Topic:
HEALTH INSURANCE; INSURANCE (GENERAL); SMALL BUSINESSES;
Location:
INSURANCE - HEALTH;

OLR Research Report


December 27, 2006

 

2006-R-0797

REINSURANCE: NEW YORK AND CONNECTICUT

By: Janet L. Kaminski, Associate Legislative Attorney

You asked for information on Healthy New York (“Healthy NY”) reinsurance and how it compares to Connecticut's Small Employer Health Reinsurance Pool (“CSEHRP”).

SUMMARY

Connecticut operates a non-subsidized reinsurance pool for the small group market (groups of 1 to 50) called the Connecticut Small Employer Health Reinsurance Pool (“CSEHRP”) (CGS 38a-569). All health insurers are required to be pool members. The pool issues reinsurance coverage to insurers who wish to relinquish liability for a small employer's employees' or dependents' covered expenses in excess of $5,000 per covered person. The reinsurance covers claim costs above $5,000. The insurers decide whether to purchase reinsurance and for whom. The pool is funded by reinsurance premiums paid by insurers that cede risk into the pool (i.e., purchase reinsurance coverage). Losses are paid by the carriers through an annual assessment based on their small group market share. The pool reinsures about 2,700 people.

Healthy NY includes a state-subsidized stop-loss mechanism that reimburses health plans for 90% of a claim's cost between $5,000 and $75,000. The state, in effect, acts as a reinsurer. All HMOs are required to write Healthy NY plans, which are standardized and less comprehensive than commercially-available plans. Qualifying small employers, sole proprietors, and uninsured employed individuals that have not been insured in the past 12 months (some exceptions apply) are eligible for the program. Sole proprietors and individuals must meet income guidelines. Small employers may participate in the program if they have 50 or fewer employees, 30% of whom earn less than $35,500 annually (adjusted annually for inflation). Employers must contribute at least half of the premium, and at least 50% of employees must participate. As of December 2005, Healthy NY enrollment was about 107,000 people (26% small employers, 18% sole proprietors, and 56% individuals). In New York City in 2004, Healthy NY premiums were 40% lower than the average small group HMO premium and 66% lower than the self-pay individual market premium.

Table 1 provides a brief comparison of Healthy NY and CSEHRP.

Table 1: Comparison of Healthy NY and CSEHRP

 

New York

Connecticut

Carriers

All HMOs must participate; other insurers have option

All health insurers must participate

Eligibility

Small employers,

Sole proprietors, and

Uninsured individuals

Small employers (includes self-employed individual)

Benefit Plan

Standardized and streamlined – all carriers offer the same plans, which include fewer mandated benefits than commercial plans

No plan restriction; State mandates apply

Rating Method

Community rating (same rate for all)

Modified community rating (same base rate for all, adjusted for certain case characteristics)

Insurer Responsibility

First $5,000 of a claim, 10% of costs between $5,000 and $75,000, and all costs above $75,000

First $5,000 of a claim

Reinsurance Coverage

90% of claims between $5,000 and $75,000 (the “corridor”)

Claims above $5,000

Whose Claims are Reinsured

All Healthy NY insureds whose claims costs fall into the corridor

Those employees or dependents of small employers as chosen by the carrier

Reinsurance Financing

Premiums,

State subsidy (tobacco settlement funds)

Premiums,

Assessments on carriers based on small employer market share

Impact on Insured

Reinsurance is transparent to insured

Reinsurance is transparent to insured

REINSURANCE

Reinsurance is the coverage insurers buy to protect against large claim costs. A company assuming another insurer's risk is called the reinsurer. For example, insurer XYZ sells a policy with a $100,000 liability limit to a customer. Insurer XYZ cedes (gives up) some of its liability to Reinsurer ABC when it purchases reinsurance coverage. Through the reinsurance treaty (contract), Reinsurer ABC will cover the customer's claims made to Insurer XYZ exceeding a certain dollar amount. The reinsurance transaction is transparent to the insured customer.

