1. Texas Health Insurance Market - Insuring the Uninsured Presentation to Senate Finance Committee August 19, 2008 Dianne Longley Director, Research and Analysis Life, Health and Licensing Texas Department of Insurance

2. 2 Texans Insurance Status - 2006 Texas Department of Insurance CategoryNumberPercent Total Population23,236,000- Insured Population17,533,00075.5% - Employment-based12,130,00052.2% - Individual1,734,0007.5% - Government-based5,782,00024.9% Uninsured Population5,704,00024.5% Source: US Census Bureau, Current Population Survey, 2007

3. 3 History of Uninsured Rates Year# of Uninsured% Uninsured 19954,615,00024.5% 19974,836,00024.5% 19994,664,00023.3% 20004,500,00021.4% 20014,960,00023.5% 20025,555,59825.8% 20035,527,77124.6% 20045,583,00025.0% 20055,515,67724.2% 20065,704,00024.5% Texas Department of Insurance Source: US Census Bureau, Current Population Survey

4. 4 Common Characteristics of the Uninsured Age: 45% of young adults 18-24 and 36% of 25-34 year olds are uninsured Ethnicity: 55% of uninsured are Hispanic Income: 63% of uninsured are under 200% FPL Citizenship: 76% of uninsured are US citizens but 54% of non-citizens are uninsured Employment: 66% of uninsured adults are employed; 44% work at firms with less than 25 employees; 27% work at firms with 500 or more employees; 82% of uninsured live in families with at least one adult that works full-time Texas Department of Insurance

5. 5 Uninsured Rates by Age - 2006 Texas Department of Insurance Age Range Number Uninsured Percent of Total Uninsured Percent Uninsured within Age Category Ages 6 and Younger 571,41610.0%20.3% Ages 7 – 17 820,62214.4%21.9% Ages 18 – 24959,35116.8%40.8% Ages 25 – 341,284,62922.5%37.3% Ages 35 – 44880,85415.5%26.9% Ages 45 – 641,103,23819.3%21.9% Ages 65 +83,6551.5%3.2% Total5,703,765100.0%24.5% Source: US Census Bureau, March 2007 Current Population Survey (Texas Sample)

6. 6 Uninsured Rates by Gender - 2006 Texas Department of Insurance Gender Number Uninsured Percent of Total Uninsured Percent Uninsured within Gender Category Male2, 940,42451.5%25.7% Female2,763,34148.5%23.4% Total5,703,765100.0%24.5% Source: US Census Bureau, March 2007 Current Population Survey (Texas Sample)

7. 7 Uninsured Rates by Race/Ethnicity - 2006 Texas Department of Insurance Race / Ethnicity Number Uninsured Percent of Total Uninsured Percent Uninsured within Race / Ethnicity Category White1,437,04325.2%12.8% Black / African American 675,37411.8%25.8% Hispanic3,354,44558.8%39.8% All Other236,9024.2%24.3% Total5,703,765100.0%24.5% Source: US Census Bureau, March 2007 Current Population Survey (Texas Sample)

8. 8 Uninsured Rates by Poverty Level - 2006 Texas Department of Insurance Income / Poverty Level Number Uninsured* Percent of Total Uninsured Percent Uninsured within Income Category Under 50%662,04211.6%42.8% 51% to 99%966,79417.1%42.6% 100% to 149%936,30216.5%38.0% 150% to 199%829,44814.6%33.8% 200% to 249%672,55611.8%30.6% 250% or Higher1,616,12328.4%13.2% Total5,683,264100.0%24.5% Source: US Census Bureau, March 2007, Current Population Survey (Texas Sample) * Number for which poverty status information is available

9. 9 Uninsured Children by Poverty Level - 2006 Texas Department of Insurance Income / Poverty Level Number Uninsured* Percent of Total Uninsured Percent Uninsured within Income Category Under 50%174,06411.6%27.0% 51% to 99%331,28422.0%36.9% 100% to 149%292,84619.5%31.8% 150% to 199%217,63314.5%27.8% 200% to 249%181,17312.0%26.6% 250% or Higher305,89120.4%10.3% Total1,371,538100.0%21.0% Source: US Census Bureau, March 2007, Current Population Survey (Texas Sample) * Number for which poverty status information is available

