 2005 (by share of total enrollment) Source: MDH, Health Economics Program *Includes only enrollees who have an office visit copayment.

Cost Sharing Requirements for Hospitalizations in the Small Group Market, 2002 and 2005 (by share of total enrollment) Source: MDH, Health Economics Program None41.4%30.2% 20% Coinsurance49.8%63.2% Other Coinsurance2.5%5.5% Copayment and Coinsurance5.3%1.1% Other1.0%0.1% 100.0%

Per Person Annual Deductibles in the Individual Market, 2002 to 2005 (by share of total enrollment) Source: MDH, Health Economics Program * For plans with separate deductibles for drugs, the limits are combined. Median calculation excludes enrollees with no deductible Range $50 to $10,000 Median $1,000Median $1,700 None2.0%2.4% Less than $5004.4%2.9% $500 to $ %12.2% $1,000 to $1, %40.8% $2,000 to $2, %24.8% $3,000 to $3,9992.9%5.6% $4,000 to $5,9996.2%8.8% $6,000 or More1.2%2.2% Per Illness6.0%0.4% 100.0%

Office Visit Cost Sharing Requirements in the Individual Market, 2002 and 2005 (by share of total enrollment) Source: MDH, Health Economics Program None25.8%37.6% Copayment5.5%0.9% 10% Coinsurance3.4%3.5% 20% Coinsurance63.1%57.2% Coinsurance Greater than 20%0.8% Other1.5%0.0% 100.0%

Cost Sharing Requirements for Hospitalizations in the Individual Market, 2002 and 2005 (by share of total enrollment) Source: MDH, Health Economics Program None8.0%26.1% Copayment0.8%0.4% 10% Coinsurance0.0%1.4% 20% Coinsurance86.2%61.6% Coinsurance Greater than 20%1.0%10.1% Other4.0%0.4% 100.0%

Methods for Assessing Adequacy of Health Care Coverage Method 1: Benchmark System Method 2: Weighted Point System

Method I: Benchmark System 4 measures were chosen to evaluate the plans deductible, cost sharing for hospitalization, out-of-pocket (OOP) maximum and lifetime limit 5 standards of adequacy were constructed using combinations of the 4 measures To meet a standard, plans had to meet or exceed all measures within that standard

Benchmark System Standard A Standard B Standard C Standard D Standard E DeductibleNone< $500<$1,000<$2,000<$3,000 Coinsurance for Hospitalization None <=10%<=20% OOP Maximum<= $1,000 <= $1,500 <= $2,000 <= $3,000 <= $4,000 Lifetime LimitNone>= $3 Million > $2 Million = $2 Million

Method II: Weighted Points System 4 measures were chosen to evaluate the plans deductible, cost sharing for hospitalization, out-of-pocket (OOP) maximum and lifetime limit 5 standards of adequacy were constructed using combinations of the 4 measures Measures and standards were assigned weights Plans were awarded points based on each measure Points were summed across all measures for a final score

Weighted Points System Standard A Standard B Standard C Standard D Standard E WEIGHT Deductible 3None< $500<$1,000<$2,000<$3,000 Coinsurance for Hospitalization 2None <=10%<=20% OOP Maximum 4<= $1,000 <= $1,500 <= $2,000 <= $3,000 <= $4,000 Lifetime Limit 1None>= $3 Million > $2 Million = $2 Million

Small Group Market Coverage Adequacy Evaluated Using Benchmark Alternatives, 2002 and 2005 Source: MDH Health Economics Program more adequate less adequate

Small Group Market Coverage Adequacy Evaluated Using the Points System, 2002 and 2005 Source: MDH Health Economics Program more adequate less adequate

Individual Market Coverage Adequacy Evaluated Using Benchmark Alternatives, 2002 and 2005 Source: MDH Health Economics Program more adequate less adequate

Individual Market Coverage Adequacy Evaluated Using the Points System, 2002 and 2005 Source: MDH Health Economics Program more adequate less adequate

Conclusions In Minnesota, enrollees in the small group market have more generous health care coverage than those in the individual market Both markets have seen enrollment shift to plans with higher deductibles and higher out-of-pocket limits Surveying health plans yields more complete and reliable results and is relatively inexpensive The methods used to measure adequacy are subjective, but allow a comparison of plans across multiple benefit criteria simultaneously More research needs to be done to assess the impact of increased cost sharing on enrollees

Contact Information Elizabeth Lukanen Senior Research Economist Health Economics Program Minnesota Department of Health Phone: (651) Health Economics Program website: