Health Insurance Connectors: Lessons from Massachusetts Nancy Turnbull

1. Health Insurance Connectors: Lessons from Massachusetts Nancy Turnbull Harvard School of Public Health and Board Member of Massachusetts Health Insurance Connector Authority May 11, 2009

2. The Roles of the Massachusetts Connector • Runs Commonwealth Care • Program of subsidized coverage for people up to 300% FPL • Administers Commonwealth Choice • Non-subsidized program for individuals • Small employer plan “pilot” • Policy making body • Individual mandate • Facilitates expansion of coverage in the state through information, outreach and marketing

3. Four Lessons from the Connector in Massachusetts 1. Connector is just one piece • Public/subsidized coverage for people with low and moderate income • Individual mandate 2. Must be built on strong foundation of insurance market reform 3. Exclusivity enhances the value of Connector 4. Setting benefit standards is important for adequate coverage and informed choice “Actuarial value” standard is insufficient

4. 432,000 Newly Insured: Sept 2008 Commonwealth Choice +19,000 members Employer Groups +148,000 members 43% of newly insured thru the Connector Commonwealth Care +169,000 members 57% of newly insured in subsidized programs Individual Policies Outside Connector +20,000 members Medicaid +76,000 members Source: Division of Health Care Finance and Policy

5. Strong Foundation of Insurance Market Reforms • Small group in 1989; individual market in 1996 • Guaranteed issue and renewal • No rating on gender, health status, medical claims • Modified community rating: 2:1 rate bands • Self-employed in small group market • Same risk pool for all products at each insurer • 2006 reforms • Merger of small group and individual markets • Same insurance rules inside and outside Connector • One rating pool for people inside and outside Connector at each insurer • Young Adult Plans can be sold only by carriers with 5,000+ lives and only through the Connector

6. Connector Plays 2 Very Different Roles • Commonwealth Care • Exclusive • Active purchaser • Standardized products • Aggressive price negotiator • Commonwealth Choice • Non-exclusive distribution channel • Same products and prices inside and outside Connector • Insurers with 5,000+ small group members must offer plans through the Connector

7. Exclusivity Enhances Value of Connector • Maximizes enrollment and ability to be active purchaser • Easier for consumers to understand and navigate • Prevents gaming by insurers • Can compete based on risk selection by offering different plans outside the Connector • Forces broader pooling of risk • Spreads benefits of younger people buying coverage • Enables risk adjustment across carriers • Lowers administrative costs • Allows innovation without concerns about impact on/response of market outside of Connector

8. Connector’s Current Market Power Commonwealth Care as % Total Insurer Members Commonwealth Choice as % Total Insurer Members Insurer As of 12/31/08; non-Medicare members

9. Connector Potential Market Power Commonwealth Care as % Total Insurer Members All Individual as % Total Insurer Members

10. Connector Potential Market Power Commonwealth Care as % Total Insurer Members All Individual and Small Employer <50 as % Total Insurer Members

11. Benefit Standards inCommonwealth Choice • Connector awards Seal of Approval to plans that are “good value” and “high quality” • Statute expressly allows limited network plans to encourage lower cost, high quality products • Designed 4 benefit tiers: Gold, Silver, Bronze, YAP • Plan designs in each tier must meet “actuarial value” standard • Carriers must offer all product 4 tiers

12. The Limits of Actuarial Value Premiums for 50-year-old resident of Boston for effective date of June 2009