10. 10 Federal Poverty Levels for 2007 and 2008 Texas Department of Insurance Family Size 100% of Federal Poverty Level 20072008 1$10,210$10,400 2$13,690$14,000 3$17,170$17,600 4$20,650$21,200 5$24,130$24,800 6$27,610$28,400 7$31,090$32,000 8$34,570$35,600 Source: US Department of Health and Human Services

11. 11 Texas Uninsured Rates by Citizenship - 2006 Texas Department of Insurance Immigration Status Number Uninsured Percent of Total Uninsured Percent Uninsured within Immigration Status Category U.S. Citizen (Native) 3,879,96168.1%19.6% U.S. Citizen (Naturalized) 315,2445.5%32.8% Not a U.S. Citizen1,508,55926.4%60.9% Total5,703,765100.0%24.5% Source: US Census Bureau, March 2007 Current Population Survey (Texas Sample)

12. 12 National Distribution of Immigrant Uninsured Population - 2006 Texas Department of Insurance Total Number of Uninsured (Millions) Number of Uninsured Immigrants (Millions) Percentage of Uninsured Accounted for by Immigrants US Total44.611.726.3% Texas5.41.730.4% California6.63.248.5% Florida3.61.232.7% New York2.50.936.7% New Jersey1.20.542.1% Source: EBRI estimates from the US Census Bureau, March 2005-2007 Current Population Survey

13. 13 Texas Uninsured Population by Citizenship – 2002-2006 Texas Department of Insurance US Citizen Naturalized Citizen Not a US Citizen # of Uninsured 20023,753,217292,0821,510,300 # of Uninsured 20033,657,478243,6761,472,530 # of Uninsured 20043,849,726301,5271,431,576 # of Uninsured 20053,956,747251,4021,307,528 # of Uninsured 20063,879,961315,2441,508,669 Source: US Census Bureau, Current Population Survey

14. 14 Uninsured Rates by Employment Status for Persons Age 18 and Older - 2006 Employment Status Number of Uninsured Adults Percent of Total Uninsured Percent Uninsured within Employment Category Employed2,858,63468.3%26.7% Unemployed209,7415.0%46.9% Not in Labor Force 1,117,31726.7%34.9% Total4,185,692100.0%29.1% Texas Department of Insurance Source: US Census Bureau, March 2007 Current Population Survey (Texas Sample)

15. 15 Uninsured Rates for Adults by Company Size - 2006 Size of Firm Number of Uninsured Adults Percent of Total Uninsured Percent Uninsured within Size Category Not reported171,2406.0%49.3% Less than 10875,30830.6%43.3% 10-24369,81213.0%42.5% 25-99427,64314.0%32.2% 100-499321,16511.2%25.9% 500-99969,6192.4%13.6% 1,000 or more623,84722.8%14.2% Total2,858,634100.0%26.7% Texas Department of Insurance Source: US Census Bureau, March 2007 Current Population Survey (Texas Sample)

16. 16 Trends Among Uninsured 2004-2006 8% decrease in uninsured rate among 18-24 year olds 100 percent increase in uninsured rate among adults age 65 and older 9% increase in uninsured rate among those earning 200% to 249% of poverty level Texas Department of Insurance

17. 17 State Percentage of Population Under 65 w/Employer Sponsored Insurance Percentage of Population that is Uninsured Median Household Income (Three-year Average from 2004- 2006) 1 Avg. Single Premium Cost in 2006 – Group Coverage 2 All Firms Combined Avg. Family Premium Cost in 2006 – Group Coverage 2 All Firms Combined United States62.915.8$47,287$4,118$11,381 Texas54.024.5$43,425$4,133$11,690 Arizona56.220.9$46,729$4,280$11,549 Arkansas54.718.9$37,420$3,567$9,928 California55.518.8$53,770$4,036$11,493 Florida57.321.2$44,448$3,936$11,046 Illinois68.214.0$49,280$4,245$11,781 Massachusetts69.910.4$56,236$4,448$12,290 Minnesota70.29.2$57,363$3,981$11,395 New Mexico52.022.9$40,827$4,037$11,279 New York63.517.9$48,201$4,605$12,075 Sources: 1.U.S. Census Bureau, Current Population Survey, 2005-2007 Annual Social and Economic Supplements 2.Agency for Healthcare Research and Quality, 2006 Medical Expenditure Panel Survey-Insurance Component Texas Department of Insurance

