SHOP Advisory Group October 25, 2012
11/5 Agenda Welcome & Introductions 5 min Overview of other Advisory Groups 10 min Discussion – Rating Issues, Participation, Contributions 70 min Wrap-up 5 min 2
Review of Contribution, Participation & Rating Requirements Existing Contribution and Participation Requirements - Carriers require minimum employer contributions and minimum employee participation to minimize adverse selection. - Federal guidelines state minimum participation in SHOP must apply to the group, not the carrier. - Colorado market today Minimum contribution – 50% of premiums or $125/month Minimum participation – 70% to 75% Existing Rating Requirements - Carriers can set a uniform size over which employers can be composite rated -An employer can always choose age rating -The market standard today is that employers over 10 or more employees may be composite rated **See Appendix for additional background 3
Previous Recommendations Previous Recommendations July 9 th Board Contribution Requirements - The Exchange should choose a contribution requirement in line with the outside market Participation Rates - The Exchange should set a participation rate in line with the outside market 4
Defined Contribution and Participation Requirements: What other States are Doing State Minimum Contribution Minimum Participation Exchange staff recommended to its Board Exchange staff recommended to its Board participation levels CA contribution levels consistent with current consistent with current market underwriting rules market underwriting rules CT (CBIA) ERs must make a contribution towards their At least 75% of the ER’s eligible EEs must participate, unless EEs’ premiums that at least equals half of the the ER contributes 100% of the EEs’ premium, in which case lowest premium that an EE can pay each 100% of the EEs’ are enrolling in the program. month from the suite of health plans selected by the ER. MA The Connector requires that ERs select a • For all ERs, at least one FTE must enroll on the effective reference plan and agree to pay at least 50% date of coverage. of its premium, and EEs are then allowed to • For an ER with 1-5 FTEs , 100% of eligibles must enroll in pick alternative insurers or plans only with the an applicable Commonwealth Choice Health Plan on the same benefit tier. effective date of coverage. • For an ER with 6-50 FTEs , 75% of eligibles must enroll in an applicable Commonwealth Choice Health Plan on the effective date of coverage. ERs choose the level of contribution they make Requires that at least 75% of EEs of a participating ER must UT join a plan WA Exchange staff recommended to its SHOP ---------- Technical Advisory Committee a minimum ER contribution of 75% for employee coverage 5
Definitions 1. Age-based Rating – the process of rating health plans in 5 year age brackets (20-24, 25-29, 30-34, etc.) 2. Composite Rating – the process of compiling rates into a single rate based on the “composite” (not the average) of all individual rates in the group 3. Reference Plan – the selection of a single plan as part of a multi-plan offering, on which an employer will base their contribution. Employees are then able to elect other plans by electing to pay any premium differential. 4. Defined Contribution – the practice of an employer setting their contribution level at a set dollar amount per employee. 6
COHBE Rating vs. Contribution - COHBE is planning to use age rating for all groups (e.g., not composite rating) - COHBE is planning to provide tools for developing contribution amounts for employers - Potential options for employers: % of premium Flat dollar amount Composite rate equivalent Reference plan Other employer-driven models 7
Defined Contribution The concept of Defined Contribution has received lots of attention in recent months… -Allows employer to set a fixed budget for health plan expenses -Frees the employer from plan selection responsibilities -Gives employees a greater sense of control over their benefits 8
