A Presentation of the Colorado Health Institute

The Private Market: The Foundation of Health Insurance

Health Policy RoundtableMarch 10, 2011Legislative Services Building

Colorado Health Institute: Our missionTo serve as an independent and impartial source of reliable and relevant health information. CHI provides:– Presentations and roundtables– One-on-one briefings with legislators,

caucus or staff upon request– Succinct publications (LOT report) – Custom research – No spin, just the facts

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Questions CHI is often asked• How are Coloradans currently insured?• How will that change under national

reform?• What are other options?• What are decisions the General Assembly

will make?• What else can the state legislature do?

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Four sessions will address these issues• Thursday, March 10: The Private Market:

The Foundation of Health Insurance

• Thursday, March 24: The Changing Landscape of Publicly Funded Insurance

• Thursday, March 31: A Profile of Your Community’s Health

• Thursday, April 14: The State Health Insurance Exchange

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Today’s discussion• Overview of the private insurance

market and policy implications• Frame current legislative issues in

greater national and policy-oriented context

• Share how CHI can be a resource for your health policy interests

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What is health insurance?The intended purpose of health insurance is to collectively pool risk to protect individuals from incurring large expenditures or losses associated with illness, injury or disability.

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Why we are discussing health insurance today• 14% of Coloradans have no

insurance– Nearly 700,000 people

• The cost of insurance is significant and rising– Over past 5 years: Small group

premiums up 20%, large group up 23% and individual policies up 56%

• Evidence suggests that insurance leads to better outcomes and more coordinated care

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Insurance markets and spectrum of risk

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Private insurance covers 71% of Coloradans

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SOURCE: 2008-09 Colorado Household Survey, Colorado Department of Health Care Policy and Financing, analyzed by the Colorado Health Institute

Employer Sponsored

64%Individual Pol-

icy7%

Medicare7%

Medicaid6%

Child Health Plan Plus1%

Other1% Uninsured

14%

Percent of Coloradans

Overview of private insurance markets in Colorado • Individual market– Individually purchased plans– High-risk pools • CoverColorado • GettingUSCovered

• Employer-sponsored insurance– Small group market – Large group and self-insured plans

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INDIVIDUAL (NON-GROUP) HEALTH INSURANCE MARKET IN COLORADO

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Individual market in Colorado• Individuals secure insurance

directly with health insurance plans

• Few mandated benefits • No guaranteed issue–plans can

rate or reject individuals based on claims experience

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CoverColorado: High-risk pool for individuals underwritten out of individual market • State subsidized health insurance plan • Individuals with pre-existing medical

condition and rejected from individual market

• CoverColorado currently has 13,200 enrollees

• Premiums are relatively high and may not be affordable

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Individual market post-federal health reform • Ban on lifetime limits and rescission (2010)• Guaranteed issue for children (2010)• 80% of premiums must be spent on medical care (2011) • Guaranteed issue for adults (2014) • GettingUSCovered high-risk pool (2010)• Subsidies provided on exchange for people with incomes

between 134% and 400% of FPL (2014) • Individual policies can be purchased through state’s health

insurance exchange (2014)• Insurance policies (in all markets) must include essential

benefits package (2014)

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What is the “essential benefits” package?• Comprehensive set of services approved

by Secretary of Health and Human Services

• Limits annual cost-sharing to $5,950 individual, $11,900 family

• No annual or lifetime limits on coverage• No co-pays for prevention• Many individual plans will not meet new

requirements (underinsurance)

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EMPLOYER-SPONSORED COVERAGE IN COLORADO

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Why we have employer-sponsored insurance• Result of WWII wage

restrictions and freezes

• Birth of employee benefit packages

• 1954 employer contributions to employee health plans were exempt from taxable income

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Health insurance offer rates by size of employer, Colorado, 2009

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SOURCE: Medical Expenditure Panel Survey, 2008.

Fewer

than 1

0 emplo

yees

10-24

emplo

yees

25-99

emplo

yees

100-9

99 em

ployee

s

1000

or m

ore em

ployee

s0%

20%40%60%80%

100%

38%62%

84% 92% 100%

Employee-only premiums by firm size, U.S.

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Less than 10 employees

10 - 24 employees

25 - 99 employees

100-999 employees

1,000+0

1,000

2,000

3,000

4,000

5,000

6,000

$4,982$4,573 $4,521 $4,702 $4,673

SOURCE: Medical Expenditure Panel Survey

SMALL GROUP MARKET IN COLORADO

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Decline of small group market in Colorado

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-

100,000

200,000

300,000

400,000

500,000

600,000

$0$500$1,000$1,500$2,000$2,500$3,000$3,500$4,000$4,500$5,000Covered Lives Annual premiums (in $)

Cove

red

Live

sAnnual Prem

iums

Small group health insurance market in Colorado

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• 1-50 employees• Mandated benefits• Guaranteed issue and renewal • Includes Business Group of One• Premium rating based on smoking

status, industry, age, family size and geographic location

Small group market post-federal health reform • No employer penalties for small employers• Tax credits for firms with 25 or fewer employees and

average wage at or below $50,000 (2010)• Must spend 80% of premiums on medical care (2011)• Small Business Health Options Program (SHOP)

exchange for small businesses to pool lives and purchase insurance (2014)

• Must include essential benefits package (2014) • With federal subsidies for low- and middle-income

workers, small employers may discontinue coverage and send workers to state’s health insurance exchange

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LARGE GROUP AND SELF- FUNDED PLANS

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Large employers and self-funded plans• 38% of Coloradans with employer-sponsored

insurance are in self-funded plans• Employer assumes risk to pay health care

claims• May hire third-party administrator to process

claims• Usually includes stop-loss coverage• Regulated by federal Employee’s Retirement

income Security Act (ERISA)

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Large group market and self-funded plans post-federal health reform • Amendments to ERISA to bring all

employers into conformance with market reforms

• Employers with more than 50 employees must provide affordable coverage or pay penalties

• Coverage must include essential benefits package (existing plans can be grandfathered)

• Temporary reinsurance program for early retirees

• Excise tax on “Cadillac” plans 26

LEGISLATIVE CONTEXT

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Where we differ

• Extent of insurance and how to provide access

• Lower total health care costs• Improve quality of care• Colorado – before and after reform –

has grappled with these issues

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One example: Pooling risk• The question: To what degree should

risk be shared?• Last year:– HB10-1008: Insurers cannot use gender

to determine rates– HB10-1021: Covering maternity and

contraception– HB10-1252: Covering mammography for

those at risk29

Legislation this year: Debating pooled risk

• SB11- 019 (King/Stephens) Small employers’ payments to cover individual purchase of health insurance

• HB 11-1273 (Nikkel, Stephens, Kopp), Interstate compact to opt out of federal health reform

• Health insurance exchange legislation (not yet introduced)

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Wrapping up• Thank you• CHI as resource for you• Key insurance concepts at work–Mechanics of the market– Legislative environment and themes of

the time

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CHI as your resource• How will certain legislation affect your

district?• How many constituents will be affected

by the “individual mandate?”• Does your district have the workforce to

meet current and future health needs?• What can I tell my constituents about

the cost of reform?

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Contacts

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• Allison Summerton• Amy Downs• Michele Lueck

303.831.4200www.ColoradoHealthInstitute.org

Twitter: @CoHealthInst