What are Connectors and How do they work?

1. What are Connectors and How do they work? June 19, 2007

2. Agenda • Introduction to Connectors • Presentation on what factors contributed to the design and functionality of the Connector in Massachusetts • What data did MA use to think through the Connector’s structure and functions • Connectors, Exchanges and Employee Choice Pools • Washington DC Model • Massachusetts Model • Connecticut Model • Digging Deeper: Connectors, Federal Law, and Moving Forward • A facilitated discussion among states and panelists

3. The “Connector” in Massachusetts • What was and wasn’t working (background) • Understanding the insurance markets (small and nongroup) • Understanding who the uninsured are and the reasons they are uninsured • Understanding employer coverage • Vision for functionality of the Connector (and how that grew) • Connector in context of MA health care reform

4. Data • Individual data (age, insurance status, employment, income, family status, health status) • Employer data (average price of plan, % contribution, offer rate by size) • Insurance market (number, price, type of plans in each market, benefit coverage) • Medicaid and other public program cost and benefit data • Uncompensated Care Pool data

5. Questions asked about insurance markets • Are the nongroup and small group markets functioning well? • Is anything working well? • What are the barriers to entry? • What is the product availability? • How many carriers are in the markets? Is there adequate competition? • Is there choice, portability, flexibility? • What is the state’s experience with adverse selection, risk pooling, reinsurance? • What reforms have been made to the markets in the past, were they successful?

6. MA nongroup market vs. national NationalMA PPO83.4%10.0% HMO/POS 14.9% 90.0% Indemnity 1.7% 0.0% < 19 5.6% 20.0% 19-29 19.8% 15.0% 30-39 21.1% 17.0% 40-49 24.8% 17.0% 50-59 20.2% 18.0% 60-64 8.5%14.0%

7. MA nongroup market - rules • 2 products are allowed to be sold • Standard - very comprehensive with minimal cost sharing • Alternative – increased cost sharing and no Rx • Guaranteed issue/renewal with continuous open enrollment • 6 mo. waiting period or pre-ex condition exclusion period, offset by prior continuous coverage 63 days prior to enrollment • No waiting period for “buy up” • Overall mlr is 91% • 94% for individuals and 83% for other rate basis types • Deterioration from 83% in 2003 • 5% higher than for small group

8. MA nongroup market – enrollment and premiums • 42,500 subscribers • will comprise 5.5% of the merged market • 90% of the market is with BCBS • Nongroup membership decreased by 10% 2003-2005 • Average premiumis $650 for Standard and $450 for Alternative • Declining plan value • 35% purchased Alternative in 2003 • 45% purchased Alternative in 2005

9. MA nongroup market – claims experience • Average pmpm claim cost was approximately 40% higher than small group in 2005 due to the following: • Older than average subscriber age (1.13) • Much lower number of children covered • 77% of those that purchase buy individual-only • Nongroup pmpm claims • Average is $375 • 15% have pmpm claims greater than $650 • 15% have pmpm claims under $50 • 50% have pmpm claims under $200

10. MA small group market– enrollment and premiums • 700,000 members in 2005 • 92% of which are written by 7 not-for-profit HMOs • Includes groups of 1-50 FTEs • Overall small group claims pmpm is $262 • 11% of groups (which are 3% of members) have pmpm claims under $50 • 9% of groups (which are 5% of members) have pmpm claims of more than $650 • 50% of groups have pmpm claims under $200 • 16% of groups have pmpm claims greater than $350 • 2:1 rating band • Age, geography, industry, size, 4 rate basis types – all inside the band

11. MA small group market - products • Purchasing patterns • 87.7% are HMO/POS • 11.75% are PPO • 0.54% are Indemnity • Plan value • 70% of small group members have “medium” plan values between 0.85 and 0.92 • $15-$20 office visit co-pays • $250-500 in patient and out patient co-pays • Drug co-pays of $10/25/40 • 12% of small group membership has “low” plan values between 0.65 and 0.85 • 3% of small group membership has plan values between 0.65 and 0.75 (high deductible plans)

12. Small group enrollment by group size Group Claim Premium Age Plan Size Members PMPM PMPM MLR Factor Value 1 112,000 $296 $305 97% 1.20 0.87 2-5 152,000 $273 $323 85% 1.03 0.89 6-10 117,000 $250 $309 81% 0.94 0.89 11-25 194,000 $251 $298 84% 0.94 0.90 26+ 119,000 $250 $287 87% 0.93 0.90 Source: Gorman Actuarial

13. Summary of findings • Un-level playing field between employees of firms that don’t offer (nongroup purchase) and self-employed (small group purchase) • Little choice of product in nongroup market • No pre-tax payment for people purchasing in nongroup market • Small employers have minimum participation and contribution requirements • Very small groups are older and use more services

14. The “Connector” in Massachusetts • What was and wasn’t working (background) • Understanding the Insurance markets (small and nongroup) • Understanding who the uninsured are and the reasons they are uninsured • Understanding employer coverage • Vision for functionality of the Connector (and how that grew) • Connector in context of MA health care reform

15. Key questions about the uninsured? • Who are the uninsured? • Why don’t they have health insurance? • Are they employed, type of employment? • Are they offered insurance by employer? • If offered, do they choose not to purchase? • Demographic profile? • What is their health status? • How do they receive and pay for care? • Who uses the uncompensated care pool?

