Overview of State Options

1
Overview of State Options

• Tim Henderson MPH
• Policy Consultant
• Center for Health Policy, Research Ethics
• George Mason University
• 5.4.05

2
State Options Expanding Private Coverage for
the Working Uninsured

• Publicly Funded Reinsurance Programs
• Tax Incentives
• Sale of No-Mandate/Mandate-Lite Benefit Policies
• Consumer Driven Health Plans / Health Savings
  Accounts (successors to MSAs)
• Group Purchasing Arrangements
• Small Group Rating Reforms
• Individual Insurance Market Reforms
• Enact/Broaden State Continuation-of-Coverage Laws
• Allow Other Groups to Join State Employee Health
  Benefit Plans
• Compelling Employers to Provide Coverage
• Comprehensive Reforms

3
Expanding Private Coverage for the Working
UninsuredPublicly Funded Reinsurance Programs

• Reduce steep premium increases for small
  employers with high claims experience
• State Examples
• CT, ID, NM, MA Support small-group coverage
  and/or improve individual coverage
• AZ, NY Operate programs that subsidize
  insurance for small groups or low-income workers
• Lessons Learned
• Many state pools are inactive or have low
  enrollment
• Substantial subsidies and marketing efforts
  needed depending on program configuration
• Keys to success
• Low (subsidized) premiums, high benefits,
  significant insurer participation
• VA Regulatory Implications
• Legislature would need to create an authority to
  adopt such programs
• To determine financial risk, an actuarial
  analysis of the covered population required

4
Expanding Private Coverage for the Working
UninsuredTax Incentives

• Tax relief (deductions or credits) to
  employer/individual who purchases health
  insurance
• State Examples
• Oklahoma 100 credit for employers whose
  eligible employees participate in state-certified
  basic benefit plan
• VA 2005 bill recc.by Lt Gov. Comm. (SB1255 died
  in committee) would provide income tax credit for
  small employers (
  insurance premiums or if contribution is 50 of
  total cost of premium/HSA
• Several states allow self-employed individuals to
  deduct full amount of insurance premium payments
• Subsidies appear to have minimal impact on
  increasing coverage To be effective, subsidies
  must be substantial (60).
• VA Regulatory Implications
• Legislature would need to examine impact on state
  revenues

5
Expanding Private Coverage for the Working
UninsuredSale of No/Low Mandate Benefit Policies

• By dropping requirement to cover mandated
  benefits, price of coverage will decline and more
  will buy coverage.
• Handful of states have exempted certain insurers
  from covering certain state health benefit
  mandates. In VIRGINIA
• Special advisory committee (established 1990) to
  examine efficacy of mandated health benefits
• Limited benefits plan existed for three years
  (1991-94) with very low use
• 2004 bill (HB1362 killed) would place moratorium
  on new insurance mandates until 2009
• Lessons Learned
• Not clear that waiving benefit mandates increases
  coverage
• Benefit mandates may have strong negative impact
  on small employers
• VA Regulatory Implications
• New legislation required to resurrect a limited
  benefit plan

6
Expanding Private Coverage for the Working
UninsuredTax-Free Medical Savings Accounts

• For covered individuals that assist to finance
  part of cost of deductibles, co-payments, other
  medical expenses not covered by insurance plan
• Most states have income tax deductibility for
  MSAs as allowed under federal law.
• VA 2002 implementation plan showed low
  participation insurers offering MSA
  coverage has declined. MSA demonstration
  programs expired in 2003.
• Lessons Learned
• Unclear if MSAs have had measurable impact on
  coverage rates
• Tax deductibility appears to mainly benefit upper
  and middle income employees (who are less likely
  to be uninsured)

7
Expanding Private Coverage for the Working
UninsuredConsumer-Driven Health Plans

• Defined generally as including
• An employer-funded personal benefit account (also
  called healthcare reimbursement account - HRA)
• A deductible amount employees responsible for
  paying
• Coverage for major expenditures
• Physician choice and flexibility
• Accessible consumer health care information
  services, often via the Internet
• Lessons Learned
• Plans are too new to have an established track
  record
• Some companies combining HSAs and HRAs as an
  employee option and as another way to assist
  employees in directing their own health care