18. 18 State Percentage of Large Firms that Offer Health Insurance Percentage of Small Firms that Offer Health Insurance Percentage of Employees that Enroll When Insurance is Offered in Large Firms Percentage of Employees that Enroll When Insurance is Offered in Small Firms United States95.642.678.677.4 Texas88.932.278.980.4 Arizona94.832.376.480.6 Arkansas91.629.381.080.1 California94.945.583.081.2 Florida94.738.977.472.0 Illinois97.641.179.282.0 Massachusetts97.355.577.170.6 Minnesota98.237.777.675.2 New Mexico92.734.668.368.1 New York98.050.678.276.9 Agency for Healthcare Research and Quality, 2006 Medical Expenditure Panel Survey-Insurance Component Texas Department of Insurance Employer Sponsored Insurance Offering by State

19. 19 Texas Insurance Enrollment Data Small FirmsLarge Firms 1. Total number of firms294,072124,657 2. Total number of employees1,918,6826,098,561 3. Percentage of firms that offer insurance32.288.9 4. Number of firms that do offer insurance94,691110,820 5. Number of firms that do not offer insurance199,38113,837 6. Number of employees working in firms that offer insurance936,3165,641,168 7. Percentage of employees working in firms that offer insurance48.892.5 8. Number of employees working in firms that do not offer insurance 982,366457,393 9. Number of employees eligible for coverage777,1424,479,087 10. Number of employees who are enrolled624,8223,533,999 11. Percentage of all employees that have employer-sponsored cvg.33%58% 12. Number of employees who have access to coverage but are not enrolled 152,320944,088 13. Number of employees who do not have access to coverage1,141,5401,619,474 Agency for Healthcare Research and Quality, 2006 Medical Expenditure Panel Survey-Insurance Component Texas Department of Insurance Employer Sponsored Insurance – Texas Data

20. 20 Texas Insurance Enrollment Data Firms with less than 10 EEs Firms with 10-24 EEs 1. Total number of firms221,19451,858 2. Total number of employees790,608617,107 3. Percentage of firms that offer insurance25.6%44.3% 4. Number of firms that do offer insurance56,62522,973 5. Number of firms that do not offer insurance164,56928,885 6. Number of employees working in firms that offer insurance252,203297,445 7. Percentage of employees working in firms that offer insurance31.9%48.2% 8. Number of employees working in firms that do not offer insurance 538,405319,662 9. Number of employees eligible for coverage215,633253,720 10. Number of employees who are enrolled172,506204,498 11. Percentage of all employees that have employer-sponsored cvg.22%33% 12. Number of employees who have access to coverage but are not enrolled 43,12749,222 13. Number of employees who do not have access to coverage574,975363,387 Agency for Healthcare Research and Quality, 2006 Medical Expenditure Panel Survey-Insurance Component Texas Department of Insurance Small Employer Insurance – Texas Data

21. 21 Increase in Health Insurance Premiums Compared to Other Indicators, 2000-2005 SOURCE: Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits: 2005 Annual Survey (www.kff.org/insurance/7315/sections/ehbs05-1-1.cfm) U.S. Department of Commerce, Bureau of Economic Analysis (2005). (www.bea.doc.gov) Texas Department of Insurance

22. 22 History of Average Annual Small Employer Group Health Insurance Costs in Texas Year Average Annual Premium for Single Coverage Average Annual Premium for Family Coverage 1997$2,172$5,534 1998$2,270$5,575 1999$2,539$6,486 2000$2,955$6,784 2001$3,229$7,974 2002$3,580$8,800 2003$3,793$9,831 2004$4,346$10,253 2005$4,270$10,970 2006$4,463$11,310 Texas Department of Insurance Source: Medical Expenditure Panel Survey and Employer Health Benefits Survey

23. 23 History of Average Annual Large Employer Group Health Insurance Costs in Texas Year Average Annual Premium for Single Coverage Average Annual Premium for Family Coverage 1997$2,200$5,727 1998$2,030$5,590 1999$2,261$6,161 2000$2,538$6,618 2001$2,809$7,423 2002$3,195$8,841 2003$3,607$10,069 2004$3,639$10,087 2005$4,065$11,613 2006$4,057$11,745 Texas Department of Insurance Source: Medical Expenditure Panel Survey, AHRQ

