1. Use of a Simulation Model to Inform State Policy: The Case of New Jersey’s Non-Group Health Coverage Market Alan C. Monheit, Ph.D. Joel C. Cantor, Sc.D. Piu Banerjee, Ph.D. Academy Health Annual Research Meeting June 4, 2007

2. Rutgers Center for State Health Policy 2 Acknowledgements  Rutgers Center for State Health Policy contributors:  Margaret Koller, Senior Associate Director  Carl Schneider, Senior Research Analyst  Funded by the Robert Wood Johnson Foundation and the Commonwealth Fund

3. Rutgers Center for State Health Policy 3 Key Features of NJ’s 1992 Non-Group Market Reforms  Response to troubled market  Carrier of last resort (BCBS) losses  Repeal of all-payer rate hospital setting  Replaced carrier of last resort with…  Guaranteed issue, renewal, portability for all carriers  Pure community rating (modified CR in small-group market)  Other features  Encourage carrier participation  Standardization of policies  Minimum loss ratio (75%)  Subsidies for moderate income participants (phased out by 1997)

4. Rutgers Center for State Health Policy 4 NJ Non-Group Enrollment

5. Rutgers Center for State Health Policy 5 Non-Group Policy Debate Today  Policy debate under way  Some committed to community rating & guaranteed issue  Others support reform, but little consensus on strategy  Policy options…  Modified community rating  Reinsurance  Merge non-group with small-group market  Replace non-group market with new state-run plan  Individual mandate

6. Rutgers Center for State Health Policy 6 Simulate move from pure to modified community rating  Age-sex based rates  3.5:1 and 5:1 rate bands  Sensitivity analysis Simplifying assumptions  Non-elderly adults (21-64)  Single coverage  Affordability limit, no person pays >10% of family income Model the decision to participate or withdraw  Compare projected reservation price to projected premiums Simulation of Modified Community Rating

7. Rutgers Center for State Health Policy 7 Decision to Enroll Projected “Reservation Price” > Projected “Premium” Reservation Price ( R i ) R i = [0.5 * r i * V($) j ] + E($) i, where: r i = risk aversion parameter for individual i V($) j = variance of expected plan payout for rating group j E($) i = expected plan payout for individual i Projected Premium Average of E($) i * 1.25 for each rating group (j) Simulation Details

8. Rutgers Center for State Health Policy 8 Data Needed  Expected health plan spending for…  NJ non-group enrollees  NJ uninsured  Data not available for NJ Data Used  MEPS two-part model predicting plan payout, as function of age, gender, region, health, and coverage type  Apply model to state non-group and uninsured survey data  500 uninsured persons from RDD NJ Family Health Survey  701 non-group subscribers sampled from subscriber lists of 4 of five largest non-group carriers (representing 95% of enrollment) Estimating Expected Plan Payout

9. Rutgers Center for State Health Policy 9 Data Needed  Reservation price: [0.5 * r i * V($) j ] + E($) i  Risk aversion parameter ( r i ) not observable Data Used  Baseline, risk aversion parameter (r i ) calibrated to actual behavior…  For insured, r i = minimum required for R i > actual premium  For uninsured, r i = maximum value for R i < actual premium  Predict change in enrollment due to premium changes:  Apply elasticity from published literature to each rating cell  Iteratively change r i to obtain predicted change in enrollment Estimating the Risk Aversion Parameter

10. Rutgers Center for State Health Policy 10 *Monthly premium for the lowest cost HMO in the NJ non-group market ($15 copay plan in October, 2004). $461* $523 $511 $415 $349 $320 $243 $159 Change in Monthly Non-Group Single Premium Simulation of Age Rating with 3.5 to 1 Rate Bands

11. Rutgers Center for State Health Policy 11 *Monthly premium for the lowest cost HMO product in the NJ non-group market ($15 copay plan in October, 2004). PCR is pure community rating and MCR is modified community rating Monthly Non-Group Single Premium s Baseline and Alternative Policy Scenarios

12. Rutgers Center for State Health Policy 12 Non-Group Enrollment Actual and Alternative Policy Scenarios Notes: Enrollment in four of the five largest carriers, representing 95% of total covered lives. PCR is pure community rating and MCR is modified community rating.

13. Rutgers Center for State Health Policy 13 Reallocate top 10% of predicted expenditures for top decile of individuals in the expenditure distribution Mandatory for all carriers Fund within non-group market versus external financing Reinsurance Simulation

14. Rutgers Center for State Health Policy 14 Monthly Non-Group Single Premiums Baseline and Alternative Reinsurance Scenarios *Monthly premium for the lowest cost HMO product in the NJ non-group market ($15 copay plan in October, 2004). PCR is pure community rating and MCR is modified community rating.

15. Rutgers Center for State Health Policy 15 Non-Group Enrollment Actual and Alternative Policy Scenarios Notes: Enrollment in four of the five largest carriers, representing 95% of total covered lives. PCR is pure community rating and MCR is modified community rating.

16. Rutgers Center for State Health Policy 16 Implications Modified community rating in non-group market  Reduce uninsured by 46,000 - 132,000 with no state dollars  Modestly higher premiums for near-elderly, but few drop out Reinsurance  Holds older non-group enrollees “harmless” if externally financed

17. Rutgers Center for State Health Policy 17 Discussion Simulation model has informed policy development  Using NJ data important to stakeholders  Creatively blended state-based survey data with MEPS  Extensive briefings for stakeholders and policymakers Vigorous policy debate under way Full report at www.cshp.rutgers.edu