State Reforms of Small-Group Health Insurance

1. State Reforms of Small-Group Health Insurance Vivian Ho, Ph.D. Baker Institute Chair in Health Economics, Rice University Associate Professor, Baylor College of Medicine November 7, 2008

2. Outline • History of State Reforms • The Effect of Reforms • Why? • Implications for Three-Share Programs

3. History Source: CDC, NCHS, Health, United States 2007

4. History • In early 1990’s 45 U.S. states enacted new regs governing the sale of insurance to small-employer groups. • Guaranteed issue • Guaranteed renewal • Premium rating reform • Pre-existing conditions limitations • Portability provisions.

5. History • NY and NJ had strongest reforms. • NY • Prohibited insurers from denying coverage to any small group or individual. • Required premiums to be community rated • All subscribers charged same price, regardless of age, sex, or any other predictor of medical expenditures.

6. Effect of NY Reforms • 40% of individuals saw premiums rise >=20% • Mostly for younger consumers. • 18% of individuals saw premiums fall >=20% • Mostly for older consumers.

7. Effect of NY Reforms • Analysis comparing NY to PA (w/ no reforms) and to large firms in NY (not subject to reforms) finds no effect of NY’s reforms on health insurance coverage rates. (Buchmueller & DiNardo, American Economic Review 2002) • Age distribution of the insured became older, but this occurred in all states. • Studies using data from other states also found little/no effect of state reforms. → State reforms were ineffective

8. Why were State Reforms Ineffective? • In many states, the laws had little “bite.” • Most states allow rates to vary by age & sex. • Rate bands (e.g. 35% +/- plan’s standard rate) are still too wide. • Insurers could avoid the intent of new regs. • In many states, insurers required to sell only 1 or 2 products as guaranteed issue. • When new regs raised rates for lower-risk groups, they moved to less costly HI • In NY, HMO coverage rose 25% after state reforms.

9. Why were State Reforms Ineffective? • These studies suggest that demand-side (not supply-side) factors are the reason for falling insurance coverage. • “…near-universal coverage can be achieved only with a combination of public subsidies and some kind of requirement that people obtain health insurance. It is not reasonable to expect supply-side policies, like the state-level small-group reforms, to have had a major effect on coverage.” (Buchmueller, in Monheit & Cantor, State Health Insurance Market Reform, 2004)

10. Implications for Three-Share Programs • 3-share programs are demand-side in nature and should be effective in raising coverage. • However, only one has been successful long-term. • Access Health in Muskegon, MI • Origins: planning grant from the Kellogg Foundation • Operating since 1999.

11. Access Health • ~1,100 covered for the past 3 years. • Medical costs ~ $155 pmpm • Admin costs ~ $17 pmpm • Adult premium: $46 contributed by both employer and employee.

12. Access Health • Funded by state’s Medicaid DSH funds. • Employers’ payments to Access Health treated as an “intergovernmental transfer” (IGT) to the state. • State certifies the IGT as a DSH payment to Muskegon’s 2 hospitals, which generates a federal match. • The federal match goes to the 2 hospitals, which turn funds over to Access Health.

13. Access Health • Average monthly premium for employer sponsored coverage in 2008 is ~$390. • How does Access Health keep costs so low? • HI coverage is interwoven into the local community support system. • Blended health insurance/social insurance

14. Access Health • If customer can’t afford copays, Access Health will help them apply for heating assistance, so funds can be used to pay for health care. • If breast or cervical exam indicates an abnormality, Access Health helps patient get into Medicaid BCCPT program. • Connection w/ Lions Club helps customers get glasses for $30/pair. • Pharmacy assistance programs sponsored by drug companies

15. Access Health • Focuses on employees earning $7-$9/hr and part-time workers (20-30 hrs/wk). • If try to cover workers earning $13-$14/hr, will crowd-out existing employer programs.

16. Additional Role for Government? • Government as a reinsurer. • Health care expenditures are highly skewed. • The top 1% of people account for 28% of total health care expenditures. • Gov’t could offer to pay 90% of costs for insurees w/ $50k costs in a year. • Reinsurance would dramatically lower risk, so HI premiums would fall.

17. Conclusions • Changing state regulations of the insurance market have not helped raise coverage. • 3-share programs can be helpful, because they address demand-side problems in the market. • Successful 3-share programs require integration with a well-integrated community safety net. • Future reforms should consider government as a reinsurer.