Preparing for Health Reform: The Role of the Health Insurance Exchange Bob Carey RLCarey Consulting March 11, 2010

Agenda  Level setting  Developing a baseline  Types of Exchanges  Funding and operating an Exchange  Subsidizing health insurance  Importance of outreach and enrollment  Mitigating risk of adverse selection  Conclusions/Recommendations 2

Level Setting  State-based exchanges  Federal guidance, but state flexibility  Oversight/enforcement handled (initially) by the states 3

Developing a Baseline  Uninsured  Current publicly-subsidized health coverage programs  Insured 4

Uninsured  Size of the population  Demographics  Geographic/regional variations  Family income  Employment status and ESI availability  Eligibility for publicly-subsidized health coverage programs 5

Public Health Coverage Programs  Types of programs available  Eligibility criteria  Take-up rates  Distribution methods  Capacity  Potential impact of Exchange on existing programs  Particular focus on premium subsidy programs for “non-traditional” groups 6

Insured  Demographics  Geographic/regional variations  Employment status  Types of coverage  Distribution methods  Carriers and market share  ESI premiums and % paid by employees  Take up rate of ESI  Role of brokers/intermediaries, by market segment 7

Why the Baseline?  Identify potential for program consolidation or elimination  Highlight areas to focus “crowd out” efforts  Leverage existing infrastructure  Optimize capacity and avoid duplication  Inform outreach and marketing strategy 8

What Type of Exchange?  Three basic models Market Organizer and Distribution Channel Utah Model Selective Contracting Agent Massachusetts Model Active Purchaser 1990s HIPC Model WeakStrong(Range of government involvement in commercial market) Ultimate Goal – shift the individual and small group markets from competition based on avoiding risk into competition based on price and quality. 9

Market Organizer & Distribution Channel  Sets standards of quality and soundness for insurers’ participation  Offers all plans and all carriers that satisfy quality and soundness criteria  Serves as impartial source of information  Facilitates plan/carrier comparisons  Streamlines administration and simplifies enrollment  Brokers insurance 10

Selective Contracting Agent  Offers “structured choice” of health plans and carriers  Promotes competition among insurers, but does not “negotiate” premiums  Serves as impartial source of information  Facilitates plan/carrier comparisons  Streamlines administration and simplifies enrollment  Brokers insurance 11

Active Purchaser  Sets benefits package and procures health insurance on behalf of enrollees  Negotiates premiums with carriers  Limits choice of plans/carriers  Attempts to act like large employer  Viability contingent on covering large – and “risk neutral” or better – pool of members 12

Funding and Operating an Exchange  Model selected will impact:  Roles and responsibilities  Administrative structure/governance  Staffing  Resource needs affected by model selected AND capabilities of existing public and private entities 13

Building or Renting Administrative Capacity  Medicaid agency to process eligibility for premium subsidy?  Private sector intermediaries (third party administrators) to provide administrative services?  Quoting  Enrollment  Customer service  Premium billing, collection, remittance  Account management, etc… 14

Revenues to Support Operations  Retention of a portion of the premiums  Typically 3% - 5% of premium  Add-on fee to premiums  Annual Appropriation 15

Subsidizing Health Insurance  Two main options  Stand-alone Medicaid-like health coverage o Commonwealth Care o Texas’ CHIP and Medicaid Buy-In programs  Premium subsidies for commercial insurance o Maryland’s Health Insurance Partnership o Insure Oklahoma 16

Outreach and Enrollment  O&E efforts will likely determine success and sustainability of the Exchange  Will impact risk selection and potential for administrative efficiencies  Use of health insurance brokers may be key, particularly for small group market  Need to leverage multiple sources of information to reach consumers 17

Mitigating Risk of Adverse Selection  Learn from past mistakes  Need to attract large risk pool  Exchange as sole source distribution channel for SG/NG? –If not, rating rules and underwriting guidelines must be comparable inside and outside of Exchange  Brokers have significant influence 18

Conclusions/Recommendations  “First do no harm”  Each market – and each state – is different  Need for consumer information that is understandable, meaningful and actionable  Leverage existing infrastructure  Focus on end goal – shifting competition from one based on avoiding risk into one based on price and quality 19

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