REINSURANCE POOLS

Pooling risks from across a certain population can minimize premium variances between groups and premium fluctuations per group. A reinsurance pool covers the excess costs associated with high-risk individuals from numerous employer groups. A high-risk individual is one who is likely to generate substantial claims due to his or her health status.

Pooling and reinsuring risks helps keep underlying plan premiums more predictable and therefore lower. The excess costs are shared proportionately among all pool members (e.g., insurance companies). As a result, a pool helps make health care coverage more affordable and available.

CONNECTICUT

A 1990 law created the non-profit Connecticut Small Employer Health Reinsurance Pool (“the pool”), the nation's first such pool, which became the National Association of Insurance Commissioners (NAIC) model for reinsurance pools. The pool is mandatory, meaning all insurers issuing health insurance and insurance arrangements providing health plan benefits must be pool members (CGS 38a-569).

A board that is selected by the pool, subject to the insurance commissioner's approval, administers the pool. The board members must represent domestic insurance companies (one-third) and small employer carriers (two-thirds). The insurance commissioner is an ex-officio board member. The pool is funded by (1) premiums collected from insurers who purchase reinsurance coverage from the pool, (2) annual assessments on all pool members to cover losses, and (3) investment income. The pool has statutory authority to establish reinsurance rates and perform other appropriate functions.

Pool members may purchase reinsurance coverage for an entire small group or for certain employees or dependents within a group, generally those the insurer believes are high risk (i.e., likely to have high claim costs). Employees must work at least 30 hours per week to be eligible. The covered individuals and employers are unaware of the reinsurance, as the insurer may not disclose its existence.

An insurer wishing to reinsure an individual or a group must do so within 60 days of issuing the underlying coverage, under current board rules. For small groups of one or two employees, an insurer has additional opportunities to purchase reinsurance at every third plan anniversary.

The reinsurance coverage includes a $5,000 deductible per insured individual. This means that the underlying health care plan must cover $5,000 of benefits for a person before the reinsurance coverage takes effect. The reinsurance coverage pays all claims for covered expenses above $5,000.

NEW YORK

In 2000, the New York Legislature enacted the Health Care Reform Act, which created the Healthy NY program. The creators intended it to increase the number of New York residents with health care coverage by making it more affordable.

All HMOs are required to participate and offer the same two benefit plans, one with prescription drug coverage and one without. (Other insurance companies have the option of participating.) Beginning January 1, 2007, Health NY will also offer a high deductible health care plan.

Healthy NY is available to certain small employers with 50 or fewer employees, sole proprietors, and low-income uninsured working individuals. The eligibility and benefit plan information that follows is taken from the Healthy NY website, which can be viewed at http://www.ins.state.ny.us/website2/hny/english/hny.htm.

Affordability

Healthy NY was designed for plan affordability. Three key features address this—state subsidized stop-loss (reinsurance), streamlined benefits, and managed care cost containment—according to Katherine Swartz, Harvard School of Public Health.

When first introduced in 2001, Healthy NY premiums for individuals were 30% to 50% less than in the commercial individual market. Premiums for small employers were 15% to 30% less than for comparable HMO policies in the commercial small group market. Healthy NY premiums declined another 6% in the second year of operation, then in 2003 when the stop-loss corridor was lowered from $30,000-$100,000 to $5,000-$75,000, premiums declined another 17%. In New York City in 2004, Healthy NY premiums were 40% lower than the average small group HMO premium and 66% lower than the self-pay individual market premium, according to Swartz.

State-Subsidized Stop Loss (Reinsurance). New York pays for 90% of claims that cost between $5,000 and $75,000, acting as a reinsurer. The stop-loss fund in effect subsidizes the premiums by removing much of the insurers' high-cost claim risk. The legislature earmarked tobacco settlement funds for Healthy NY funding.

Streamlined Benefits. The standardized benefit plan is exempt from state requirements to cover certain services, such as mental health, chiropractic care, and alcoholism and substance abuse.

Managed Care Cost Containment. Healthy NY imposes cost-sharing (copayments) and requires insureds to obtain services from a health plan's network of providers.

