1. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 1 Swartz-Ideman -Bovbjerg, Implementation State Specific Conditions & Program Design: Considerations for Successful Implementation Presentation to Reinsurance Institute’s Kick-Off Meeting with States, Albany Marriott, NY, Tuesday, September 12, 2006 Katherine Swartz, Ph.D. Karl Ideman, M.B.A. President, Pool Administrators, Inc., subcontractor in UI Reinsurance Inst.Team Randall R. Bovbjerg, J.D.

2. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 2 Swartz-Ideman -Bovbjerg, Implementation Roadmap  Crafting design to match resources with cost of achieving objectives (Swartz) –resources include not only funding but also other state capabilities and administration  Knowledge of and relations with insurance sector (Ideman)  Residual issues … and summing up (Bovbjerg)

3. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 3 Swartz-Ideman -Bovbjerg, Implementation Criteria for Successful Reform Any intervention recommended should:  achieve a reasonable impact for the expected cost  be politically feasible, and  encourage the maintenance of private support for existing and expanded insurance coverage. Source: DC State Planning Grant advisory panel

4. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 4 Swartz-Ideman -Bovbjerg, Implementation What Determines Cost?  Number of potential enrollees  Threshold and range of expenses to be covered – layers of coverage – and where the range is in distribution of medical costs  % of risk (costs) retained by originating insurer in layers  Relevant medical expenses

5. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 5 Swartz-Ideman -Bovbjerg, Implementation Why Excess-of-Loss Design?  Objective is to reduce insurers’ incentives to avoid adverse selection  reduce their risk  Aligns incentives for insurers to manage individuals’ medical care  Aggregate-loss reinsurance does not address risk of extremely-high-cost individuals

6. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 6 Swartz-Ideman -Bovbjerg, Implementation Which Markets to Include?  Small group and individual markets – not large group  Goal is to address insurers’ concerns with potential for adverse selection  want them to reduce use of selection mechanisms and lower premiums

7. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 7 Swartz-Ideman -Bovbjerg, Implementation Estimates of Costs  National estimates - $5B - $20B for small group & individual markets with $50,000 threshold  Urban Institute reform plan for MA: state to cover 75% above $35,000; only for individual and small group markets –cost estimated at $446 million - $632 million, depending on voluntary vs required purchase –coupled with mandate to buy coverage, low-income subsidy, at add’l cost  Focus states’ cost estimates a key part of Reinsurance Institute

8. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 8 Swartz-Ideman -Bovbjerg, Implementation Financing Mechanisms  Note: goals are to reduce insurers’ concerns about adverse selection and insureds’ premiums, so as to expand coverage  Need new funds – not fees or taxes on insurers  Broad tax base desired – extremely high medical costs are due to random events Takeaway message: should design to meet your needs, and also to meet your resources

9. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 9 Swartz-Ideman -Bovbjerg, Implementation Next: State-Specific Market Conditions & Program Design What is meant by State Specific Conditions?  Characteristics that are key to access and affordability in your state’s individual and small group markets –Characteristics that are the same as or different from Other states that are facing the same issues Your state’s individual and your state’s small group markets –Any other things that will argue for or against a state public reinsurance program

10. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 10 Swartz-Ideman -Bovbjerg, Implementation Key Characteristics for Access and Affordability  Number of Carriers and Concentration of Carriers  Guarantee Issue  Rating Structure  Pre-existing Conditions, Elimination Riders, Prior Coverage  Safety Net Provisions

11. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 11 Swartz-Ideman -Bovbjerg, Implementation Market Structure  Number of Small Group Carriers and Concentration (See GAO Reports for 2002 and 2005) –Declining number: 18% decrease in the average number –Increasing Concentration: 27 of 31 states reported increase –Neither access nor affordability are served by fewer competitors and greater market concentration  KEY TAKEAWAY: This concentration of the market also concentrates the risk in the market

12. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 12 Swartz-Ideman -Bovbjerg, Implementation Regulation for Access  Guarantee Issue: Insurers are required to offer and issue all products as long as premium is paid –Small group market is guarantee issue in all states –Individual market guarantee issue in 5 states (including NY) –HIPAA Eligible Persons are guarantee issue if coming from group coverage and have exhausted COBRA but states can opt for Alternative Mechanism or Federal Fallback  KEY TAKEAWAY: This is the most important access characteristic in your state (see chart in book)

13. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 13 Swartz-Ideman -Bovbjerg, Implementation Pricing Regulation  Rating Structure limits the factors carriers can use to raise premium or to lower premium for otherwise similarly situated persons (See chart) –Pure Community Rating: Everyone pays the same –Modified Community Rating: Demographic (objective) factors only –Rating Bands: Non-demographic (subjective) factors with band of max and min (range)  KEY TAKEAWAY: ”without reasonable affordability a state really doesn’t have access” (you can quote me on this)

14. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 14 Swartz-Ideman -Bovbjerg, Implementation Pricing Regulation, cont’d  Rating Structure also includes the regulatory control over carrier’s insurance rates (see your DOI) –File and Approve states require carriers to file rates or to provide an “Actuarial Certification” and then the rates are reviewed/adjusted/approved –Some states have File and Use for rates or sometimes just for benefit plans –Other states have no filing requirements

15. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 15 Swartz-Ideman -Bovbjerg, Implementation Exclusions  Pre-Existing Conditions exclusions - limit carrier exposure to high cost health conditions for a period of time –Carriers “look back” for a high risk health condition and, if found, exclude it for a period –Small Group is 6/12 (look back/exclusion period) for all states per HIPAA –37 states have individual market pre-ex that is more restrictive than 6/12 (See chart)

16. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 16 Swartz-Ideman -Bovbjerg, Implementation Exclusions, cont’d  Elimination Riders allow insurers to exclude certain coverage or to modify the coverage (See chart) –Elimination Riders are not allowed in the small group market –Only 23 states prohibit elimination riders in their individual markets (NY prohibits)

17. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 17 Swartz-Ideman -Bovbjerg, Implementation Exclusions, cont’d  Credit for Prior Coverage does not allow carriers to apply pre-ex if the person has been covered under a plan considered to be creditable prior coverage –Applies only to “late enrollees” in small group –Pre-ex is waived for HIPAA Eligible Persons –It helps non-HIPAA Eligible Persons in the individual market –Only 37 states do not provide individual market credit for prior coverage (NY does)

18. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 18 Swartz-Ideman -Bovbjerg, Implementation Safety Net Provisions  Safety Nets catch the groups and individuals who otherwise wouldn’t have access to coverage they can afford (they are not necessarily uninsurable) –Guarantee Issue & Community Rating states need no safety net –33 states have individual high risk pools –32 states have enacted small group reinsurance pools (some active, some repealed, some on shelf) Different from Healthy New York Mandatory have done well. Large carriers opt out of Voluntary

19. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 19 Swartz-Ideman -Bovbjerg, Implementation Final Thoughts on State Specifics  Characteristics that are the same as or different from –Other states that are facing the same issues –Your state’s individual and your state’s small group markets –Find your state’s similarities and differences from the NAHU chart and the GAO reports from 2002 and 2005.  KEY TAKEAWAY 1: You can deal with ALL of the differences in the design of a reinsurance mechanism  KEY TAKEAWAY 2: Use similarities to collaborate

20. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 20 Swartz-Ideman -Bovbjerg, Implementation Final on State Specifics, cont’d  Arguments for and against state public reinsurance –Interest groups active in your state Agents and brokers Legislators and of course, the Governor Trade Associations, Chambers, Drs and Hospitals Other proposals or proposed changes to insurance Regulators and Agency Heads Subject matter experts  LAST KEY TAKEAWAY: Don’t design in a vacuum

21. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 21 Swartz-Ideman -Bovbjerg, Implementation Add’l Practical Concerns  Broad financing desirable, from outside the insurance industry –spreads risk most broadly, creates true subsidy (not just helping some insureds at expense of others)  Need not only sufficient funding but also credible persistence  Tailor to state, especially WRT pricing, selection, crowd-out  Allow sufficient time & resources to plan, persuade, implement  Plan to monitor, make mid-course corrections

22. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 22 Swartz-Ideman -Bovbjerg, Implementation Credibility of Premium Subsidy (% uninsured DC firms likely to offer coverage, by amount of subsidy) Percent of Premium Covered Source: DC SPG small business survey, Aug 2005

23. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 23 Swartz-Ideman -Bovbjerg, Implementation Illustration of Potential Selection (Predicted DC Medical Spending of Uninsured - 2004 $, by Age and Health) * Note: Uninsured = 6 or more months; their spending adjusted to match pattern of insureds with similar incomes; Source: Urban Institute tabulations from statistical models estimated with 2000-2002 Medical Expenditure Panel Survey data, re-weighted to reflect D.C. population characteristics.

24. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 24 Swartz-Ideman -Bovbjerg, Implementation Potential Crowd-Out: DC Example (Public Support May Displace Private)

25. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 25 Swartz-Ideman -Bovbjerg, Implementation Many Steps in Design and Implementation  Design all the many components of reform  Pass enabling legislation  Set the basic framework for reinsurance  Establish policymaking responsibility for implementation  Allow sufficient administrative start-up time  Provide funding for implementation planning before operational roll-out  Plan for implementation of reinsurance  Hire or designate the state official with lead responsibility for reinsurance  Constitute the reinsurance advisory/governing board  Determine small-employer eligibility  Determine insurer or health plan eligibility  Decide how to deal with self-insurers  Establish the final reinsurance threshold and coinsurance level  Maintain insurers' incentives to economize appropriately  Hold down transaction costs  Specify the precise risks to be reinsured  Determine what functions should be contracted out  Acquire and test appropriate data systems  Estimate budget needs for benefits and ongoing administration  Hire a private reinsurance administrator  Establish methods of assuring compliance and imposing sanctions  Ongoing monitoring Source: Bovbjerg, 2006 (MO report)

26. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 26 Swartz-Ideman -Bovbjerg, Implementation Many Steps, cont’d Plan Legislate Administer Sell Monitor Adapt PLASMA Assure your team enough time and resources to see this through Your newly insured will thank you

27. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 27 Swartz-Ideman -Bovbjerg, Implementation Summing up  Can reinsurance work in your state? Of course … with sufficient commitment, investment  Challenge is to craft politically successful new program - one that matches perceived need with available resources  Good design, planning can deal with most issues  Right-size, reliable resources and knowing the territory are key  Need leadership as well

28. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 28 Swartz-Ideman -Bovbjerg, Implementation End

29. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 29 Swartz-Ideman -Bovbjerg, Implementation Following for backup only

30. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 30 Swartz-Ideman -Bovbjerg, Implementation Reinsurance Design Check List  1.Define the target population  "Define the risk pool: small groups, sole proprietors, individuals, other?  "Low wage recipients?  "Previously uninsured? (See question #3)  2.Benefit package  "Set benefit package? Multiple benefit packages?  "Existing commercial insurance or new product?  3.Relationship to the commercial market: will the subsidized product compete against the market or remain shielded from the market?  "Regulation  "Go-bare period  "Other crowd out provisions  4.Insurer participation: Who will deliver the product?  "NFP insurers  "Managed care organizations (commercial, Medicaid)  5.How will the pool manage medical risk?  "Managed care, disease management, and tiered networks?  6.Relationship to existing coverage programs (Medicaid, SCHIP, or high-risk pool)?  7.Reinsurance design  "Aggregate stop-loss versus individual stop-loss  "Subsidy size: What percentage of costs will the primary insurer retain?  8.Regulatory Authority and building the public/private partnership  "What regulatory powers does the department require?  "Does the program require rate review?  "What are the data requirements?  "Who performs eligibility determinations and who reviews reimbursement claims?

31. SCI Reinsur Inst, Albany Marriott 12 Sept. 2006; slide 31 Swartz-Ideman -Bovbjerg, Implementation