24. 24 Maximum Annual Per-Person Rates Reported for Small and Large Employer Groups – 2006 Texas Department of Insurance Source: TDI Annual Group Accident and Health Insurance Survey Company Small Employer Groups Large Employer Groups A$20,610$7,866 B$26,894$10,241 C$19,055$13,098 D$20,164$17,597 E$62,209Unknown

25. 25 Primary Health Care Cost Drivers Technology –New services –Increasing number of people using services –Improved access to services Pharmaceuticals –New drugs –Extended life spans / higher utilization Aging population Sicker population –Increasing obesity prevalence Texas Department of Insurance

26. 26 Health Spending is Highly Concentrated Among Relatively Few People Texas Department of Insurance Source: Prescription Drugs and the Changing Concentration of Health Care Expenditures, Health Affairs, Vol. 26, Jan-Feb 2007

27. 27 Claims Distribution Under Texas Group Insurance Plans – 2005 Total Value of Annual Claims Incurred Number of Enrollees within Claims Range Percentage of Insureds $0454,86317.6% $1 - $1,0001,309,44750.8% $1,001 - $5,000523,24720.3% $5,001 - $10,000146,1825.7% $10,001 - $25,00095,6863.7% $25,001 - $50,00028,0301.1% $50,001 - $75,0008,5000.33% $75,001 - $100,0003,9210.15% $100,001 - $250,0005,7620.22% $250,001 - $500,0001,1100.04% $500,001 - $1,000,0002590.01% $1,000,001 or more480.002% Totals2,577,055100.00% Total Premiums = $6,156,008,314; Total Claims = $4,754,838,085 Source: 2005 Group A&H Survey of 21 largest insurers, Texas Department of Insurance

28. 28 How Much Can Small Employers Afford? Cost Per-Employee-Per-Month that Employer Can Pay 20012004 Less than $5023%17% $5022%17% $10020% $1509%8% $2005%6% $2502% $300 or More2%1% Would Not Purchase at Any Cost14% Texas Department of Insurance TDI Small Employer Survey

29. 29 How Much Can Non-Poor Families Pay? Monthly Amount of Money Families Above 200% of Poverty Will Pay for Insurance 2001 None 5% No more than $50 23% $50-$100 35% $101-$150 14% More than $150 13% Dont Know 10% Texas Department of Insurance Source: TDI Survey of Non-Poor Uninsured

30. 30 Insurance Challenges Reported by Employers to TDI Cost Participation requirements Inability to offer multiple plans Rate stability Underwriting / rate variability due to employee demographics Texas Department of Insurance

31. 31 Previous Legislative Initiatives to Reform the Small Group Market Guarantee issue Minimum participation requirements Creation of standardized small group plans Rating bands Creation of Texas Health Insurance Reinsurance System Coalition and Cooperative group purchasing Consumer Choice Plans that exclude certain mandated benefits Texas Department of Insurance

32. 32 Consumer Choice Experience 200520062007* Number of Policies Issued Individual Policies31,676 33,24043,405 Small Employer Group Policies2,528 5,43813,250 Large Employer Group Policies4,0762,9833,096 Total38,28041,66159,751 Number of Lives Insured Individual Policies60,38652,72265,413 Small Employer Group Policies14,97355,772141,078 Large Employer Group Policies12,31621,60444,928 Total87,675130,098251,419 Texas Department of Insurance

33. 33 Consumer Choice Experience (Continued) Texas Department of Insurance 200520062007* Number of Policies Issued to Previously Uninsured Groups and/or Individuals Individual Policies3,2331,336414 Small Employer Group Policies325701915 Large Employer Group Policies0210 Total3,5582,0581,329 Number of Lives Insured That Were Previously Uninsured Individual Policies5,8862,056540 Small Employer Group Policies1,4398,3546,955 Large Employer Group Policies04,0190 Total7,32514,4297,495 Source: CCP Figure 2 Filings with TDI *2007 Data Subject to Change Pending Final Audit

