Comparison of Small Group Rates in California: HIPC vs. Non-HIPC. September Prepared for the California HealthCare Foundation

Transcription

1 Comparison of Small Group Rates in California: vs. Non- September 1999 Prepared for the California HealthCare Foundation by Karen K. Shore, Ph.D. John Bertko, F.S.A. Reden & Anders, Ltd.

2 Copyright 2000 California HealthCare Foundation All rights reserved. ISBN California HealthCare Foundation 476 Ninth Street Oakland, CA tel: fax:

3 PROJECT DESCRIPTION There has been much discussion about the ability of health insurance purchasing cooperatives to save money for participating employers. In California, a small group purchasing pool the Health Insurance Plan of California () was created in 1993 to serve small employers. In 1997, the had about 7,000 participating employers representing 134,000 enrollees. The California HealthCare Foundation (CHCF) funded this project to examine small group health insurance rates in California looking specifically at rates from the and comparing them to small group rates available outside the. Although some health plans participating in the had multiple product offerings such as HMO, PPO, and Point of Service (POS) during the analysis period, this analysis is limited to HMO products. 1 Several health plans offer small group coverage both through the and as a separate offering, outside the. That is, employers seeking small group insurance can purchase coverage from each of these plans through the or directly from the health plan (frequently using a broker). Another large health plan does not participate in the but does offer small group plans outside the and has a significant portion of the small group market in California. Using information on small group insurance benefits and rates for the 1997 plan year (7/97-6/98), as well as enrollment data, Reden & Anders, Ltd. (R&A) compared the cost of purchasing health insurance for small groups inside the and outside the. METHODOLOGY 1. For subscribers 2 in five health plans participating in the (,,, Plan D, and ), we used 1997 premium and enrollment data to calculate the overall monthly cost of HMO coverage purchased through the. Total monthly costs were calculated by multiplying subscriber-level enrollment data (including health plan, region, employee age group, and tier level of coverage) by health plan costs (including premiums and an administrative/broker fee). For the purposes of this analysis, we assumed an average group size of 20 enrollees 3 (subscribers plus dependents), and used first year fees to get an average 1 PPO and POS product offerings through the were very limited during the analysis period. There was one PPO product offered in three of the regions and no PPO product for the other three regions. Also, in three of the regions, there was one POS product offering, while in the other three regions, there were two POS product offerings. For plan year 1998, only seven percent of enrollees were in POS products and fewer than one percent were enrolled in the PPO product (from J. Yegian et al., Health Insurance Purchasing Alliances for Small Firms: Lessons from the California Experience, Oakland: The California HealthCare Foundation, May 1998). 2 The enrollment data file that we used was at the subscriber level, as were the premiums. Depending on the tier level of coverage (employee only, employee+spouse, employee+child(ren), or employee+family), the subscriber unit can represent one or more enrollees. In addition to the premiums that are calculated on a subscriber basis, there are also administrative and broker fees that employers must pay to purchase coverage through the. These fees contain two parts: per group fees and per enrollee fees. The group of enrollees included in this analysis represents subscribers and their dependents, although we had information only on the subscribers. 3 We assumed a group size of 20 for convenience, based on a calculation that the average group size in July 1997 was 19 enrollees (subscribers plus dependents) with 132,213 enrollees in 6,919 groups (from J. Yegian et al., The Health Insurance Plan of California: The First Five Years, working paper, 1999). Comparison of Small Group Rates in California: vs. Non- 1

