1. Harris County Healthcare Alliance and Texas Department of Insurance Houston Small Employer Pilot Project February 9, 2007 Karen Love Texas Department of Insurance

2. HRSA State Planning Grants Overall Goal: To analyze the uninsured and evaluate options for coverage Overall Goal: To analyze the uninsured and evaluate options for coverage Texas Phase 1: $1.3M in 2001 for an in-depth phone survey of uninsured, small employer survey, health insurance fairs, and focus groupsin 15 cities Texas Phase 1: $1.3M in 2001 for an in-depth phone survey of uninsured, small employer survey, health insurance fairs, and focus groupsin 15 cities

3. HRSA State Planning Grants (cont.) Texas Phase 2: $175K in 2003 for follow- up small employer survey and study risk pools Texas Phase 2: $175K in 2003 for follow- up small employer survey and study risk pools Texas Phase 3: $398K in 2005 to design a product for Houston small employers, develop a marketing plan, conduct focus groups with employers and employees and assist in implementation of product Texas Phase 3: $398K in 2005 to design a product for Houston small employers, develop a marketing plan, conduct focus groups with employers and employees and assist in implementation of product

4. Research Results

5. Why Does Texas Have Such a High Uninsured Rate? Lower average wages Lower average wages A higher proportion of small businesses A higher proportion of small businesses Lower participation in public programs Lower participation in public programs A higher proportion of non-legal citizens A higher proportion of non-legal citizens A large Hispanic population A large Hispanic population Low union participation Low union participation Lower participation in employer-sponsored programs Lower participation in employer-sponsored programs

6. Government-based Insurance State 2004 Uninsured Rate Percent with Government- based Insurance U.S.15.7%27.2% Texas25.0%23.5% Arkansas16.4%33.2% California18.7%28.1% Minnesota8.9%20.3% New Mex. 21.0%33.5% New York 14.2%29.9%

7. Employment-based Insurance State 2004 Uninsured Rate Percent with Employment- based Insurance U.S.15.7%59.8% Texas25.0%53.2% Arkansas16.4%51.2% California18.7%52.9% Minnesota8.9%69.2% New Mex. 21.0%50.3% New York 14.2%60.8%

8. Who Are The Uninsured by Employment Status? 72% 10% 18% Family member(s) working full-time Family member(s) working part-time Non-working

9. Who Are The Uninsured by Age? 25% 75% Ages 0 - 18Ages 18 - 64

10. Who Are The Uninsured by Income Level? 71% 29% 0 - 199% of FPL200+% of FPL

11. Who Are The Uninsured by Race/Ethnicity? Hispanic 57% Black 11% White 29% Other 3%

12. Who Are The Uninsured by Citizenship? Native U.S. Citizen 68% Naturalized U.S. Citizen 5% Not a U.S. Citizen 27%

13. Working Uninsured Facts 23% of uninsured work for firms with 500 or more employees 23% of uninsured work for firms with 500 or more employees Nearly 50% of uninsured adults work in firms with 24 or fewer employees Nearly 50% of uninsured adults work in firms with 24 or fewer employees Approximately 80% of uninsured live with one adult working for a small business Approximately 80% of uninsured live with one adult working for a small business Fewer than 20% of the uninsured had access to employer-sponsored coverage Fewer than 20% of the uninsured had access to employer-sponsored coverage

14. It’s the Cost Stupid! Texas Small Employers 2004 Survey Reason Coverage Isn’t Offered Statewide Tried to buy insurance, but too expensive 38% Haven’t tried to buy because we know it is too expensive 27% Most employees cannot afford their share of premium 8% Most employees have coverage 14%

15. Average Small Employer Insurance Costs in Texas Year Single Coverage Family Coverage 1999$2,539$6,486 2000$2,955$6,784 2001$3,299$7,974 2002$3,580$8,800 2003$3,793$9,831 2004$4,217$10,932 2005$4,605$11,937 Sources: Medical Expenditure Panel Survey – AHRQ and Employer Health Benefits Annual Survey – Kaiser and HRET

