1. An Overview of Health Insurance Exchanges Joe Touschner, Georgetown University Center for Children and Families Lynn Quincy, Consumers Union Nancy Turnbull, Harvard University School of Public Health From Vision to Reality: State Strategies for Health Reform Implementation November 11, 2010

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

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

4. Where Individuals/Families Will Obtain Coverage in 2019

5. Change in Coverage Sources, 2010-2019 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

6. 6 Lynn Quincy November 11, 2010 Health Insurance Exchanges – Key Issues for States and Advocates

7. 7 How is an Exchange different from the market we have now? Depends on the exchange design… Might not be very different: like the HHS portal showing plans available on the market today Has potential to be better: high levels of participation and strong authorizing legislation potentially make the exchange a powerful negotiator--driving health plan improvements and reducing premium volatility

8. 8 How are Exchange Rules Different from the Outside Market? Inside the ExchangeOutside the Exchange Guaranteed Coverage with limited rating factors Must Cover Essential Benefits* Limits on cost-sharing Health plans arrayed into tiers based on actuarial value* Health Plan Quality Reporting Tax Credits for those under 400% FPL Tax Credits for small, low-wage businesses Additional health plan reporting * Does not apply to large employer plans

9. 9 Exchange Success Affected by Many Factors --many outside the direct scope of Exchange Exchange ?? Basic Health Plan? Size of the market? Is small group combined with individual? Number of Insurers? How competitive? Exchange governance & authority Provider Supply? HHS rules re: risk adjustment & eligibility

10. 10 Eight Difficult Issues Facing States * governance health plan certification making exchanges attractive to small employers consumer information minimize/avoid adverse selection eligibility determinations for premium tax credits & cost-sharing reductions and coordination with public insurance programs reducing administrative costs accommodating large employers * List from Tim Josts paper: Health Insurance Exchanges and the Affordable Care Act: Eight Difficult Issues, September 30, 2010

11. 11 Issue: Governance Q: State agency or by a nonprofit entity? Important Goals: Avoid conflicts of interest Independence – must not be subject to political winds Recommendations: An independent agency Management: apolitical and professional Governing board: include representatives of state agencies with which the exchanges must work, interested parties, and persons with relevant expertise Outsourcing: only those services for which competitive markets exist and for which performance can be readily monitored

12. 12 Issue: Health Plan Certification Goal: Rules should encourage competition on price and quality while ensuring a sufficient number of participating plans. Recommendations: Authorizing legislation must NOT require exchanges to admit all insurers in the market Authorizing legislation SHOULD give exchanges the option of being an active purchaser, should market conditions permit Authorizing legislation SHOULD permit further standardization of benefits Develop better techniques for measuring local market conditions Need clear delineation of regulatory roles between state insurance department and the exchange

13. 13 Issue: Attracting Small Employers Q: How to attract small employers, in light of past difficulties of small employer pools? Note: Even though many fail, some pools succeedHealthPass (NYC), Montana Small Business Purchasing Pool* Recommendations: Administrative ease Offer aggregated billing and option for fixed employer contribution Make stability of exchange offerings a priority *See small employer chapter in Quincy, Designing Subsidized Health Coverage Programs to Attract Enrollment, Dec. 2009.

14. 14 A closely related Issue: Attracting Individuals Q: How to attract individuals if their subsidy is small or non-existent? Recommendations: Manage expectations Make the exchange easy-to-use BUT also invest in the navigator program Make stability of exchange offerings a priority Monitor consumer reactions and fine-tune as needed Consider state-based subsidies as uncompensated care needs shrink

15. 15 Issue: Consumer Information Goal: Provide usable, actionable information to consumers without overwhelming them Recommendations: Exchanges (in concert with HHS) should develop summary rating measures that permit accurate comparisons of health plan value Patient satisfaction-survey programs must include and summarize separately the opinions of plan members who have serious health problems or financial problems Continuously test/monitor consumer reactions* * Forthcoming issue brief: A Radical Idea: Testing Consumer Reactions Prior to Launching New Initiatives

16. 16 Issue: Adverse Selection Goal: Avoid a death spiral whereby premiums in the exchange become more expensive than the same coverage outside Recommendations: Insurer market rules should be identical outside and inside the exchange Use a sophisticated risk-adjustment system (HHS) More details in separate session

17. 17 Issue: Eligibility Determinations Goal: Make eligibility determinations accurate, timely and hassle-free for consumers Recommendations: No wrong door - individual may apply either to the exchange or to the state Medicaid agency Minimize the need for paper documentation by using electronic data sharing Interim assistance should be readily available in cases where eligibility cannot immediately be determined

18. 18 Issue: Administrative Costs Goal: Administrative costsexchange costs and insurer costshould be minimized. Better for consumer premiums and competitiveness v/v plans outside the exchange Recommendations: Authorizing legislation should neither require nor bar the use of agents and brokers for the purchase of insurance from the exchange Consider uniform, flat dollar commissions

19. 19 Issue: Large Employers Q: When and how should large employers be allowed to purchase in the exchange? Important Goals: Dont destabilize the exchange Recommendations: The U.S. Department of Labor and Department of the Treasury should clarify that only employers who bear the substantial risk of the cost of health care for their group can characterized as self-insured. A state could certainly permit an employer to switch to exchange coverage only during an open- enrollment period. It could also require plans that enter the exchange to remain for a fixed period of time, or face a waiting period if they tried to return after leaving prematurely.

20. 20 Key Points For Advocates Allow time to become fluent in exchanges Manage expectations -- be cautious about affordability claims Tax credits will lower consumer cost but not underlying premium Rely on state specific data when possible Local market conditions affect exchange approach Get up to speed on the contentious issues specific to your state

21. 21 Exchanges Resources for Advocates Timeline (handout) What are states doing? http://www.statereforum.org/implem entation-strategy NAIC Model Law (bare bones version):http://www.naic.org/commit tees_b_exchanges.htm

22. 22 Health Insurance Exchanges – What Consumers Need To Know Starting January 1, 2014: Individuals and small businesses can shop in a new health insurance marketplace featuring: standardized insurance products (and better peace of mind); tools for comparing options and finding the best plan for you; strong insurer oversight; and tax credits for coverage (if your income qualifies)

23. How Massachusetts Answered the Eight Questions Nancy Turnbull Harvard School of Public Health Board Member of Massachusetts Health Insurance Connector November 11, 2010

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

25. 25 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

26. 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

27. 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)

28. 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?

29. 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

30. 30 Information for Consumers? Premiums for 50-year-old resident of Boston for effective date of June 2009 Massachusetts 1.0: Actuarial Value

31. 31 Mass 2.0: Standardized Products

32. 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

33. 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?

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

35. 35 Eyes on the Prize 2.7% 2009 Source: Massachusetts Division of Health Care Finance and Policy, 2009 Household Insurance survey