Defined Contribution Possible DC Challenges: -Need for employer to revise contribution as rates rise -Resistance from older employees -Adjustment from composite to age-based rates 9
Concerns Raised by Employers/Employees - Today, most employers with 10 or more employees use composite rating. - It’s convenient for employers and employees. - They don’t want to lose that convenience. - Older employees negatively impacted by age based rating. - Need options to mitigate this impact (e.g., participation requirements). 10
Composite Rating Example - Small firm – 10 employees 3 employees, 20 – 24 years old 4 employees, 40 – 49 3 employees, 60 – 64 - As a group, $ 2,600 monthly premiums, $260 employee average - Within each age band, a different story . . . 11
Composite Rating Example Detail Source – Barry Barack 12
Reference Plan Offers a Potential Solution - Small firm – 12 employees 4 employees, 25 years old 4 employees, 40 “ 4 employees, 60 “ - As a group, $ 4,800 monthly premiums, $400/employee average - A reference plan allows employees to select a plan that best suits them, while limiting risk for both the employer and the carrier; 13
Reference Plan Example Composite Rating Age-Based Rating Reference Plan age # premium ER EE premium ER EE premium ER EE 25 4 $ 400 $ 200 $ 200 $ 200 $ 200 — $200 — $ 200 40 4 400 200 200 400 200 200 400 200 200 60 4 400 200 200 600 200 400 600 400 200 Total 12 $ 4,800 $ 2,400 $ 2,400 $ 4,800 $ 2,400 $ 2,400 $ 4,800 $ 2,400 $ 2,400 A small employer offering 3 plans can present significant risk to carriers if employees within a similar age band select the same plan. 14
Reference Plan Example one member “buys up” Composite Rating Age-Based Rating Reference Plan age # premium ER EE premium ER EE premium ER EE 25 4 $ 400 $ 200 $ 200 $ 200 $ 200 — $ 200 — $ 200 40 4 400 200 200 400 200 200 400 200 200 60 4 400 200 200 600 200 400 600 400 200 Total 12 $ 4,800 $ 2,400 $ 2,400 $ 4,800 $ 2,400 $ 2,400 $ 4,800 $ 2,400 $ 2,400 “buy-up” impact $ 300 $ 0 $ 300 New Totals $ 5,100 $ 2,400 $ 2,700 A member in the 60 year age group elects to “buy-up” into a plan with a $900 premium ($300 increase). With the reference plan model, the employer (nor the carrier) bears no additional risk—the employee pays 100% of the extra cost. 15
Reference Plan Example Part. 2: What Happens if an Employee Buys Up Composite Rating Age-Based Rating Reference Plan age premium ER EE premium ER EE premium ER EE 25 $ 400 $ 200 $ 200 $ 200 $ 200 — $ 200 — $ 200 25 $ 400 $ 200 $ 200 $ 200 $ 200 0 $ 200 $ 200 25 $ 400 $ 200 $ 200 $ 200 $ 200 0 $ 200 $ 200 25 $ 400 $ 200 $ 200 $ 200 $ 200 0 $ 200 $ 200 40 $ 400 $ 200 $ 200 $400 $ 200 $ 200 $ 400 $ 200 $ 200 40 $ 400 $ 200 $ 200 $400 $ 200 $ 200 $ 400 $ 200 $ 200 40 $ 400 $ 200 $ 200 $400 $ 200 $ 200 $ 400 $ 200 $ 200 40 $ 400 $ 200 $ 200 $ 400 $ 200 $ 200 $ 400 $ 200 $ 200 60 $ 400 $ 200 $ 200 $ 600 $ 200 $ 400 $ 600 $ 400 $ 200 60 $ 400 $ 200 $ 200 $ 600 $ 200 $ 400 $ 600 $ 400 $ 200 60 $ 400 $ 200 $ 200 $ 600 $ 200 $ 400 $ 600 $ 400 $ 200 60 $ 400 $ 200 $200 $ 600 $ 200 $ 400 $ 900 $ 400 $ 500 Total $ 4,800 $ 2,400 $ 2,400 $ 4,800 $ 2,400 $ 2,400 $ 5,100 $ 2,400 $ 2,700 16
COHBE and Reference Plans - COHBE is exploring ways to illustrate reference plans within the constraints of our system. - Broker tools are being created to assist employers in exploring their contribution options. - Tools for employees are being created to assist them in understanding their options and selecting the best plan/contribution combinations. 17
Appendix: Employer Contribution and Participation Rules 18
Contributions & Participation July 9 th 2012: COHBE recommended to Board adopting contribution requirements that are in line with the outside market. - Should COHBE require a minimum contribution level for employers or mirror the outside market? July 9 th 2012: COHBE recommended to Board adopting participation requirements that are in line with the outside market. - Should COHBE require a minimum participation level for employers or mirror the outside market? 19
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