State Options: Expanding Private Coverage for the Working Uninsured

1. 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

2. 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

3. 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 (<50 employees) for cost of 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

4. 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

5. 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)

6. 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

7. 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)

8. 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: ?

9. 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

10. 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.

11. 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 don’t require state funding; regulation may actually decrease insurer willingness to sell individual coverage • VA Regulatory Implications: ??

12. 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

13. 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)

14. 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: Maine’s 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.