Texas Health Insurance Market - Insuring the Uninsured Presentation to Senate Finance Committee

1. Texas Department of Insurance Texas Health Insurance Market - Insuring the Uninsured Presentation to Senate Finance Committee August 19, 2008 Dianne Longley Director, Research and Analysis Life, Health and Licensing Texas Department of Insurance

2. Texas Department of Insurance Texans’ Insurance Status - 2006 Source: US Census Bureau, Current Population Survey, 2007

3. Texas Department of Insurance History of Uninsured Rates Source: US Census Bureau, Current Population Survey

4. Texas Department of Insurance Common Characteristics of the Uninsured • Age: 45% of young adults 18-24 and 36% of 25-34 year olds are uninsured • Ethnicity: 55% of uninsured are Hispanic • Income: 63% of uninsured are under 200% FPL • Citizenship: 76% of uninsured are US citizens but 54% of non-citizens are uninsured • Employment: 66% of uninsured adults are employed; 44% work at firms with less than 25 employees; 27% work at firms with 500 or more employees; 82% of uninsured live in families with at least one adult that works full-time

5. Texas Department of Insurance Uninsured Rates by Age - 2006 Source: US Census Bureau, March 2007 Current Population Survey (Texas Sample)

6. Texas Department of Insurance Uninsured Rates by Gender - 2006 Source: US Census Bureau, March 2007 Current Population Survey (Texas Sample)

7. Texas Department of Insurance Uninsured Rates by Race/Ethnicity - 2006 Source: US Census Bureau, March 2007 Current Population Survey (Texas Sample)

8. Texas Department of Insurance Uninsured Ratesby Poverty Level - 2006 Source: US Census Bureau, March 2007, Current Population Survey (Texas Sample) * Number for which poverty status information is available

9. Texas Department of Insurance Uninsured Childrenby Poverty Level - 2006 Source: US Census Bureau, March 2007, Current Population Survey (Texas Sample) * Number for which poverty status information is available

10. Texas Department of Insurance Federal Poverty Levels for 2007 and 2008 Source: US Department of Health and Human Services

11. Texas Department of Insurance Texas Uninsured Rates by Citizenship - 2006 Source: US Census Bureau, March 2007 Current Population Survey (Texas Sample)

12. Texas Department of Insurance National Distribution of Immigrant Uninsured Population - 2006 Source: EBRI estimates from the US Census Bureau, March 2005-2007 Current Population Survey

13. Texas Department of Insurance Texas Uninsured Population by Citizenship – 2002-2006 Source: US Census Bureau, Current Population Survey

14. Texas Department of Insurance Uninsured Rates by Employment Status for Persons Age 18 and Older - 2006 Source: US Census Bureau, March 2007 Current Population Survey (Texas Sample)

15. Texas Department of Insurance Uninsured Rates for Adults by Company Size - 2006 Source: US Census Bureau, March 2007 Current Population Survey (Texas Sample)

16. Texas Department of Insurance Trends Among Uninsured 2004-2006 • 8% decrease in uninsured rate among 18-24 year olds • 100 percent increase in uninsured rate among adults age 65 and older • 9% increase in uninsured rate among those earning 200% to 249% of poverty level

17. Texas Department of Insurance • Sources: • U.S. Census Bureau, Current Population Survey, 2005-2007 Annual Social and Economic Supplements • Agency for Healthcare Research and Quality, 2006 Medical Expenditure Panel Survey-Insurance Component

18. Texas Department of Insurance Employer Sponsored Insurance Offering by State Agency for Healthcare Research and Quality, 2006 Medical Expenditure Panel Survey-Insurance Component

19. Texas Department of Insurance Employer Sponsored Insurance – Texas Data Agency for Healthcare Research and Quality, 2006 Medical Expenditure Panel Survey-Insurance Component

20. Texas Department of Insurance Small Employer Insurance – Texas Data Agency for Healthcare Research and Quality, 2006 Medical Expenditure Panel Survey-Insurance Component

21. Texas Department of Insurance Increase in Health Insurance Premiums Compared to Other Indicators, 2000-2005 SOURCE: Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits: 2005 Annual Survey (www.kff.org/insurance/7315/sections/ehbs05-1-1.cfm) U.S. Department of Commerce, Bureau of Economic Analysis (2005). (www.bea.doc.gov)

22. Texas Department of Insurance History of Average Annual Small Employer Group Health Insurance Costs in Texas Source: Medical Expenditure Panel Survey and Employer Health Benefits Survey