Community Rating

Healthy NY requires carriers to community rate the premiums for small employers, sole proprietors, and individuals jointly for each policy tier (e.g., single, husband and wife, adult and children, family). Community rating means the premiums for everyone covered by the carrier for a particular plan must be the same. Thus, if the claims experience is better for one segment (e.g., small employers) than the others, that segment will subsidize some of the cost of coverage for the others.

Small Employer Eligibility

In order to participate in the Healthy NY program for small employers, a business must meet the following eligibility criteria:

1. It must be located within New York State.

2. It must have 50 or fewer eligible employees.

3. 30% of the employees must earn wages of $35,500 or less (adjusted annually for inflation).

4. The small employer must not have provided group health insurance coverage to their employees within the last 12 months. A small employer is considered to have provided health insurance if the employer has both arranged for and contributed more than $50 (or $75 if the business is located in the Bronx, Kings, Nassau, New York, Orange, Putnam, Queens, Richmond, Rockland, Suffolk, and Westchester counties) per employee per month toward health insurance.

If an eligible employer opts to enroll their business in Healthy NY they must assure that:

1. 50% of the eligible employees will participate in the program and at least one participant earns annual wages of $35,500 or less (adjusted annually for inflation). A small employer may count employees who have health insurance coverage through another source, such as a spouse or another government program, towards the 50% participation requirement for Healthy NY.

2. The employer will contribute at least 50% of the premium.

3. The employer will offer Healthy NY to all employees who are working 20 or more hours per week and earning $35,500 or less (adjusted annually for inflation).

Sole Proprietor and Individual Eligibility

In order to participate in Healthy NY as a sole proprietor or individual, a person must meet the following eligibility criteria:

1. The person must reside in New York State.

2. The person or spouse must either be currently employed or must have been employed within the past 12 months.

3. The person's employer does not currently provide health insurance.

4. The person must not have had health insurance in effect for the 12-month period preceding application or have lost coverage due to a qualifying event (i.e., loss of employment; death of a family member; employment change; residence change; group health plan discontinuation; termination or cancellation of COBRA coverage; legal separation, divorce, or annulment; loss of eligibility for group health insurance coverage; and reaching the maximum age for dependent coverage).

5. The person must be ineligible for Medicare.

6. Current gross household income must meet the program's income guidelines. Proof of income is required annually.

Table 2 provides the Healthy NY income guidelines. The amounts listed are effective January 1, 2006 and pregnant women count as 2 people.

Table 2: Healthy NY Income Guidelines

Family Size

Annual Household Income

Monthly Household Income

1

Up to $25,125

Up to $2,107

2

Up to $33,375

Up to $2,832

3

Up to $41,625

Up to $3,557

4

Up to $49,875

Up to $4,282

5

Up to $58,125

Up to $5,007

Each additional person

Add $8,250

Add $725



Source:
http://www.ins.state.ny.us/website2/hny/english/hnyecsp.htm

Students. For students who are aging off their parent's policy when they are graduating from high school or college, Healthy NY may meet the student's needs for health insurance coverage. Students must meet the eligibility guidelines of the program listed above, but they are not required to include their parents' income in their household income. Even though a student may have been insured during the last 12 months if they were on their parent's policy, aging off a parent's policy is considered a qualifying exception to that rule. Adults who are age 18 or older are only required to include their income and income of a spouse whom they reside with, if applicable.

Prior Insurance Coverage. Sole proprietors and individuals are not eligible for Healthy NY if their employers currently arrange for and contribute to the cost of the employee's health insurance coverage. Individuals who have purchased health insurance on their own and have therefore been insured during the last 12 months are also not eligible. However, individuals who are COBRA-eligible or currently covered through COBRA or other continuation coverage may apply for Healthy NY. Past participation in a public benefits program such as Medicaid does not prevent an individual from participating in Healthy NY.

Benefit Plans

The Healthy NY benefit plans cover inpatient and outpatient hospital services, physician services, maternity care, preventive health services, diagnostic and x-ray services, and emergency services. Applicants may choose a benefit package with or without a limited prescription benefit. The plans are exempt from certain benefit mandates.

