Academy Health Reinsurance Institute Update from Rhode Island Anya Rader Wallack, PhD Consultant to the Rhode Island Health Insurance Commissioner July 19, 2007

Rhode Island and reinsurance Background: where we were 12 months ago? Background: where we were 12 months ago? Current environment Current environment Implications of 2007 legislative session Implications of 2007 legislative session Where will we go from here? Where will we go from here?

Background 2006 Goals: Stem decline in employer offer rate (not aimed at uninsured) Stem decline in employer offer rate (not aimed at uninsured) Target the most at-risk populations Target the most at-risk populations 2006 Legislation created: 1.the Wellness Health Benefit Plan (one for small groups, one for individuals); 2.the affordable health plan reinsurance program for small businesses; and 3.the affordable health plan reinsurance program for individuals.

Health Pact RI (formerly known as the Wellness Health Benefit Plan) Goals: Goals: –Create an affordable health insurance product for small business and individuals: Select Care Rhode Island (for Business) and Select Care Direct (for individuals) –Use the Select care product as a platform to begin to address the underlying cost of care in Rhode Island by creating appropriate incentives for all key stakeholders to appropriately control costs –Allow small businesses to leverage the purchasing power of the state in buying the Select Care Rhode Island product New legislative authority: New legislative authority: –Set premium target –Created advisory committee –Gave Health Insurance Commissioner authority to approve/disapprove plan design and rates

Health Pact RI, continued Intended to create incentives to focus on primary care, prevention, mgmt. of chronic care, ↑ quality, ↓ cost. Intended to create incentives to focus on primary care, prevention, mgmt. of chronic care, ↑ quality, ↓ cost. Alternative to high deductible plans Alternative to high deductible plans Developed with an advisory committee including carrier and consumer reps. Developed with an advisory committee including carrier and consumer reps. Target individual premium is 10% of average annual statewide wage Target individual premium is 10% of average annual statewide wage Plan has been developed for smG and regs are in process Plan has been developed for smG and regs are in process Direct pay deadline extended to next year Direct pay deadline extended to next year Will be offered beginning October 1, 2007 Will be offered beginning October 1, 2007 Based on a compliant/noncompliant structure – better rates for: Based on a compliant/noncompliant structure – better rates for: –Selection of primary care MD –Completion of health risk appraisal –Weight management –Smoke free or smoking cessation –Disease management

The affordable health plan reinsurance programs Program 1: Available only to small (fewer than 50 employees), low-wage firms (bottom quartile for RI) Program 1: Available only to small (fewer than 50 employees), low-wage firms (bottom quartile for RI) –Firm must pay 50% of individual premium Program 2: Available only to high-risk individuals (those who do no pass medical underwriting) Program 2: Available only to high-risk individuals (those who do no pass medical underwriting) Both programs: Both programs: –Only for purchase of Wellness Health Benefit Plan –Discounted premium rate (at least 10% off) –Reinsurance fund subsidizes carrier losses within a prescribed corridor of risk (to be defined in regulation by health insurance commissioner) –Enrollment capped per funds available

Current environment State fiscal woes: major budget cuts, no new spending State fiscal woes: major budget cuts, no new spending Increase in uninsured from 2001 to 2004 by 12,000: Increase in uninsured from 2001 to 2004 by 12,000: –Almost all below 300% FPL –32% qualify for Medicaid –Most of remainder “defined out” of large group employer eligibility Precarious balance in direct pay market: enrollment in “healthy” pool down, cross-subsidization not sustainable Precarious balance in direct pay market: enrollment in “healthy” pool down, cross-subsidization not sustainable Focus shifted to broader coverage expansion initiative Focus shifted to broader coverage expansion initiative

2007 legislative session Sources of funds for subsidy: much discussion; premium tax passed and went to general fund for Medicaid gap; insurer-collected bed tax passed but vetoed Sources of funds for subsidy: much discussion; premium tax passed and went to general fund for Medicaid gap; insurer-collected bed tax passed but vetoed Market merger task force: OHIC will oversee a study of the impact of merging small group and direct pay markets Market merger task force: OHIC will oversee a study of the impact of merging small group and direct pay markets Section 125 plans: employers with more than 25 employees must offer cafeteria plans for tax- free health benefits Section 125 plans: employers with more than 25 employees must offer cafeteria plans for tax- free health benefits Basic plans: insurers can sell mandate-free plans to previously uninsured groups Basic plans: insurers can sell mandate-free plans to previously uninsured groups

Where will we go from here? 1. Address the direct pay crisis: –Applied for CMS grant to fund development of a risk-spreading mechanism for direct pay and possibly small group –Working on merger analysis 2. Develop lower-cost products: –Rolling out Health Pact RI plans –Monitoring carrier roll-out of basic plans 3. Develop financing plan for reinsurance/subsidies: –We are examining the use of reinsurance in a range of models, Urban modeling will feed into that process –Analysis should support evaluation of: Eligibility constraints Eligibility constraints Product constraints Product constraints New state $ versus risk-spreading among carriers New state $ versus risk-spreading among carriers

Possible scenarios for the use of reinsurance Range of options from narrow to broad Range of options from narrow to broad Narrowest: targeted program, ala Healthy NY Narrowest: targeted program, ala Healthy NY Broadest: merged small group and direct pay markets, new rating rules and reinsurance as a risk-spreading mechanism (to reduce carrier risk and spread bad risk equitably) Broadest: merged small group and direct pay markets, new rating rules and reinsurance as a risk-spreading mechanism (to reduce carrier risk and spread bad risk equitably) Options pursued will depend on results of merger study, $ available, estimated costs, state political and fiscal environment Options pursued will depend on results of merger study, $ available, estimated costs, state political and fiscal environment