23. Texas Department of Insurance History of Average Annual Large Employer Group Health Insurance Costs in Texas Source: Medical Expenditure Panel Survey, AHRQ

24. Texas Department of Insurance Maximum Annual Per-Person Rates Reported for Small and Large Employer Groups – 2006 Source: TDI Annual Group Accident and Health Insurance Survey

25. Texas Department of Insurance Primary Health Care Cost Drivers • Technology • New services • Increasing number of people using services • Improved access to services • Pharmaceuticals • New drugs • Extended life spans / higher utilization • Aging population • Sicker population • Increasing obesity prevalence

26. Texas Department of Insurance Health Spending is Highly Concentrated Among Relatively Few People Source: “Prescription Drugs and the Changing Concentration of Health Care Expenditures”, Health Affairs, Vol. 26, Jan-Feb 2007

27. Texas Department of Insurance Claims Distribution Under Texas Group Insurance Plans – 2005 Total Premiums = $6,156,008,314; Total Claims = $4,754,838,085 Source: 2005 Group A&H Survey of 21 largest insurers, Texas Department of Insurance

28. Texas Department of Insurance How Much Can Small Employers Afford? TDI Small Employer Survey

29. Texas Department of Insurance How Much Can Non-Poor Families Pay? Source: TDI Survey of Non-Poor Uninsured

30. Texas Department of Insurance Insurance Challenges Reported by Employers to TDI • Cost • Participation requirements • Inability to offer multiple plans • Rate stability • Underwriting / rate variability due to employee demographics

31. Texas Department of Insurance Previous Legislative Initiatives to Reform the Small Group Market • Guarantee issue • Minimum participation requirements • Creation of standardized small group plans • Rating bands • Creation of Texas Health Insurance Reinsurance System • Coalition and Cooperative group purchasing • Consumer Choice Plans that exclude certain mandated benefits

32. Texas Department of Insurance Consumer Choice Experience

33. Texas Department of Insurance Consumer Choice Experience(Continued) Source: CCP Figure 2 Filings with TDI *2007 Data Subject to Change Pending Final Audit

34. Texas Department of Insurance Small Employer Insurance Enrollment 1993-2007 Source: TDI Figure 48 – Required annual filing by all small employer insurers

35. Texas Department of Insurance Options for Expanding Coverage, Reducing Health Insurance Premiums • Subsidy programs • Benefit plan design changes • Basic coverage • Catastrophic coverage / high deductibles • Reinsurance for high cost claims • Insurance reforms

36. Texas Department of Insurance Public / Private Insurance Subsidy Programs – Key Features • State provides subsidy funds to purchase an approved benefit plan; sliding scale based on income • Individual plans or employment-based plans, or both • Coverage varies: basic, catastrophic, or comprehensive • Enrollment often lower than expected; depends heavily on value of subsidy

37. Texas Department of Insurance Subsidy Example 1: New Mexico • The state contracts with managed care organizations for a standard benefit plan; provides comprehensive benefits up to $100,000 annually • Available to uninsured adults below 200% FPL • Can enroll through employer or as an individual if employer doesn’t offer • State subsidizes cost • Employer pays $75, employee pays $20 or $35 • If individual enrollee, pay $75 + $20 / $35 • Enrollment: 17,000

38. Texas Department of Insurance Subsidy Example 2: Oklahoma A: Employer sponsored subsidy • Originally targeted employers with less than 25 employees; expanded to groups up to 50 • State subsidizes coverage for workers earning up to 200% FPL • State pays 60% of employee premium, 85% of spouse • Employer pays 25% of employee premium, • Employee pays remaining 15% • Choice of several plans • Enrollment: up to 50,000 lives; currently at 5,564 B: Individual Plans • Available to adults earning up to 200% FPL with no access to employer-sponsored coverage • Benefits administered through Medicaid • Premiums range from $0 to $51.39 for individuals, and from $0 to $68.91 for families • Current enrollment: 11,694

39. Texas Department of Insurance Subsidy Example 3: Arkansas • Available to uninsured, low-wage workers (under 200% FPL) in firms with 2 to 500 employees • Limited benefit plan provided by self-funded state-sponsored plan; could not reach agreement with insurers to offer plan • All employees must enroll unless they have other coverage; subsidies are only available to workers under 200% FPL, while all others pay the full cost (up to $500 per month) • Enrollment targets of 50,000 workers under 200% FPL and 30,000 workers over 200% FPL

