Rhode Island’s Initiatives for Affordable Health Insurance August 3, 2006

2 The Problem Employer Based Medicaid Uninsured The employer based insurance market is eroding

3 RI Uninsureds are primarily young, male, employed and low income The Problem

4 The Problem: Low Wage Small Business Employer Offer Rate: Share of employers offering coverage by size Source: Rhode Island Employer Survey, JSI

5 Our Approach Incremental reform effort, with 2006 legislative agenda focused on four key principles:  Offer a plan to all small businesses that addresses the underlying drivers of cost, not mere cost shifting  Build upon existing, successful rating rules, making moderate changes  Provide an adequate subsidy for low wage employers and high risk individuals that can not be cost-shifted to other groups  Offer price transparency to consumers and providers to create some price sensitivity

Legislative Outcomes Part 1: Affordable Health Plan Part 2: Reinsurance Subsidy for Low wage small businesses (unfunded) Part 3: Transparency

7  Authorizes OHIC to implement a new affordable health plan for small businesses and direct pay participants.  Forms an Advisory Committee to advise OHIC concerning the Affordable Product Requirements, insurer-proposed plan designs  Sets a target average annualized individual premium rate for the Affordable Product to be less than ten percent (10%) of average annual statewide wages. (Monthly individual premium target = $314)  Specifies product development Guidelines of Affordability, that any proposed plan design must meet  Authorizes OHIC to approve, disapprove or modify insurer- proposed rates, and to approve/disapprove plan designs Part 1: Affordable Health Plan Legislation passed this year provides for the following:

8 Part 1: Advisory Committee  In determining the Affordable Plan Design, OHIC is authorized to form an Advisory Committee  Representation: Employers, Brokers, Chamber representatives, Direct Pay Consumers  Role: The Advisory Committee will make recommendations to OHIC concerning: -- Product Requirements Document -- Final plan designs proposed by insurers  Time Limit: If the Advisory Committee does not develop the Product Requirements Document by November 1, 2006, it will be determined by regulations promulgated by OHIC

9 Part 1: Timeline JulyAugSeptOctNovDecJanFebMar Jul 1, 06 Jul 15, 06 Nov 1, 06 Mar 1, 07 Product Requirements Document submitted Jan 1, 07 Apr May Advisory Committee appointed Affordable product available for purchase May 1, 07 Final Affordable plan design approved Affordable Benefit Plans proposed by insurers Affordable Health Plan Law Passes

10 Part 1: Key Challenge Admin Costs Mandated Benefits 5% of users= 50% of costs Hospital Other MD PCP’s Pharmacy Other LTC/NH/HH Medical Benefits Optional Services 95% of users $427 per month for individual policy $314 per month Designing an affordable health plan

11 Part 1: Key Challenges  Designing an affordable health plan -- One that meets our price constraints and that employers will buy  Risk of insurer malicious compliance  Working within existing distribution system  Setting expectations  Tight timeline  Positioning this affordable plan as a platform for future reform

12 Part 2: Reinsurance Subsidy Program  Affordable Health Plan: Commercially available coverage for small businesses offered by UnitedHealth Care and Blue Cross Blue Shield RI  Plan design alone is probably not enough for low-wage workers and small businesses  Response: state encourages eligible low-wage businesses to enroll in the Affordable Health Plan using reinsurance subsidy worth 10% of premium  Program authorized via 2006 legislation, contingent upon the location and approval of funds

13 Part 2: Reinsurance Program Structure  Reinsurance Program Structure designed to: oCap state financial exposure oAllow state to benefit from better than anticipated claims oProtect against insurer “cherry picking” oProvide insurer incentive to manage high cost/high risk cases  Reinsurance program structured as a carrier cost sharing arrangement, subsidizing up to 90% of carrier losses within a prescribed corridor of risk

14 Part 3: Transparency  Almost half (44%) of all small group insureds have some form of cost share beyond basic copays  20% of employers are offering high deductible plan designs for either individual or family coverage  Consumers lack the necessary tools and information to support cost effective decision-making -In Rhode Island, the price of care varies substantially by facility -Better information on the cost of care by facility is integral to controlling the underlying cost of care

15 Part 3: Transparency Example Example #1: MRIs – Range of Medicaid Payments by Facility 1,2 Highest paid more than 3 times the lowest rate Facility 3 where the service was performed # performed:

16 Part 3: Transparency Example Example #2: Colonoscopy – Range of Medicaid Payments by Facility 1,2 $779 savings between Facility A and Facility J Facility 3 where the service was performed # performed:

17 Part 3: Overview of Legislation What we wanted:  Pricing information must be provided by procedure AND facility  Plans must comply by January 1, 2007  Oversight and monitoring to be performed by the OHIC, with administrative funding through the proposed Select Care Market Incentive Fund What we got:  Oversight and monitoring to be performed by an existing provider- insurer workgroup within OHIC  OHIC must describe a path to patient access to cost data by March 15, 2007

18 Lessons Learned  Assemble the right team – Medicaid is not enough -- Need experts from insurance, taxation, health, legal  Clear vision and longer term/multi-year strategy -- Solid analytical framework -- Tailored message  Anticipate an iterative process to bring key stakeholders along  It’s all about the money

19 Next Steps Position the New Affordable Plan Design as a Platform for future reform. Possible elements of this broader reform effort include:  Individual and employer mandates  Low income subsidy  Equal pre-tax treatment for individuals purchasing insurance on their own  Merged small group/non-group markets, with state sponsored, affordable plan