State Specific Conditions

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State Specific Conditions Program
DesignConsiderations for Successful
Implementation
Katherine Swartz, Ph.D. Karl Ideman,
M.B.A. President, Pool Administrators,
Inc., subcontractor in UI Reinsurance
Inst.Team Randall R. Bovbjerg, J.D.

• Presentation to Reinsurance Institutes Kick-Off
  Meeting with States, Albany Marriott, NY,
  Tuesday, September 12, 2006

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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)

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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
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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

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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

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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

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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 addl cost
• Focus states cost estimates a key part of
  Reinsurance Institute

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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
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Next State-Specific Market Conditions Program
Design

• What is meant by State Specific Conditions?
• Characteristics that are key to access and
  affordability in your states individual and
  small group markets
• Characteristics that are the same as or different
  from
• Other states that are facing the same issues
• Your states individual and your states small
  group markets
• Any other things that will argue for or against a
  state public reinsurance program

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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

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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

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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)

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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 doesnt have access (you can
  quote me on this)

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Pricing Regulation, contd

• Rating Structure also includes the regulatory
  control over carriers 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

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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)

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Exclusions, contd

• 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)

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Exclusions, contd

• 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)

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Safety Net Provisions

• Safety Nets catch the groups and individuals who
  otherwise wouldnt 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

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Final Thoughts on State Specifics

• Characteristics that are the same as or different
  from
• Other states that are facing the same issues
• Your states individual and your states small
  group markets
• Find your states 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

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Final on State Specifics, contd

• 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 Dont design in a vacuum

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Addl 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

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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
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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.
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Potential Crowd-Out DC Example(Public Support
May Displace Private)
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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

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Many Steps, contd

• Plan
• Legislate
• Administer
• Sell
• Monitor
• Adapt
• PLASMA
• Assure your team enough time and resources to see
  this through
• Your newly insured will thank you

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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

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End
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Following for backup only
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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?

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