Colorado’s Private Health
Insurance Market
Hot Issues in Health Care
Legislative Conference
November 17-18, 2006
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November 17-18, 2006
Hot Issues in Health Care
Legislative Conference
A Presentation of the
Colorado Health Institute
1576 Sherman Street, Suite 300
Denver, Colorado 80203-1728
www.coloradohealthinstitute.org
Overview
• Place private health insurance market
in competitive market context
• Describe small group market trends
• Describe individual market trends
• Discuss market-driven versus publicly
supported policy approaches
• Present various policy options
2
Health insurance markets
compared to competitive markets
• The health care insurance market rarely
meets conditions necessary for a
competitive market
• Conditions for competitive markets
include……
3
Competitive
market
Health insurance
market
Making informed
purchases by having
sufficient information
regarding:
Most health care
consumers lack
information regarding:
• Cost of services
• Scope of services
they consume
• Variation in quality
among providers
• Cost
• Quantity
• Quality
4
Competitive
market
Health insurance
market
• Easy entry and exit • Difficult to enter the
of suppliers
health care market
• Suppliers seek
• Suppliers seek
consumers who will consumers who will
use products
minimize use of
products
5
Competitive
market
Health insurance
market
• Consumers pay for
what they consume
• Some consumers pay for
more than they consume;
others pay for less than
they consume
• Consumers are free to
purchase a product as
long as costs are
covered
• Employer chooses
products; limited employee
choice
• Individual market closed to
consumers with preexisting conditions
6
In 2004-05, Colorado regulated about
23% of private insurance market
Source: Kaiser Commission on Medicaid and the Uninsured, Colorado
Division of Insurance, 2006. Data from 2004-05.
7
Adults are more likely to be
uninsured than children
Source: U.S. Census Bureau, Current Population Survey
8
Trends in the U.S. insurance market:
Increases in premiums relative to
inflation and earnings
Source: Kaiser Family Foundation, 2006.
9
Trends in Colorado’s employer-based market:
Employee premium increases over time
Source: Medical Expenditure Panel Survey
10
Trends in Colorado’s employer-based market:
Family premium increases over time
Source: Medical Expenditure Panel Survey
11
Trends in health insurer market
in Colorado
• Enrollment in state’s top 10 health plans has
increased:
– 1.8 million people at end of 1995
– 2.9 million at end of 2005
• For-profit health plans make up greater share
of the market than nonprofit plans
12
Erosion of Colorado’s small group
health insurance market, 1997-2005
13
What defines the small group health
insurance market in Colorado?
• Small employers between 2 – 50 employees
• Business Groups of One (self-employed
individuals)
• Guaranteed issue (cannot be denied coverage
due to health status)
• Use of claims experience and health status to
set rates is allowable
• Some rate-setting controls
14
Small group market
The decline in participation corresponds with increasing
premiums.
Source: Medical Expenditure Survey and Colorado Division of Insurance, 2006.
15
Small group market
Disagreement as to source of increasing
premiums –
• Reforms passed by Colorado legislature in
1994 (HB 94-1210) or
• Inflationary market trends across the country
mitigated by HB 94-1210
16
Small group market: Impetus
for H.B. 94-1210
• No limits on annual rate increases for
small employers – premiums could double
in one year based on health status of
employees.
• Carriers could decline or limit coverage of
individuals in the small group market.
• Led to very unstable market conditions.
17
Small group market: HB 94-1210
HB 94-1210 included various changes to the
small group market:
• Guaranteed issue
• Market conduct rules
• Modified community rating with rate controls
implemented over 3-year period
• Business Group of One added
18
Small group market: HB 94-1210
• Since its passage, most of HB 94-1210 has
been rescinded by the legislature or superseded
by federal HIPAA rules
• Remaining/modified regulations from 1210:
– Business Group of One remains, but greater controls
on employment documentation
– Premiums can range from an annual 25% reduction
to a 10% increase based on health status (claims
experience) on top of medical inflation, geographic
region and industrial classification
– All carriers must offer standard and basic plans
19
What is the individual health
insurance market in Colorado?
• Roughly 11% of Colorado’s privately insured
population is in the individual health insurance
market
• No guaranteed issue; carriers allowed to deny
applicant based on health status
• Very few mandates apply
• Health plans must file premiums with the state
and must be found actuarially sound
20
Individual market
Colorado’s high-risk pool: CoverColorado
• State established, subsidized health insurance
plan for people “uninsurable” because of a preexisting medical condition
• A few other qualifying circumstances (see CHI
brief on high-risk pool)
• 23 states have a high-risk pool
• 180,000 participants nationwide; 5,000+ in
Colorado
21
Individual market
Funding for CoverColorado
• Premiums, state unclaimed property fund and
assessment on insurers
• Premiums set between 100% and 150% of
annual average small group premium rate
• High premiums, high deductibles
• In 2005, almost 50% of CoverColorado
members had a deductible > $5,000
22
Individual market:
High-risk pool claims vs. premiums
23
Two approaches to stimulate small
group health insurance market
• Structure health insurance to operate more
like a competitive market through greater
consumer-directed health care purchasing
• Increase government involvement through
regulatory mechanisms and subsidies to
increase coverage for low-income workers
24
Consumer-directed purchasing
• High-deductible health plans can be coupled
with health savings accounts (HSAs)
• Greater cost sharing, more out-of-pocket
expenses when shopping for health care
• Consumers with more out-of-pocket expenses
will require greater transparency in pricing
and quality information, a “Consumer
Reports” for health care consumers
25
Regulatory guidance and publicly
financed subsidies
• Individual mandate to obtain health
insurance coverage (same as auto
insurance mandate)
• Employer mandate to provide coverage
to employees
• Reinstate modified community
rating/risk pooling
• Publicly financed premium subsidies for
low-income workers
26
Now for the experts………
• Ruth Benton - CEO, New West
Physicians
• Bill Lindsay – President, Benefit Group,
Lockton Companies of Colorado
27