A Presentation of the Colorado Health Institute 1576 Sherman Street, Suite 300 Denver, Colorado 80203-1728 Hot Issues in.

A Presentation of the

Colorado Health Institute

1576 Sherman Street, Suite 300

Denver, Colorado 80203-1728

www.coloradohealthinstitute.org

Hot Issues in Health Care

Legislative Conference

November 17-18, 2006

Colorado’s Private Health Insurance Market

Hot Issues in Health Care Legislative Conference

November 17-18, 2006

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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

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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……

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Competitive market

Health insurancemarket

Making informed purchases by having sufficient information regarding:

Most health care consumers lack information regarding:• Cost of services

• Cost• Quantity • Quality

• Scope of services they consume

• Variation in quality among providers

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Competitive market

Health insurancemarket

• Easy entry and exit of suppliers

• Suppliers seek consumers who will use products

• Difficult to enter the health care market

• Suppliers seek consumers who will minimize use of products

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Competitive market

Health insurancemarket

• Consumers pay for what they consume

• Consumers are free to purchase a product as long as costs are covered

• Some consumers pay for more than they consume; others pay for less than they consume

• Employer chooses products; limited employee choice

• Individual market closed to consumers with pre-existing conditions

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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.

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Adults are more likely to be uninsured than children

Source: U.S. Census Bureau, Current Population Survey

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Trends in the U.S. insurance market: Increases in premiums relative to inflation and earnings

Source: Kaiser Family Foundation, 2006.

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Trends in Colorado’s employer-based market: Employee premium increases over time

Source: Medical Expenditure Panel Survey

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Trends in Colorado’s employer-based market: Family premium increases over time

Source: Medical Expenditure Panel Survey

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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

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

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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

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Small group market

The decline in participation corresponds with increasing premiums.

Source: Medical Expenditure Survey and Colorado Division of Insurance, 2006.

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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

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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.

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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

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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

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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

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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

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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

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Individual market:High-risk pool claims vs. premiums

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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

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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

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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

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Now for the experts………

• Ruth Benton - CEO, New West Physicians

• Bill Lindsay – President, Benefit Group, Lockton Companies of Colorado