40. Texas Department of Insurance Ongoing Research to Develop Expansion Options For Legislative Consideration • SB 10 – Small Employer Premium Assistance Study – a joint project of HHSC and TDI • SB 10 Healthy Texas Study – a TDI study to design a small employer health insurance program • State Coverage Initiatives (SCI)/ Robert Wood Johnson Foundation Coverage Institute Development Grant – joint project of Governor, Lt. Governor, Senate, House, HHSC and TDI

41. Texas Department of Insurance Premium Assistance Program Cost Estimates for SB 1637/HB 3366, 80th Legislature • In 2007, TDI calculated costs of implementing legislation to create small employer premium assistance program • Would have provided $50 per eligible employee per month in first year and decreased by $15 a month in each subsequent year • Eligibility: employees in firms with 2-25 eligible employees, no employer-sponsored insurance for at least 12 months, incomes of 300% of poverty level or lower • TDI estimated that 637,689 workers in small firms would qualify • Cost estimates developed: • With 10% take-up rate, $38.2 million in year one for 63,768 workers; $26.8 million in year two. • With 20% take-up rate, $76.5 million in year one for 127,537 workers; $53.6 million in year two • Additional costs for program development and administration

42. Texas Department of Insurance Three-Share Plans with Employer, Employee, and Government Contributions • Takes advantage of employer’s payments • Usually provides “limited benefit” coverage, local coverage only – no “out of network” benefits • Existing programs provide health services rather than health insurance • Limited participation – must be previously uninsured • Have only been created to-date at local level • TDI awarded $750,000pilot project grant created under HB 1; HHSC recently awarded $1 million grant • Galveston 3-share program currently enrolling members

43. Texas Department of Insurance Houston Pilot Project • Design based on research under SPG Program • Key features include • Average cost of $150 per employee per month • Simplified enrollment and rating process using modified community rating (rates vary only for age and gender) • Would allow on-line enrollment • Eliminated health-based underwriting • Offered two plan options: “basic” and “catastrophic” • Developed with input from Harris County stakeholders • Actuarial work provided by Milliman actuarial firm • 88% of focus group employers in Houston indicated they would purchase the plan if available • Harris County Healthcare Alliance issued a request for proposal in February, 2007. No contract was awarded.

44. Texas Department of Insurance Healthy New York Program • State subsidized reinsurance mechanism that is one component of Healthy New York • Pays 90% of claims between $5,000 and $75,000 per individual • Small employers, sole proprietors and individuals may participate if they are uninsured for the past 12 months and meet income eligibility • All HMOs must offer a qualified plan; premiums are community rated • Risk corridor was originally set at $30,000 to $100,000; it was reduced due to low claims activity, and premiums dropped approximately 17%

45. Texas Department of Insurance Other States’ Tax Credits/Deductions for Small Employers Offering Insurance

46. Texas Department of Insurance Other States’ Tax Credits/Deductions for Small Employers Offering Insurance

47. Texas Department of Insurance Section 125 Plans • Created by Congress in 1978 under Section 125 of the Internal Revenue Code • Allows companies to give employees the option to pay for certain benefits on a pre-tax basis • Three Section 125 alternatives: • Flexible Spending Account – allows employees to pay for certain out-of-pocket health care expenses or dependent care costs on a pre-tax basis • Cafeteria Plans – most complex option, allows employees to select from a menu of options for pre-tax deductions; more complicated to create and administer • Premium Only Plan

48. Texas Department of Insurance Section 125 Premium Only Plan • Allows employees to pay their health insurance premium on a pre-tax basis, which increases employees’ take-home pay and offsets part of the cost of insurance • Employers pay lower taxes: the total pre-tax premiums paid by employees are exempt from the employer’s federal and state income taxes, social security, federal unemployment taxes, and most other state taxes • Available for premiums paid for health, dental, vision and some life insurance; not applicable to long term care insurance premiums • Once established, minimal ongoing administrative requirements • Employee savings: 22 to 40 percent of premium contributions • Employer savings: varies, but averages between seven and 10 percent of employees’ contributions

49. Texas Department of Insurance For additional information or copies of reports, contact Dianne Longley at512-305-7298 or Dianne.Longley@tdi.state.tx.us.You can also visit the TDI website athttp://www.tdi.state.tx.usand the State Planning Grant website at http://www.tdi.state.tx.us/company/spg.