16. How Much Can Small Employers Afford? Cost Per-Employee-Per-Month that Employer Can Pay 20012004 Less than $50 23%17% $5022%17% $10020%20% $1509%8% $2005%6% $2502%2% $300 or More 2%1% Would Not Purchase at Any Cost 14%14%

17. Houston Pilot Product

18. Plan Objectives Develop an affordable benefit plan that will appeal to both employers and employees Develop an affordable benefit plan that will appeal to both employers and employees Use TDI grant data and research to guide plan design Use TDI grant data and research to guide plan design Engage a locally based steering committee of broad representation Engage a locally based steering committee of broad representation

19. Plan Objectives (cont.) Target cost: Average $150 PMPM Target cost: Average $150 PMPM Simple rate chart with no “added costs” Simple rate chart with no “added costs” Easy enrollment process Easy enrollment process Benefits for typical expenses Benefits for typical expenses

20. Plan Development Process Plan design and pricing goals discussed with Milliman actuaries Plan design and pricing goals discussed with Milliman actuaries Reviewed surveys and focus groups to identify benefit preferences Reviewed surveys and focus groups to identify benefit preferences Steering Committee vetting Steering Committee vetting Plan prototypes presented to employers and employees throughout Houston Plan prototypes presented to employers and employees throughout Houston

21. Plan Features ****Modified Community Rating*** Simplifies application and underwriting Simplifies application and underwriting Uses Age and Gender case characteristics Uses Age and Gender case characteristics No medical underwriting or screening No medical underwriting or screening No Group Size rating factor No Group Size rating factor No Industry rating factor No Industry rating factor

22. Benefit Plan Design Two options : Two options : Basic and Preventive Care Basic and Preventive Care Catastrophic Care Catastrophic Care Average PMPM BasicCatastrophic Adults$129$156 Child$50$70

23. Plan Design Assumptions Loosely managed PPO network with very low out-of-network utilization Loosely managed PPO network with very low out-of-network utilization Aggressive provider discounts Aggressive provider discounts No load for adverse selection No load for adverse selection 85% loss ratio 85% loss ratio

24. Other Plan Design Features 75% eligible employee participation requirement 75% eligible employee participation requirement 50% employer premium contribution 50% employer premium contribution 12 month pre-existing condition exclusion 12 month pre-existing condition exclusion Assumed they are previously uninsured in the last 12 months Assumed they are previously uninsured in the last 12 months

25. Other Plan Provisions Must be issued through a cooperative to avoid small group market restrictions Must be issued through a cooperative to avoid small group market restrictions Cannot restrict eligibility to uninsured groups only Cannot restrict eligibility to uninsured groups only Alliance to form the cooperative Alliance to form the cooperative

26. Focus Group Employers All but 3 employers (88%) said they would purchase the plan if it was available All but 3 employers (88%) said they would purchase the plan if it was available Employers stressed importance of offering both plan options to maximize employee participation Employers stressed importance of offering both plan options to maximize employee participation Employers particularly supportive of simplified “community rating” and enrollment process Employers particularly supportive of simplified “community rating” and enrollment process

27. Focus Group Employees Affordability is the deciding factor Affordability is the deciding factor Demand benefits they value Demand benefits they value Low-cost office visits Low-cost office visits Prescription drug coverage Prescription drug coverage Low deductibles Low deductibles Having a plan they don’t expect to use is of no value to many Having a plan they don’t expect to use is of no value to many

28. Next Steps RFP to be issued in February 2007 RFP to be issued in February 2007 Alliance will work with selected carrier to create a purchasing cooperative for small employers Alliance will work with selected carrier to create a purchasing cooperative for small employers Targeted date for product availability – Fall 2007 Targeted date for product availability – Fall 2007

29. Contact Information: karen_love@hctx.net (713) 368-3285