8
Expanding Private Coverage for the Working
UninsuredConsumer-Driven Health Plans

• Health Savings Accounts (HSAs)
• Created by 2003 Medicare Modernization Act must
  be coupled with a high-deductible health plan
  (1000/individual 2000/family) maximum
  out-of-pocket is 5000 and 10,000 respectively.
  Full deposits allowed starting in 2004.
• Makes everyone eligible for income tax credits
  (up to 2600/individual 5150/family). Most
  employers with HSA plans will see their health
  care costs drop 5-10. Some predict small
  business (2-50 employees) can cut premiums up to
  50.
• May attract disproportionately healthy employees
  employers worry about sicker employees staying in
  traditional plans which will drive up costs and
  fracture the insurance market.
• HSAs cannot provide first-dollar coverage except
  for preventive care may delay one obtaining
  needed care. Will not eliminate elevated medical
  expenditures (most spending above deductible of
  HSAs).
• HSA-related legislation in over 20 states (at
  least 4 states have enacted laws) through 2004.
  Some states have first-dollar mandates for
  benefits that may not fit definition of
  preventive services.
• VA 2005 law (HB1492) requires creation of
  system of tax deductions for 1) employers
  contributing to HSAs, 2) providers delivering
  reduced/free care to HSA holders, and 3) the
  working poor.
• Most employers taking a watch and see approach.
  Plans are very complex and hard to understand
  confusion over difference between HSAs and MSAs.
  
• VA Regulatory Implications
• HSAs are politically popular and have legislative
  support (I.e., passage of HB1492)

9
Expanding Private Coverage for the Working
UninsuredConsumer-Driven Health Plans

• Health Reimbursement Accounts (HRAs)
• May go with any insurance plan, for any amount of
  money (negotiable). May be funded or unfunded.
  Must be employer money.
• Employers do not have to pre-fund the account
  amount of money to be used via the account is
  pre-established with the employee. Can be used
  to pay for services not covered by other plans.
• Employees must spend their HRA amounts before
  tapping flexible spending account balances. If
  employer goes out of business, the employee loses
  his funding for the HRA. If employee leaves
  business, HRA can be used to subsidize COBRA.
• Healthy employees can accumulate a significant
  nest egg over time-- a feature that critics fear
  will undermine traditional health plans.
• Lessons Learned
• Offering is still too new.
• AETNA has begun offering such plans with rates
  based on age. Survey of over 300 mostly-large
  employers 19 already offer HRA or HSA another
  14 plan to in 2005 or 2006.
• VA Regulatory Implications ?

10
Expanding Private Coverage for the Working
UninsuredGroup Purchasing Arrangements

• Most such arrangements permit small employers to
  band together to purchase insurance and negotiate
  provider discounts
• Over 20 states have authorized formation of
  purchasing cooperatives. In VIRGINIA
• Previous studies (Joint Commission, Mercer) found
  cooperatives not effective in achieving
  significant savings (only 3 savings)
• Association health plans suffer from adverse
  selection due to liberal underwriting policies
• 2005 legislation requests state to study and
  design voluntary public/private purchasing pool
  (HJ696/SJ400 died in committee)
• Lessons Learned Little evidence that group
  purchasing increases coverage rate or ability of
  small employers to offer such insurance.
• VA Regulatory Implications Involvement of
  multiple employers would require compliance with
  MEWA regulations

11
Expanding Private Coverage for the Working
UninsuredSmall Group Rating Reforms

• Designed in part to increase of small employers
  that offer insurance by controlling variability
  in premium rates.
• State Examples
• NY Requires insurers to charge all small
  employers the same per-employee rate for the same
  coverage
• VA
• Current standard and essential plans (created in
  early 90s by medical practitioners) intended to
  offer a rich array of coverage options for small
  business, but viewed as difficult to administer.
• Small employers provided with guaranteed issue
  and renewal.
• Lessons Learned
• Small group reforms have not appeared to raise
  chances of small employers offering coverage or
  employees taking up coverage. Substantial
  subsidies may be needed. High-risk nature makes
  implementation difficult in strict regulatory
  climate (ERISA, HIPAA).
• VA Regulatory Implications Significant new
  legislation may be needed to create a plan other
  than standard or essential to increase market
  penetration.