16. Insurance status of MA residents • Total Population 6,400,000 • Currently insured (93%) 5,940,000 • Employer, individual, Medicaid, Medicare • Currently Uninsured (7%) 460,000 _________________ • ≤ 100% FPL Medicaid eligible 106,000* • 100-300% FPL Subsidy eligible 150,000* • >300% FPL 204, 000 * FFP eligible under waiver Note: Based on August 2004 Division of Health Care Finance and Policy Data

17. Uninsured rates by age (2002-2004) • Younger adults have higher uninsured rates although significant increases were also found in the older age groups in 2004.

18. Distribution of uninsured by age (2004) • The uninsured span all ages with 67% between the ages of 25 and 64.

19. Uninsured rates by gender and marital status, 2002-2004 • Males have higher rates of uninsurance than females. • Never married people have higher rates of uninsurance. • Married people saw a significant increase in their rate of uninsurance from 2002 to 2004.

20. Uninsured rates by education and employment status (2002-2004) • Rates of uninsurance are much higher for those without a high school degree and lowest for those with a college degree. • Rates of uninsurance are lowest for those working full-time jobs.

21. Distribution of the uninsured by education and employment status (2004) • Most of the uninsured are high school graduates; almost one fifth have college degrees. • A little more than two thirds of the uninsured work, and most of those who do work hold full-time jobs.

22. Uninsured rates by size of firm • People working for small firms are more likely to be uninsured than those working for larger firms. • Increases in uninsured rates were found for both large and small firms from 2002 to 2004.

23. Distribution of employed uninsured by size of firm (2004) • While the rate of uninsurance is far greater for people working in small firms, a significant percent of the working uninsured are employed by firms with greater than 50 employees.

24. Distribution of ucp claims by site of service (2006) • 67% of pool users are between the ages of 25 and 64.

25. What we learned about the uninsured • The uninsured are not a homogenous group; however, they are likely: • to be employed • to have been born in the U.S. • to be single • to be white • to be between 25 and 64 • to have at least a high school education • to have moderate incomes and reportedly willing to pay for health insurance. • to have good health status.

26. The “Connector” in Massachusetts • What was and wasn’t working (background) • Understanding the Insurance markets (small and nongroup) • Understanding who the uninsured are and the reasons they were uninsured • Understanding employer coverage • Vision for functionality of the Connector (and how that grew) • Connector in context of MA health care reform

27. Questions to ask about employer-coverage • Who does and doesn’t offer? • Are they dropping or likely to drop coverage? • Reasons for not offering • What do they offer? • How much do they subsidize? • How many employees take up offer of coverage? • Do they offer pre-tax payment of premium? • How much choice?

28. Employers that offer health insurance • The change in offer rate is not statistically significant.

29. Employers that offer health insurance by employer size

30. 100% 76% 75% 80% 60% 40% 20% 0% 2003 2005 Employers that offer health insurance to full-time employees only • The change in offer rates is not statistically significant.

31. Hours required to qualify for health insurance

32. Total monthly premium for indiv. plans

33. Monthly employer contribution to individual plan $78 $88 Employee pays

34. Total monthly premium for family plans

35. Monthly employer contribution to family premium $237 $269 Employee pays

36. 100% 80% 80% 60% 45% 40% 20% 0% 2-50 Employees 50+ Employees Employers offering pre-tax plan for hi premiums (2005)

37. Eligible employees who enroll in employer’s health insurance

38. 40% 30% 23% 22% 20% 20% 10% 0% 2001 2003 2005 Employers ask for proof of hi if employee turns down insurance

39. 30% 20% 12% 12% 11% 10% 0% 2001 2003 2005 Employers that offer compensation to employees who turn down hi

40. Employers impose a waiting period

41. Waiting periods

42. Does employee contribution to health insurance premium vary by?

43. Reasons for not offering health insurance

44. Employers who do not offer hi: what would motivate?

45. Employers who do not offer health insurance: ways to constrain costs

46. What we learned about employer hi coverage • Employers have not been dropping coverage in MA • Many small employers who offer hi do not offer pre-tax treatment of premium payments • Many employers have difficulty providing hi for part time workers • Waiting periods have increased slightly • Most employers do not vary contribution or cost sharing by employee characteristics • Employers who do not offer insurance are looking for lower cost alternatives • Most employers do not ask for proof of coverage if employees turn down coverage

47. The Connector in Massachusetts • What was and wasn’t working (background) • Understanding the insurance markets (small and nongroup) • Understanding who the uninsured are and the reasons they are uninsured • Understanding employer coverage • Connector in context of MA health care reform • Vision for functionality of the Connector (and how that grew)

48. Medicaid Cost/Quality Improvements Insurance Reforms Massachusetts Health Care Reform Shared Responsibility Connector Authority Commonwealth Care

49. Ch. 58 of Acts of 2006 • Merge nongroup and small group markets • 15% decrease in nongroup rates • 1 to 1.5% increase in small group rates (can be offset with purchase of $33-48 million reinsurance plan) • Represents $25-$38 million subsidy from small group to non group • New distribution channel (Connector) • Individual Mandate • Loss of tax deduction in 2007 • Assessed 50% cost of MCC in 2008+ • Fair share employer assessment & Free Rider surcharge • Commonwealth Care (subsidized coverage)

50. Ch. 58 of Acts of 2006 • Section 125 Plan is required of employers with more than 10 FTEs • Excused from Free Rider Surcharge • Allows employees to pay with pre-tax dollars • Expanded dependency status for health insurance purposes to 2 years past loss of tax dependency status or age 26 • Young Adults Plan • Moratorium on mandated benefits • HMOs can use coinsurance