The new Massachusetts health insurance market change laws probably will increase prices slightly for small groups but lead to substantial savings for individuals and families.
Consultants make those predictions in a report on the impact of merging the Massachusetts non-group and small group health insurance markets. The consultants work for Gorman Actuarial L.L.C., Marlborough, Mass.; DeWeese Consulting Inc., Canton, Conn.; and Hinckley, Allen & Tringale L.P., Boston.
They prepared the report for the Massachusetts Division of Insurance and a market merger special commission to help Bay State policymakers implement the state’s new health market change laws.
One provision of the laws calls for the state to require many large employers to provide health coverage for employees or make special payments to the state, and another provision could require many residents with moderate or relatively high incomes to buy their own individual coverage through a new organization called “the Connector” that would be allowed to base rates on insureds’ demographic characteristics.
Another provision would merge the non-group market, which provides coverage for individuals and families, and the small group market, which provides coverage for employers with 1 to 50 eligible employees.
Insurers in the non-group market follow community rating rules. Insurers in the group market can charge some customers twice as much as others based on factors such as age, group size and geography.
Because claims costs for the oldest groups average $534 per member per month–more than twice as much as the $208 average for the youngest groups–the younger groups are subsidizing the older groups, according to the report authors.
The health market change law would loosen the “2:1 rate compression” rule a bit, but some workers could, in effect, join the Connector “list bill” arrangements by choosing to buy individual coverage through the Connector.
The fact that the Connector would have more flexibility in setting rates than small group carriers would have “creates the potential for confusion in the marketplace and an opportunity for selection by consumers,” the report authors write.
Imposing a limited open-enrollment period could help discourage individuals from gaming the system by changing plans, and keeping administrative expenses down at the Connector program will be critical to maximizing uptake rates, the authors write.
The authors looked at reinsurance needs for the combined small group and non-group market. “We determined that a program that reimbursed 80% of claims in excess of $75,000 on an individual claims basis would cost between $100 million and $125 million annually (based on 2005 claim data), and a program that reimbursed 50% of the excess of $50,000 on an individual claim basis would cost a similar amount,” they write. “This would be equivalent to approximately 4.5% of total claims, or slightly less than 4% of total premium.”
Reinsurance needs could vary significantly among carriers, they write.