SD9 - A Feasible Proposal to Establish a Small Business Risk-Sharing Pool with Insurance Reforms to Improve Access and Moderate Rate Increases and an Evaluation of Options for Monitoring Costs and Rates of Health Insurance Carriers
Executive Summary: Senate Joint Resolution 181, adopted by the 1991 General Assembly, requested the State Corporation Commission's Bureau of Insurance (Bureau) to develop a feasible proposal to establish a small business risk-sharing pool with Insurance reforms that would improve access to health care coverage and serve to moderate rate increases. The Bureau was also requested to evaluate options for monitoring the costs and rates of health insurance carriers. Nearly 13% of all Virginians under age 65 do not have health Insurance. Approximately 60% of these individuals are in families where the head of the household is employed. In Virginia, nearly 36% of all businesses do not offer health insurance to their employees. Approximately 41% of the small businesses with less than 26 employees do not offer health Insurance. The majority of all businesses in Virginia (87%) have less than 20 employees. Many of the problems in the small employer group market are caused by current market practices of insurers. Many carriers either do not accept small employers or charge premiums that small employers cannot afford to pay. In accordance with Senate Joint Resolution 181, the State Corporation Commission's Bureau of Insurance makes the following recommendations: (1) The adoption of small group health insurance market reforms designed to increase access and improve affordability of health Insurance for small employer groups, (2) The establishment of a small employer group health Insurance risk-sharing program, and (3) The establishment of a small employer group health reinsurance association. This report defines a small employer group to be an employer with at least two but less than 50 employees The National Association of Insurance Commissioners (NAIC) considers a small group to be one with less than 26 employees as defined in a recent draft model act on small employer group health reform. Some carriers believe that it is the coverage for groups with less than 26 employees that is most in need of market reform The Bureau recognizes that the market for groups with less than 26 employees may be more in need of reform than the market for larger groups. However, there are groups employing between 26 and 50 persons that also experience difficulty obtaining and maintaining health coverage. It is because of those difficulties that this report defines a small group as one with at least two but less than 50 employees. Proposed Features to Reform the Small Group Market To promote greater access to health care coverage, rate stability, and continuity of coverage, the Bureau proposes several market reforms for the Virginia small business health insurance market. Many of the proposed market reforms are consistent with the NAIC Model Act entitled "Premium Rates and Renewability of Coverage for Health Insurance Sold to Small Groups." Under the Bureau's recommended market reforms, all small employer group carriers would be required to offer and issue a "standard" health policy and a basic "mandates exempt" health policy to small employer groups A small employer group carrier would also be prohibited from engaging In the following practices: • offering coverage only to certain persons in a group, • imposing new waiting periods or pre-existing condition requirements when a group changes carriers or when insured employees change employers, and • non-renewing a small employer group's coverage after unfavorable claims experience. In order to moderate small employer group rate Increases over time, all carriers in the small employer group market would be required to limit rate variations for small employer groups within similar geographic regions which possess similar demographic composition and health policy benefits. To ensure compliance with the proposed rate reform measures, each small employer group carrier would be required to file with the State Corporation Commission (SCC) annually an actuarial certification. The NAIC is considering adoption of a model regulation to monitor compliance with these rate reform measures. A small employer group carrier would also be required to make adequate disclosure, as part of its solicitation and sales materials, of its rating practices and renewability provisions. Proposed Features of the Small Employer Group Risk-Sharing Program In order to aggregate the experience of small businesses and allow them to purchase health Insurance on the same scale as larger employers, the Bureau proposes establishing a Small Employer Group Risk-Sharing Program (Program). Eligibility for this program would be limited to employers that have been in business for more than one year and employ at least two but less than 50 persons on a full-time basis. The Bureau believes that the Commission on Health Care for All Virginians may wish to consider the approach undertaken by the Florida legislature as the best way to develop a risk-sharing program The Florida approach merits consideration because it has been successful in attracting and maintaining participants. The Program would be administered by a private non-profit corporation. The corporation would seek and procure coverage from insurers and health maintenance organizations (HMOs) The corporation would also arrange for reinsurance, determine business and employee eligibility, collect premiums, and perform market research and product development. The functions performed by the corporation would defray some of the costs that insurance carriers or health care plans normally incur and should be reflected in reduced premiums for participants in the Program. The Program would be funded primarily through employer and employee premium contributions and private donations. Funds to cover the initial start-up costs and long-term subsidies for this program could come from the Virginia Indigent Health Care Trust Fund. If these funds are utilized, the Virginia General Assembly may need to enact a statute to govern the operation of this non-profit corporation and the use and accountability of these state funds. Proposed Features of the Small Employer Group Health Reinsurance Association The Bureau has determined that it is feasible to establish a small employer group health reinsurance association. The purpose of the proposed Small Employer Group Reinsurance Association (Association) is to provide a reinsurance mechanism for spreading risk among all small employer group carriers in the market. The basis of competition would then be directed toward service, risk management, and product development, rather than risk selection. As a condition of doing business in this Commonwealth, all carriers in the small employer group health insurance market would be members of the Association. The Bureau considered two reinsurance options - the prospective and the retrospective methods. Using the prospective method, carriers that participate in the reinsurance mechanism would identify high risk groups or individuals within a group at the time of application for coverage. The carrier would pay a "premium" to cede the risk of covering the high risk group or individual to the Association. The Association would reinsure up to the level of coverage provided in a basic or standard health care policy. The carrier would be responsible for paying the first $5,000 in claims per calendar year and 10% of the next $50,000 in claims. Claims against the Association would first be financed by premiums for ceded groups and individuals. If losses exceed premiums, participating small employer group carriers would be assessed an amount not to exceed 5% of their annual direct premiums from health benefit plans covering small employer groups. Using the retrospective method, a carrier would not be required to identify high risk cases at the time of application for coverage. Instead, carriers would cede groups or individuals to the Association after a specified claims amount (stop-loss) had been exceeded. A list of conditions would be developed to determine which medical conditions qualify for reinsurance. This method allows carriers with less sophisticated underwriting systems to compete favorably with other carriers. The Bureau also proposes the possibility of utilizing funds from the Virginia Indigent Health Care Trust Fund to help finance the Association and, in turn, reduce the ultimate premium level paid by employers and/or employees. Options for Monitoring the Costs and Rates of Health Insurance Carriers The Bureau evaluated three options for monitoring the costs and rates of health insurance carriers in Virginia. No state, including Virginia, has an existing comprehensive system in place that monitors all of the costs and rates associated with health insurance. The options which were considered are as follows: • using information currently provided in the annual financial statement made by insurers to the SCC, • requiring companies to report their claims and expense costs and their rates to the Bureau of Insurance, and • reviewing rates by monitoring loss ratios. Each of these options would involve considerable time and expense on the part of the agency doing the monitoring, and the insurers being monitored. The Bureau believes that it would be more productive and cost effective to pursue the other initiatives in this report first and then consider the implementation of a system to monitor costs and rates in the future. |
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