12
Expanding Private Coverage for the Working
UninsuredIndividual Insurance Market Reforms

• Increase persons covered by individually
  purchased health plans and improve consumer
  protections under these plans
• Restrictions on factors used to set initial or
  renewal rates for policies
• Limits on efforts to exclude coverage for
  preexisting conditions or requirements to issue
  coverage to those no longer eligible for group
  coverage
• Over 20 states
• Have guarantee issue requirement (sell coverage
  to anyone who applies)
• Limit extent to which insurers can charge higher
  premiums based on experience of insured
• VA Unsuccessful attempts to establish pilot
  projects (Indigent Health Care Trust Fund)
• No evidence that individual reforms improve
  coverage rates of working uninsured 2002 Joint
  Commission study found previous attempts to
  implement such reforms unsuccessful.
• Lessons Learned
• Reforms dont require state funding regulation
  may actually decrease insurer willingness to sell
  individual coverage
• VA Regulatory Implications ??

13
Expanding Private Coverage for the Working
Uninsured

• State Continuation-of-Coverage Laws
• Allow employees to continue health coverage under
  employer-sponsored plan after employee leaves
• Nearly all states require insurers to offer
  continuation coverage
• For as little as 3 months (e.g., VA, GA) up to 36
  months (e.g., NV)
• Generally apply to employers with fewer than 20
  employees (who are not subject to federal COBRA
  rules requiring up to 18 months coverage)
• VA Employer can choose between offering 90-day
  continuation coverage or conversion to individual
  policy. COBRA can be extended up to 36 months on
  age-dependent basis.
• Lessons Learned No state studies exist studies
  of COBRA shown to have positive influence.
• VA Regulatory Implications 2004 law repealed
  statutory requirements limiting age or education
  status
• Allow Others to Join State Employee Health
  Benefit Plans
• State-employee health benefit plans have been
  expanded to cover
• public colleges/universities (at least 30
  states) public schools (at least 20 states)
  cities and counties (at least 22 states)
• VA 2004 law allows part-time state employees to
  participate at full cost 1990 measure allows
  local government employees to participate.
• Lessons Learned Not known no studies exist.
• VA Regulatory Implications Any changes would
  require legislation

14
Expanding Private Coverage for the Working
UninsuredCompelling Employers to Provide Coverage

• Employer Mandates
• Requires employers to offer health insurance to
  some or all of their employees May require
  employer to reimburse state for employees on
  Medicaid/SCHIP
• Hawaii only state with current law at least 10
  states considering legislation
• Conditioning State Benefits and Contracts on
  Health Care Coverage
• Requires employers doing state business to
  provide employee coverage
• At least 11 states considering legislation
• Reporting Employees on Public Assistance
• Intent is to shame employers into providing
  employee coverage requires public assistance
  applicants/beneficiaries to provide name of
  employer. HIPAA rules may present barrier.
• Massachusetts has law at least 20 states have
  considered legislation (including VA)

15
Expanding Private Coverage for the Working
UninsuredComprehensive Reforms

• Universal coverage intended to ensure access
  while managing issues of cost and quality of care
• One State Example Maines Dirigo Choice
• A public-private health plan for small businesses
  (2-50 employees) provides sliding-scale premium
  discounts based on ability to pay.
• Employers offering this product to employees, and
  pay at least 60 of the costs, to benefit from
  lower rates as a result of greater risk pooling.
• After the first year, Maine plans to charge
  insurers an annual assessment only if cost
  savings are achieved in the system.
• To date Plan slow to be implemented, as a lower
  than expected number of participating insurers
  and enrollees has been realized.