Even though Healthy NY benefit packages are standardized, carriers may charge different premium rates. Once a person elects a benefit package (with or without the prescription drug benefit) he or she cannot change plans until the next annual recertification or if the premium rate changes.

Covered services are subject to a copayment. Benefits are only covered if received “in-network,” except for emergency services or where care is not available through a health care plan's providers. Otherwise, a covered person must use a health care plan's network of providers.

Covered Services. Covered services include the following:

diagnostic screening for prostate cancer for men (effective January 1, 2007);

coverage for home health care for up to 40 post-hospital or post surgical visits in a calendar year (effective January 1, 2007);

coverage for 30 post-hospital or post-surgical physical therapy visits per calendar year (effective January 1, 2007);

inpatient hospital services consisting of daily room and board, general nursing care, special diets, and miscellaneous hospital services and supplies;

outpatient diagnostic and treatment hospital services;

physician services consisting of diagnostic and treatment services, consultant and referral services, surgical services (including breast reconstruction surgery after a mastectomy), anesthesia services, second surgical opinion, and a second opinion for cancer treatment;

outpatient surgical facility charges related to a covered surgical procedure;

pre-admission testing;

maternity care;

adult preventive services consisting of mammography screening, cervical cytology screening, periodic physical examinations (no more than one every three years), and adult immunizations;

preventive and primary health care services for dependent children including routine well-child visits and necessary immunizations;

equipment, supplies and self-management education for diabetes treatment;

diagnostic x-ray and laboratory services;

emergency services;

therapeutic services consisting of radiological services, chemotherapy, and hemodialysis;

blood and blood products furnished in connection with surgery or inpatient hospital services; and

if the prescription drug benefit is selected, prescription drugs obtained at a participating pharmacy ($3,000 maximum per person, per year).

High Deductible Health Plan Option. Beginning on January 1, 2007, plans participating in the Healthy NY Program must offer a high deductible health plan to small employers, individual proprietors, and individuals who meet the Healthy NY eligibility requirements. This option allows those insured by a high deductible health plan to establish a tax-deductible health savings account. A health savings account can be used to pay for certain medical expenses not reimbursed by the benefit plan. Monthly premium costs for the high deductible health plan option will be lower than the cost of standard Healthy NY. Plans must offer the high deductible health plans with and without prescription drug coverage.

Copayments and Deductibles. Covered services are subject to a copayment amount that a person must pay at the time he or she receives services. If a person enrolls in the Healthy NY High Deductible Health Plan Option, the money spent on co-payments for covered services cannot be applied towards the plan deductible.

The amounts of the copayments are the same for each health plan. The applicable copayments are shown in Table 3.

Table 3: Healthy NY Copayments

Services

Copayments

Inpatient hospital services

$500 copay

Surgical services

20% or $200 copay

Outpatient surgical facility

$75 copay

Emergency services

(waived if admitted to the hospital)

$50 copay

Prenatal services

$10 copay

Well-child visits/ Immunizations

$0

All other services

$20 copay

Optional prescription drug benefit

Maximum benefit of $3,000 per individual per year; $100 deductible per calendar year (this $100 deductible does not apply to the Healthy NY High Deductible Health Plan Option); generic drugs have a $10 copay; brand name drugs have a $20 copay plus the difference in cost between the brand name drug and generic equivalent

Source: http://www.ins.state.ny.us/website2/hny/english/hnybp.htm.

Services Not Covered by Healthy NY. Because Healthy NY has a streamlined benefit package, certain services are not covered. Examples of those services include:

mental health services (including related medications),

alcohol and substance abuse treatment,

chiropractic coverage,

hospice care,

ambulance service,

dental care,

vision care, and

durable medical equipment.

Pre-existing Condition Limitation. Coverage under the Healthy NY program is subject to a pre-existing condition waiting period. This means that if the applicant has a medical condition that they have been either diagnosed with or treated for in the last six months, services for the treatment of that condition may be excluded from coverage for up to a year.

However, if an applicant has had prior health insurance coverage and has not had a break in coverage that is longer than 63 days, the pre-existing condition limitation waiting period will be reduced or waived. Coverage for other services will still be available for all other covered conditions.

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