Small Group Reform in Massachusetts
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One of the major market reforms associated with health care reform in Massachusetts was the consolidation of the individual health insurance market with the small group health insurance market. Before reform, individuals interested in purchasing individual health insurance could do so under one set of rules - set by the Commonwealth - and small businesses interested in purchasing health insurance did so under another set of rules. These two groups of subscribers were also priced separately - based on their medical expenses within each health plan. In other words, Harvard Pilgrim had one pool of individual subscribers - and we priced their coverage based on their claims experience - and another group of subscribers who ran and worked for small businesses (up to 50 people) - and we priced them based on their medical expense experience.
Generally speaking, individuals paid more for health insurance than small businesses paid, because their overall medical expenses on a per person basis were much higher the costs incurred by people enrolled through their small group employer. This shouldn’t be surprising. Massachusetts is/was a “guaranteed issue” state, which meant that individuals can purchase health insurance whenever they want to. For the most part, that meant people didn’t make that purchase until they planned to use it. Some purchased it anyway - just in case - but for most people, it only made sense to buy individual coverage if something medical was about to happen. If people only buy coverage because they think they need it, the cost per person of that coverage ends up being pretty high, because health insurance, like all insurance, is an 80/20 game. 20% of the population incurs 80% of the costs, and vice versa. That’s called risk pooling, and it’s why Massachusetts (and Hillary Clinton during her Presidential campaign) called for mandating health insurance coverage as part of the state’s reform efforts.
Historically, health insurance for small businesses had not been the same. Many small businesses often offer coverage to their employees to compete with one another and with larger businesses for talent, which means many people end up with coverage who aren’t planning to use it. Here, the 80/20 rule applies.
Under health care reform, the Commonwealth of Massachusetts put these two groups together, creating what is now called the merged market. This turned out to be a really good thing for existing individual purchasers, because their claims experience - and therefore, the price they paid for health insurance - was much higher than small group claims experience and the price small businesses paid for health insurance. By putting these two groups together in one pool, the price of small group insurance went up (to pay for the higher medical expenses of existing individual purchasers), and the price of individual insurance went down (because they were now being priced based on the claims experience of everyone in small group).
This fall, the Commonwealth is planning to hold hearings on the cost of health care, and the cost of health insurance, in Massachusetts. Of particular interest to many small businesses - and many policymakers - is the cost of health insurance for small business. I would hope that the state puts some time and effort into trying to tease out the impact of the merger of the individual market with the small group market when it holds these hearings. Based on our own information, it appears undeniable that putting these two groups together has raised prices for small businesses, while reducing prices - but not costs - for individuals.
Not to beat a dead horse, but during the health care reform debate three years ago, some of us called for creating a 1-5 group and a 6-50 group, believing that this would make more sense than putting the individual market together with the small group market. Not everyone - obviously - shared this perspective, including some of our colleagues in the health insurance industry. As we look at the cost of health insurance in the small group market this fall, we should be sure to examine the impact of bringing the individual market into the small group market on the price small businesses pay for health insurance. It looks to me like it will be pretty significant.
The Massachusetts reform hasn’t completely eliminated the risk of anti selection by individuals. I believe we could still have people who are covered under a self insured company (not subject to State mandates) who join HPHC or another carrier in order to get the benefit of mandates (e.g. infertility) and then leave once they don’t need these treatments any longer. If this indeed happened, we could be seeing a lot of high cost claimants in the individual channels. This is just one more argument in favor of paying special attention to the issue of what impact the merged market rule has on the overall price.
Marina - Interesting observation. I’ll ask one of our underwriters if they think this is possible.
Charlie -
Thanks for this presentation, it breaks it down to help understand why the individual market was so much more expensive than the group. However it seems that once you blend all the individuals together into the group you are then void of the individual awaiting for a medical claim to enter the insurance pool, and thus you are actually lowering the costs of the subset of the average individual now in the group. It doesn’t necessarily make sense that the group’s rate should increase unless you understand what the illness ratio is with the combined group.
This makes alot of sense. I have a friend of mine who has bought health insurance two times the past five years for about one or two months each time to get a surgery covered. Even with the new state penalties for not having health insurance, he would rather not pay the monthly premium today and just pay the state penalty each year.
I always thought that there should be some type of tracking whereby if an person had cancelled his or her coverage within the past 3 or 5 years, they should not be able to receive guarantee issue. Instead they would have to go through underwriting.
Not lie his claims to premium ratio for the 4 months he has had coverage the past 5 years must bne 1000%.
Bill Randell
Bill@AdvantageBenefits.com
Advantage Benefits
78 Pleasant Street
Worcester, MA 01609
Under today’s model of the merger, I understand the argument that there may have been an increase in costs to the small business while the individual gained the benefit of a reduced cost. It should be known, however, that in today’s market, individual premium costs range from $550 - $650 per month for those who are under 65, unemployed, live on a fixed income, and not eligible for assistance. Is it any wonder then that there are those who purchase insurance only when there is an immediate need? Unless the 1-5 plan adequately provides protection and reasonable access to affordable coverage, the number of people who purchase coverage only when necessary will increase.
Sherrill
You are correct about the high cost of health insurance, but can you think of any insurance that you can buy when “you have an immediate need”? Imagine calling your insurance agent after you had a fire to buy more coverage after your house has caught on fire.
Maybe guarantee issue, which allows people to sign up and drop coverage without any ramifications, has led to the higher costs?
Bill Randell
Sherrill and Bill — If you guys are right, this is a big problem - especially for the small group folks who play by the rules. I’ll raise it with the Connector folks.
Recently sat down with a guy, a well respected lawyer, who had his health insurance with a company that I would not even sell. You know, the signs on the sign of the road that say call this 800 number for health insurance.
His premiums were much lese (25% less)but the contract had all sorts of holes that I pointed out. He then proceeded to tell me if he or anyone in his family got sick, he would drop this contract and call me..
Bill Randell
Bill@AdvantageBenefits.com
Advanatge Benefits
78 Pleasant Street
Worcester, MA 01609