The state's health insurance exchange, a key part of federal health reform, is intended to give individuals and small businesses more options for buying insurance. But for many people in Connecticut, the new marketplace might not bring affordable coverage options when it launches in 2014, according to a consultant to the board developing the exchange.
That's because according to data from Connecticut insurers, the majority of health plans sold to individuals and small businesses provide less generous coverage -- most likely, at a lower cost -- than plans sold on the exchange will be required to provide.
The analysis suggests that people buying insurance through the exchange could get plans that offer more coverage with lower out-of-pocket costs, but they would likely have to pay more for them.
"It's going to be very difficult for the exchange to compete in the marketplace based on price," Paul Grady, a partner with the consulting firm Mercer, said during a presentation to the exchange board last week. He added that small businesses and the uninsured tend to be very sensitive to the price of coverage, which will likely be a driving force in their insurance selections.
But Grady added that the exchange could compete in other ways, such as by offering innovative health plans that can reduce costs by improving health, or by targeting employers that don't provide any coverage to their workers.
Four levels of coverage
Health reform requires plans sold on the exchange to be offered at four different levels of "actuarial value," which refers to how much of the benefits the plan pays. A plan with a higher actuarial value covers more of the costs of health care, with the member responsible for fewer out-of-pocket costs like copayments or deductibles, while a plan with a lower actuarial value would leave more to the member to pay. Generally, those with higher actuarial values have higher premiums, while those that leave the members to pay more out-of-pocket have lower premiums.
Under the health reform law, plans sold on the exchange must come at four levels -- bronze, silver, gold and platinum. The minimum, bronze, must have an actuarial value of 60, meaning the plan would cover an average of 60 percent of a member's health care costs and the member would be responsible for the other 40 percent.
But in Connecticut, a large swath of the population that could buy coverage through the exchanges currently have plans that fall below the bronze level of coverage, the Mercer analysis found.
Among people who buy coverage for themselves, rather than getting it through an employer, 72 percent have plans that fall below the bronze level of coverage required of exchange plans. Another 22 percent would be considered to have bronze plans.
Half of employers with fewer than 50 workers provide coverage below the minimum that an exchange plan would provide. (One caution: The actuarial value in the analysis is based on plan design, without accounting for employer contributions. So a plan designed with a bronze actuarial value could actually require lower out-of-pocket costs for the member if the employer helps cover some of the costs.)
Larger companies are more likely to offer plans with higher actuarial values -- known as "richer" plans; only 7 percent of companies with 50 to 99 workers provide "below-bronze" coverage, as do 5 percent of companies with between 100 and 499 workers.
'A voice for change'
But that's not the exchange's target market. When the exchange gets started in 2014, it will only be required to cover people who buy coverage on their own and employers with 50 or fewer workers. The board governing the exchange could elect to expand eligibility to companies with 100 or fewer workers.
If the exchange isn't likely to be able to compete with the rest of the insurance market based on price, Grady said, it could still have an important role.
He noted that larger employers, who tend to have more control over their insurance plan designs, have been able to contain their health care costs without shifting costs to employees by using innovative plan designs, such as by encouraging the use of preventive care or managing chronic conditions.
Small businesses tend to buy their coverage from insurers, rather than designing their own plans, and Grady said products that mirror what large employers do have not been developed for the small employer market. The exchange board could play a role in encouraging them, he said.
"You can be a voice for change and innovation, and I think that would be really helpful," he said.
Doing so might not directly benefit the exchange itself, he added. If the exchange manages to get insurance carriers to offer innovative products, the insurers will likely also offer them outside the exchange. That won't necessarily lead to more people buying coverage on the exchange.
"But it's going to be beneficial to the people that are participating in the exchange and outside of the exchange, who are going to benefit from some of that information," he said.
In addition, Grady said, the exchange has an opportunity to reach small employers who don't offer insurance to their workers now, and who don't understand how the insurance marketplace works.
Board member Mary Fox suggested another niche.
"Since we can't compete on price, we could compete on elements like transparency and consumer education and making sure that we have simple products, simply and well explained to the consumer," she said. "Because I think one of the things that would be attractive would be to kind of reduce the complexity in the overall insurance marketplace."
Fox also asked if data exists on the health quality of the people who buy plans of different actuarial values, such as whether people who buy bronze plans have poorer or better health.
State Healthcare Advocate Victoria Veltri echoed the question, saying that it's important to look at health outcomes for people who do or don't have insurance to cover their visits to the doctor and whether people with bronze plans are getting the care they need.
William Van Deventer, a senior associate at Mercer, said that in general, people who have more health risks and need more medical services are going to be attracted to gold or platinum plans that require fewer out-of-pocket costs for getting care, while people who are healthier would tend toward bronze plans.
But Veltri said that while she agreed with the general rule, it also depends on whether people can afford the premiums of a gold plan.
Grady said he had not seen recent studies, but that old studies indicated that as people's out-of-pocket costs increase, they are less likely to get the medical services they need.
Federal health reform requires health plans to cover the full cost of preventive services, with no out-of-pocket costs to members, he noted. "But the people aren't going to get those preventive services because they're worried if they get to there and they find out that there's something wrong with them, they're not going to be able to afford the care that's necessary," he said.
Challenges for exchanges
Grady also spoke of the difficulty of operating a health insurance exchange. Massachusetts has one, known as the Massachusetts Connector, but it has limited options for small businesses; none of the major insurance carriers in the state offer products for small businesses on the exchange, and only about 4,000 small businesses participate.
By contrast, Grady said, Connecticut already has an effective exchange, run by the Connecticut Business and Industry Association, or CBIA. It has about 75,000 members and covers about a third of the small employer market, with a choice of 25 plans.
But Grady noted that the actuarial value of the plans offered is unclear.
Ellen Andrews, executive director of the Connecticut Health Policy Project, said she's not primarily concerned with how many people get coverage through the exchange, as long as they get insurance. And people with plans with low actuarial values still have insurance, she noted.
"There's plenty of market for just the uninsured in the state," she said.