34. 34 Small Employer Insurance Enrollment 1993-2007 Source: TDI Figure 48 – Required annual filing by all small employer insurers Texas Department of Insurance Year Number of Small Employers with Insurance Number of Insured Lives 199336,952Unavailable 199450,144Unavailable 199563,698Unavailable 199674,164Unavailable 199783,437978,966 199886,1061,608,737 199996,7101,446,486 200097,7931,444,480 200184,2401,070,483 200289,2011,192,386 200391,2811,162,704 200491,4561,189,319 200586,1061,102,135 200688,5711,178,414 200787,5101,135,127

35. 35 Options for Expanding Coverage, Reducing Health Insurance Premiums Subsidy programs Benefit plan design changes –Basic coverage –Catastrophic coverage / high deductibles Reinsurance for high cost claims Insurance reforms Texas Department of Insurance

36. 36 Public / Private Insurance Subsidy Programs – Key Features State provides subsidy funds to purchase an approved benefit plan; sliding scale based on income Individual plans or employment-based plans, or both Coverage varies: basic, catastrophic, or comprehensive Enrollment often lower than expected; depends heavily on value of subsidy Texas Department of Insurance

37. 37 Subsidy Example 1: New Mexico The state contracts with managed care organizations for a standard benefit plan; provides comprehensive benefits up to $100,000 annually Available to uninsured adults below 200% FPL Can enroll through employer or as an individual if employer doesnt offer State subsidizes cost –Employer pays $75, employee pays $20 or $35 –If individual enrollee, pay $75 + $20 / $35 Enrollment: 17,000 Texas Department of Insurance

38. 38 Subsidy Example 2: Oklahoma A: Employer sponsored subsidy Originally targeted employers with less than 25 employees; expanded to groups up to 50 State subsidizes coverage for workers earning up to 200% FPL –State pays 60% of employee premium, 85% of spouse –Employer pays 25% of employee premium, –Employee pays remaining 15% Choice of several plans Enrollment: up to 50,000 lives; currently at 5,564 B: Individual Plans Available to adults earning up to 200% FPL with no access to employer-sponsored coverage Benefits administered through Medicaid Premiums range from $0 to $51.39 for individuals, and from $0 to $68.91 for families Current enrollment: 11,694 Texas Department of Insurance

39. 39 Subsidy Example 3: Arkansas Available to uninsured, low-wage workers (under 200% FPL) in firms with 2 to 500 employees Limited benefit plan provided by self-funded state-sponsored plan; could not reach agreement with insurers to offer plan All employees must enroll unless they have other coverage; subsidies are only available to workers under 200% FPL, while all others pay the full cost (up to $500 per month) Enrollment targets of 50,000 workers under 200% FPL and 30,000 workers over 200% FPL Texas Department of Insurance

40. 40 Ongoing Research to Develop Expansion Options For Legislative Consideration SB 10 – Small Employer Premium Assistance Study – a joint project of HHSC and TDI SB 10 Healthy Texas Study – a TDI study to design a small employer health insurance program State Coverage Initiatives (SCI)/ Robert Wood Johnson Foundation Coverage Institute Development Grant – joint project of Governor, Lt. Governor, Senate, House, HHSC and TDI Texas Department of Insurance

41. 41 Premium Assistance Program Cost Estimates for SB 1637/HB 3366, 80th Legislature In 2007, TDI calculated costs of implementing legislation to create small employer premium assistance program Would have provided $50 per eligible employee per month in first year and decreased by $15 a month in each subsequent year Eligibility: employees in firms with 2-25 eligible employees, no employer-sponsored insurance for at least 12 months, incomes of 300% of poverty level or lower TDI estimated that 637,689 workers in small firms would qualify Cost estimates developed: –With 10% take-up rate, $38.2 million in year one for 63,768 workers; $26.8 million in year two. –With 20% take-up rate, $76.5 million in year one for 127,537 workers; $53.6 million in year two –Additional costs for program development and administration Texas Department of Insurance

42. 42 Three-Share Plans with Employer, Employee, and Government Contributions Takes advantage of employers payments Usually provides limited benefit coverage, local coverage only – no out of network benefits Existing programs provide health services rather than health insurance Limited participation – must be previously uninsured Have only been created to-date at local level TDI awarded $750,000pilot project grant created under HB 1; HHSC recently awarded $1 million grant Galveston 3-share program currently enrolling members Texas Department of Insurance

