EServing
UCLID MANAGERS
the independent agent since 1976
®
A Legislative Review Service by Euclid Managers
February 2010
EUCLID MANAGERS®
has served the independent agent
since 1976, offering a portfolio
of group health, professional
liability, individual life, health,
annuity and long-term
care products.
We proudly represent many
fine carriers including
Group Products:
UnitedHealthcare of Illinois
Delta Dental of Illinois
MetLife
Individual Products:
American General Life Companies
AXA/Equitable
Banner Life
Genworth Financial Insurance Co.
Guarantee Trust Life
HumanaOne
John Hancock Life
Lincoln National Life
Prudential Financial
RBC Insurance
Transamerica
West Coast Life
…and many more!
Contact Information
Reflections
Study Compares Costs and Benefits of
Exchanges versus Private Market
A new study published by Avalere Health, an advisory services company based in
Washington DC, compared insurance exchanges for individual and small group
health insurance markets with private sector approaches. In particular, the study
looked at markets for these products in both Massachusetts and Maryland.
Massachusetts has an insurance exchange and Maryland does not.
This issue of Reflections provides an overview of the findings of this study. This
study is particularly relevant as an insurance exchange or connector is among the
concepts contemplated in health reform initiatives on both the federal and state level.
continued on page 2
A letter from Karen Knippen
This report can be summarized by one sentence, “If it isn’t broken, don’t fix
it!" It’s refreshing to have an analysis that reflects on and recognizes the
value that brokers, GAs and insurers bring to the small group market.
You know, as well as I, that you do a whole lot more than provide a
spreadsheet of insurance options. Your clients look to you for much more
than that. Health reform needs to consider what is working in the market
and what isn’t. Then, fix what’s broken!
Euclid Managers is proud of the importance and value you place on our
services. We are always reviewing what we do and how we can better serve
you and your clients.
Sincerely yours,
234 Spring Lake Drive
Itasca, Illinois 60143
Phone: (630) 238-1900
Outside Chicagoland:
(800) 345-7868
Fax: (630) 773-8790
Visit us at:
www.euclidmanagers.com
Karen Knippen, RHU, REBC, CLTC
EUCLID MANAGERS® has been serving the independent agent since 1976 with a portfolio of group health, professional
liability and individual life and health, annuity and long-term care products. We proudly represent UnitedHealthcare,
Delta Dental of Illinois, MetLife and HumanaOne. We encourage your feedback and suggestions. Please call your
EUCLID MANAGERS® Marketing Representative or Marcy Graefen at (630) 238-2915 for more information. Outside
Chicagoland, call (800) 345-7868. Website: www.euclidmanagers.com
The study specifically addressed the following:
1. An analysis of the health insurance purchasing
process in the individual and small group markets
2. Analysis of the strategies implemented
in Massachusetts
3. A comparison between Maryland’s reformed small
group market versus the Massachusetts reform.
It’s important to note, as the study does, that the terms
“insurance connector" or “exchange" mean vastly different
things in the bills and proposals considered across the
country. The study notes that these entities may work
cooperatively with the insurance market or they can be
much more of a replacement for the market. Similarly, as
with some of the federal proposals, there can be more than
one exchange in a state or in the nation.
Individual and Small Group
Purchasing Norms
The study found that these individual and small group
markets represent very different purchasing experiences.
The individual market is one where buyers often act on
their own using Internet and other resources to wade
through the options available to them. Since individuals
are purchasing coverage for themselves or family members
with their own funds, price is of considerable importance.
In many cases, potential buyers with health conditions face
a more daunting challenge of finding affordable coverage
and one that provides desired coverage levels.
The small group market offers a similar wide range of products.
However, employers have come to rely on insurance brokers
and others to help them find a plan to meet their specific
requirements. Small employers also rely on insurance brokers
for administrative support and guidance throughout the
purchasing, implementation, servicing and renewal processes.
A key feature of the small group market that is of
particular importance is that employees have a greater
incentive to enroll in the plans due to the fact that most
employers subsidize coverage. At the same time, since
employer-based plans have rules about enrollment periods,
employees are less able to enroll only when they need
coverage. By limiting adverse selection, group plans are
able to achieve loss ratios that rival the individual market
which is represented, in large part, by a fairly healthy
population because of the cost and barriers to enrollment.
The analysis found that less than one-half of employers
with fewer than 10 employees offer a health plan. As firm
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Reflections
size increases, so does the likelihood of employer-based
health coverage. Ninety-eight percent of large employers
offer coverage to their workers.
The small group insurance purchase is a complicated one.
Small groups must make decisions including:
• Benefit design to offer employees
• Carrier selection
• Eligibility
• Administrative issues such as pre-tax
premium payment
• Ongoing service responsibilities.
Employers look to insurance brokers for assistance because
of this complexity and because the smallest of firms often
don’t have the human resources or other staff to devote to
these tasks. In turn, brokers work with general agents
(GAs) or insurance carriers to service their clients.
