Colorado’s Private Health Insurance Market

Colorado’s Private Health Insurance Market Hot Issues in Health Care Legislative Conference November 17-18, 2006  Hot Issues in Health Care Legislative Conference

Overview • Place private health insurance market in competitive market context • Describe small group market trends • Describe individual market trends • Discuss market-driven versus publicly supported policy approaches • Present various policy options

Health insurance markets compared to competitive markets • The health care insurance market rarely meets conditions necessary for a competitive market • Conditions for competitive markets include……

In 2004-05, Colorado regulated about 23% of private insurance market Source: Kaiser Commission on Medicaid and the Uninsured, Colorado Division of Insurance, 2006. Data from 2004-05.

Adults are more likely to be uninsured than children Source: U.S. Census Bureau, Current Population Survey

Trends in the U.S. insurance market: Increases in premiums relative to inflation and earnings Source: Kaiser Family Foundation, 2006.

Trends in Colorado’s employer-based market: Employee premium increases over time Source: Medical Expenditure Panel Survey

Trends in Colorado’s employer-based market: Family premium increases over time Source: Medical Expenditure Panel Survey

Trends in health insurer market in Colorado • Enrollment in state’s top 10 health plans has increased: • 1.8 million people at end of 1995 • 2.9 million at end of 2005 • For-profit health plans make up greater share of the market than nonprofit plans

Erosion of Colorado’s small group health insurance market, 1997-2005

What defines the small group health insurance market in Colorado? • Small employers between 2 – 50 employees • Business Groups of One (self-employed individuals) • Guaranteed issue (cannot be denied coverage due to health status) • Use of claims experience and health status to set rates is allowable • Some rate-setting controls

Small group market The decline in participation corresponds with increasing premiums.

Small group market Disagreement as to source of increasing premiums – • Reforms passed by Colorado legislature in 1994 (HB 94-1210) or • Inflationary market trends across the country mitigated by HB 94-1210

Small group market: Impetus for H.B. 94-1210 • No limits on annual rate increases for small employers – premiums could double in one year based on health status of employees. • Carriers could decline or limit coverage of individuals in the small group market. • Led to very unstable market conditions.

Small group market: HB 94-1210 HB 94-1210 included various changes to the small group market: • Guaranteed issue • Market conduct rules • Modified community rating with rate controls implemented over 3-year period • Business Group of One added

Small group market: HB 94-1210 • Since its passage, most of HB 94-1210 has been rescinded by the legislature or superseded by federal HIPAA rules • Remaining/modified regulations from 1210: • Business Group of One remains, but greater controls on employment documentation • Premiums can range from an annual 25% reduction to a 10% increase based on health status (claims experience) on top of medical inflation, geographic region and industrial classification • All carriers must offer standard and basic plans

What is the individual health insurance market in Colorado? • Roughly 11% of Colorado’s privately insured population is in the individual health insurance market • No guaranteed issue; carriers allowed to deny applicant based on health status • Very few mandates apply • Health plans must file premiums with the state and must be found actuarially sound

Individual market Colorado’s high-risk pool: CoverColorado • State established, subsidized health insurance plan for people “uninsurable” because of a pre-existing medical condition • A few other qualifying circumstances (see CHI brief on high-risk pool) • 23 states have a high-risk pool • 180,000 participants nationwide; 5,000+ in Colorado

Individual market Funding for CoverColorado • Premiums, state unclaimed property fund and assessment on insurers • Premiums set between 100% and 150% of annual average small group premium rate • High premiums, high deductibles • In 2005, almost 50% of CoverColorado members had a deductible > $5,000

Individual market:High-risk pool claims vs. premiums

Two approaches to stimulate small group health insurance market • Structure health insurance to operate more like a competitive market through greater consumer-directed health care purchasing • Increase government involvement through regulatory mechanisms and subsidies to increase coverage for low-income workers

Consumer-directed purchasing • High-deductible health plans can be coupled with health savings accounts (HSAs) • Greater cost sharing, more out-of-pocket expenses when shopping for health care • Consumers with more out-of-pocket expenses will require greater transparency in pricing and quality information, a “Consumer Reports” for health care consumers

Regulatory guidance and publicly financed subsidies • Individual mandate to obtain health insurance coverage (same as auto insurance mandate) • Employer mandate to provide coverage to employees • Reinstate modified community rating/risk pooling • Publicly financed premium subsidies for low-income workers

Now for the experts……… • Ruth Benton - CEO, New West Physicians • Bill Lindsay – President, Benefit Group, Lockton Companies of Colorado

Colorado’s Private Health Insurance Market