43. 43 Houston Pilot Project Design based on research under SPG Program Key features include –Average cost of $150 per employee per month –Simplified enrollment and rating process using modified community rating (rates vary only for age and gender) –Would allow on-line enrollment –Eliminated health-based underwriting –Offered two plan options: basic and catastrophic –Developed with input from Harris County stakeholders –Actuarial work provided by Milliman actuarial firm –88% of focus group employers in Houston indicated they would purchase the plan if available Harris County Healthcare Alliance issued a request for proposal in February, 2007. No contract was awarded. Texas Department of Insurance

44. 44 Healthy New York Program State subsidized reinsurance mechanism that is one component of Healthy New York Pays 90% of claims between $5,000 and $75,000 per individual Small employers, sole proprietors and individuals may participate if they are uninsured for the past 12 months and meet income eligibility All HMOs must offer a qualified plan; premiums are community rated Risk corridor was originally set at $30,000 to $100,000; it was reduced due to low claims activity, and premiums dropped approximately 17% Texas Department of Insurance

45. 45 Other States Tax Credits/Deductions for Small Employers Offering Insurance StateDescription of Credit/Deduction Idaho Employers are eligible to apply a $1,000 tax credit per employee earning an avg. wage of $15.50 or more per hour. State defined revenue-producing enterprises who employ individuals earning an avg. rate of less than $15.50 per hour are eligible to receive a $500 tax credit per employee Kansas First two years, tax credit is lesser of $35 per month per eligible employee or 50 percent of total amount paid by employer. In 3 rd year, tax credit equals 75% of the lesser of $35 per month per employee or 50% of the total amount paid by employer. In 4 th year: tax credit equals 50% of the lesser of $35 per month per employee or 50% of the total amount paid by employer. In 5 th year, tax credit equals 25% of the lesser of $35 per month per employee or 50% of total amount pd by employer. No tax credit after 5 years. Kentucky First year, tax credit of 20% of the first year premium. In 2 nd year, tax credit of 15% of the premium. In 3 rd year, tax credit of 10% of the premium. In 4 th year, tax credit of 5% of premium. Texas Department of Insurance

46. 46 Other States Tax Credits/Deductions for Small Employers Offering Insurance StateDescription of Credit/Deduction Maine Credit is available for employers who provide dependent coverage. Credit limited to 20% of qualified expenses, not to exceed $125 per employee with dependents. Montana Provides state income tax credit to employers with 2-9 employees, who offer health insurance. Credit of $100 month for employee-only; $100 for spouse; $40 a month for dependents. If avg. age of employees is 45 or older, credit increases to $125. No employee may earn more than $75,00. Limit on number of tax credits available. OhioPremiums paid by a small employer are fully deductible. Oklahoma Tax credit applied to those employers whose employees participate in the state certified, basic health benefit plan. A tax credit of $15 per month per eligible employee is allowed for two consecutive years. Oregon Businesses may include the cost of providing health insurance coverage as one of the costs of doing business when determining their taxable income. Texas Department of Insurance

47. 47 Section 125 Plans Created by Congress in 1978 under Section 125 of the Internal Revenue Code Allows companies to give employees the option to pay for certain benefits on a pre-tax basis Three Section 125 alternatives: –Flexible Spending Account – allows employees to pay for certain out-of-pocket health care expenses or dependent care costs on a pre-tax basis –Cafeteria Plans – most complex option, allows employees to select from a menu of options for pre-tax deductions; more complicated to create and administer –Premium Only Plan Texas Department of Insurance

48. 48 Section 125 Premium Only Plan Allows employees to pay their health insurance premium on a pre-tax basis, which increases employees take-home pay and offsets part of the cost of insurance Employers pay lower taxes: the total pre-tax premiums paid by employees are exempt from the employers federal and state income taxes, social security, federal unemployment taxes, and most other state taxes Available for premiums paid for health, dental, vision and some life insurance; not applicable to long term care insurance premiums Once established, minimal ongoing administrative requirements Employee savings: 22 to 40 percent of premium contributions Employer savings: varies, but averages between seven and 10 percent of employees contributions Texas Department of Insurance

49. 49 For additional information or copies of reports, contact Dianne Longley at 512-305-7298 or Dianne.Longley@tdi.state.tx.us. You can also visit the TDI website at http://www.tdi.state.tx.us and the State Planning Grant website at http://www.tdi.state.tx.us/company/spg. Texas Department of Insurance