As some states debate more comprehensive health system reforms, private insurance markets remain an important piece of the puzzle. States have increasingly looked to their small group and individual markets to determine how they can stabilize the erosion of employer sponsored insurance as health care costs and the uninsured rise. At the same time, states with relatively low rates of employer sponsored coverage are looking for ways to increase coverage in the private market. Reform proposals being debated in Massachusetts and Rhode Island feature small group and individual market reforms.
Massachusetts: Governor Mitt Romney (R) opened the debate with a proposal featuring an individual mandate, an insurance exchange, and state subsidies for low-income uninsured. Although the Massachusetts House of Delegates and Senate have yet to iron out their differences and present the Governor with legislation, it is likely that the Commonwealth will undertake extensive reforms.
The Insurance Exchange: The exchange is based on the idea that there should be a “one-stop” shop for health insurance that features several carriers offering major medical insurance policies. These carriers would be subject to uniform rating, enrollment, and underwriting rules and the exchange can act as a payment aggregator mimicking the human resource office of larger employers.
In Massachusetts, the exchange would effectively merge the small group market and the individual market. It would offer a place where currently uninsured workers could go to purchase health insurance from competing health insurance carriers. The exchange would:
- Offer portability of coverage as workers change jobs
- Allow tax deductibility of premium contributions for workers
- Create a large risk pool
The exchange is touted by proponents as a reform that could help insure part-time, seasonal, low-wage workers and reduce the administrative burden on small employers.
Rhode Island: Rhode Island will debate extensive insurance market reform in their current legislative session. Governor Donald Carcieri (R) proposed legislation that attempts to increase affordability in the small group market, stabilize the individual market, and promote transparency across the health system.
Affordability: The legislation would create a new insurance product called SelectCare. The premium of the product would be lowered by a combination of premium rate regulation, reinsurance, and an exemption from some state mandated benefits. The legislation calls for a state-led process to design an affordable product that creates incentives for all stakeholders to control the cost of care based on a set of principles:
- Primary care, prevention, and wellness
- Catastrophic illness cost protections for members
- Appropriate and cost effective treatment settings
- Evidence-based high quality care
- Active management of chronically ill populations
This new product would be offered alongside existing products within the small group market. The new reinsurance subsidy would impact the premiums of low wage small businesses and their employees and individual enrollees.
Transparency: The proposal would require health plans to disclose consumer pricing information. First, health plans must make available their negotiated payment rates to providers for a set of common procedures (by health care facility), prescription drugs, lab tests, and several other services. This information would be posted in a public, consumer-friendly manner. In addition, the proposal would require health plans to respond to direct requests from consumers about their individual out-of-pocket costs for health care services given deductibles, co-insurance and other cost sharing.
The act would also expand access to health plan information for employers. All health insurance carriers would be required to disclose their medical loss ratios and provide standardized rate disclosures for the small group market.
Funding: The new initiatives would be paid for by a combination of master tobacco settlement funds and a new assessment on health insurance carrier reserve funds. If a health plan or health maintenance organization does not pay out at least 88 percent of premiums in medical claims, the carrier would be required to pay to the state the difference between their actual medical loss ratio and the 88 percent loss ratio, up to a total of 2 percent of gross premium revenue. This allows carriers to maintain a two percent profit and ten percent of premium for administrative costs.
