State Reforms of SmallGroup 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 1990s 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 gt20
• Mostly for younger consumers.
• 18 of individuals saw premiums fall gt20
• 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 NYs 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 /- plans 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 states 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
  Muskegons 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 cant 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.
• Govt 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.