The role of the GA is often one of providing market and
carrier knowledge, assistance in obtaining and comparing
plans and pricing and streamlining of case submission and
enrollment. In some markets, GAs take on a number of tasks
that further simplify administration including consolidated
billing to groups for products and policies from multiple
carriers and for life, disability and other products purchased
by the employer for his/her employees.
Insurance Reforms in Maryland
and Massachusetts
Maryland established a standardized benefit plan for small
groups as a part of insurance reform in 1993. Insurers were
able to offer riders to enhance the standard plan. Because
of the development of the Maryland market, GAs already
had a significant role in the purchasing and implementation
of insurance plans. As such, the report states that
Maryland has already achieved many of the efficiencies
in administration and education functions that are goals
of an insurance exchange.
Maryland’s GAs handle administration and billing functions
commonly performed by insurers. Also, they offer other
benefits such as life and disability and provide a single
billing covering all products a client chooses.
Maryland’s reforms also established cost-sharing requirements.
Another requirement establishes a ceiling premium for
plans. These plans must not exceed 10 percent of
Maryland’s average weekly wage. When the standardized
plan exceeds this ceiling, the standardized plan must be
adjusted to return within the parameters.
Massachusetts implemented their reform plan in 2006. Key
to this reform was establishment of the connector concept.
Initially, the “Connector" focused on individual insurance.
The Connector Authority manages Commonwealth Care, the
low-income subsidized plan, and Commonwealth Choice.
Commonwealth Choice is the private insurance plan program.
contract for administrative services previously assumed by
the private sector, there is little added value that the
“Connector" has been able to bring to the market. Some
brokers and government officials have suggested that a
small employer actually faces higher costs buying coverage
through the "Connector" than the same policy outside of it.
The “Connector" developed three (3) tiers of coverage:
Bronze, Silver and Gold. Bronze is the most popular and
least expensive tier of coverage with an actuarial value of
59.7% to 53.2%. A plan targeted to young adults age 18-26
was also created.
This chart below compares the administrative functions in
Maryland’s GA based model to the Massachusetts
“Connector" model. SBSC refers to the Sub-connector, an
administrative services provider.
Massachusetts began offering small groups the
Commonwealth Choice option as a pilot program in 2009.
Any small business may choose the “Connector." An
employer selects the tier that will be offered and employees
can choose among the insurer offerings in that tier. Since
employees are limited to the tier selected by their employer,
employees really experience a limited increase in choice
since plans within a tier are all similar.
The “Connector" had to accept a role for brokers in an
attempt to gain employer acceptance. To date, only a select
number of brokers can sell coverage within the “Connector."
Participation by employers in the “Connector" has not met
early – conservative – targets. Since the “Connector" had to
Conclusion
One of the most telling comments in the report is no surprise
to many in the insurance industry, “Massachusetts effectively
attempted to recreate the administrative function that exists
in the private market within the Connector. This has
required substantial time and effort with limited material
gain. After years of preparation, the sub-Connector now
performs many of the functions that general agents perform
in the private market." “As a result, the state has invested
substantial resources into a redundant system for very
limited enrollment."
The report notes that small groups already have many of
the resources and assistance available to them that a
“Connector" is intended to provide.
Entities Performing Key Administrative Functions in Maryland vs. Massachusetts
Maryland
GA/TPA Model
Massachusetts
Contributory Plan
Consumer Outreach
Broker (GA/TPA educates broker)
Broker (Connector/SBSB
educates broker)
Collection of Census Data
Broker
Broker
Quote Generation/Analysis/Plan
Selection
Broker via GA/TPA
Broker via Connector platform
Group/Employee Eligibility
Determinations
Broker
Connector/SBSB
Scrub/Submit Applications
GA/TPA
SBSB
Group Enrollment/Setup
Carrier or GA/TPA
SBSB
Employee Enrollment/Eligibility
Management
GA/TPA
SBSB
Billing
GA/TPA
SBSB
Premium Remittance to Carrier
GA/TPA
SBSB
Customer Service
GA/TPA and Carrier
SBSB and Carrier
Remittance of Broker Payment
GA/TPA or Carrier
SBSB
Renewal
Carrier and GA/TPA
Carrier and SBSB
Reflections
-3-
EServing
UCLID MANAGERS
the independent agent since 1976
®
A Legislative Review Service by Euclid Managers
February 2010
Reflections
A service publication for brokers from
Euclid Managers®, proudly representing
UnitedHealthcare of Illinois, Delta Dental of Illinois,
MetLife and HumanaOne.
EUCLID MANAGERS
®
Serving the independent agent since 1976
Visit us online www.euclidmanagers.com.
Editor: Pamela D. Mitroff
Legislative Review is published by Euclid Managers®, 234 Spring Lake Drive., Itasca, IL 60143. For more information, contact your Marketing Representative or Marcy Graefen
at (630) 238-2915 or fax your request to (630) 773-8790. Outside Chicagoland: (800) 345-7868, Fax (877) 444-2250. © Permission to quote with credit to source.
Study Compares Costs and Benefits of Exchanges versus Private Market
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EServing
UCLID MANAGERS
the independent agent since 1976
®