4 administrative/broker fee of $11.50 per enrollee. 4 To facilitate cost comparisons with health plan products offered outside the, we identified counties in which at least one health plan offered a small group product both through the and outside the, and calculated total monthly costs for this group (46,062 subscribers). 2. The developed uniform benefit packages for its HMO products. Enrollees could choose a standard plan with a somewhat higher copayment requirement (e.g., $15 per physician office visit and $100 per inpatient admission) or a preferred plan with somewhat lower copayment requirements (e.g., $5 per physician office visit and per inpatient admission). For the same five health plans, we reviewed the benefit provisions for small group products outside the. Four of the five plans offered both a $5 copayment plan ( preferred ) and a $15 copayment plan ( standard ). The remaining plan offered a $5 copayment plan and a $10 copayment plan. Using an R&A actuarial model developed using national data, with utilization and cost data specific to California, we entered benefit information (including copayments and coinsurance) for both a standard plan and a preferred plan for each of the five health plans. We used rates associated with a 1.0 Risk Adjustment Factor (RAF) for each health plan in this analysis. (Note: In the California small group market outside the, plans develop a standard rate with a RAF of 1.0, but are allowed to charge up to 10 percent above or below these rates depending on group characteristics. The, by contrast, published only one set of rates, and any group in the same geographic region, with the same age group and tier level of coverage distribution, paid the same base rate [although administrative and broker fees would vary by number of enrollees in the group].) 3. We then calculated a benefit-adjusted monthly premium for each plan outside the. Using the enrollment profile and these benefit-adjusted non- premiums, we estimated the cost of purchasing health insurance from these five plans outside the. As described above, we calculated the cost of purchasing small group health insurance for only those counties in which at least one of the health plans offered a small group product both inside and outside the (46,062 subscribers). 4. For illustrative purposes, we developed several small group purchasing examples and compared the per member per month (PMPM) premiums for available health plans, both 4 The first year monthly administrative and broker fees for employers who enrolled in the on or after 7/1/97 were as follows: administrative fees were $20 per group plus $2.75 per enrollee; broker fees were $4 per enrollee plus a group fee based on group size ($50 per group for 2-9 enrollees, $75 per group for enrollees, $100 per group for enrollees, $125 per group for enrollees, $150 per group for enrollees, $175 per group for 51+ enrollees). (From the Employer Resource Guide for 7/98-6/99.) The per group administrative fee was $20 per month for all years while the per enrollee administrative fee increased slightly from $2.50 to $2.75 for group enrollment dates of 7/1/97 or later. The per group broker fees were much lower for groups enrolling prior to 7/1/96 (i.e., $30-$50 rather than $50-$175). There was a lower (i.e., $30-$115) per group broker fee schedule for groups that renewed their coverage through the. The per enrollee fee of $4 remained the same for groups enrolling before 7/1/96 and for groups enrolling after that, as well as for newly enrolled groups and renewals. (From the Employer Resource Guide for 7/98-6/99.) In calculating the administrative/broker fee as part of the total cost for each subscriber, we made assumptions about the number of enrollees associated with each tier level of coverage as follows: 1.0 for enrollee only, 2.0 for enrollee + spouse, 2.54 for enrollee + child(ren), and 4.06 for enrollee + family. Comparison of Small Group Rates in California: vs. Non- 2

5 inside and outside the. We compared rates for employees with varying characteristics (region, age category, and tier level of coverage). We showed the difference in rates for a small group product purchased inside the vs. a small group product purchased outside, accounting for benefit differences and individual characteristics. For example, PMPM premiums were compared across plans for an individual with certain characteristics (in Los Angeles County, employee only coverage, age group 30-39, group size 25). All examples were based on rates for the first year of coverage, to simplify the calculation of the broker fee for small group products purchased through the. 5. We discuss why rates inside the may be higher than rates for the same health plan outside the. These include actual or perceived adverse selection, additional administrative costs of the, plan strategy regarding participation and pricing in the, market positioning (including relationships with brokers), and underwriting practices and results of plans outside the. RESULTS Costs of Purchasing Small Group Insurance from the We analyzed data for five health plans (,,,, and ) offering small group HMO coverage through the. Using enrollment and premium information for 1997, we calculated the monthly costs of purchasing coverage through the for these five HMOs. For this calculation, the number of subscribers for each region, plan, plan type (preferred vs. standard), age group, and tier level of coverage was multiplied by the relevant premium and summarized for all five plans. As an example, we show the calculation for in region 6 (Riverside, San Bernardino, and San Diego Counties), for enrollees under the age of 30 (see Table 1). The same calculation was also done for all other age groups and all other regions to get a total monthly cost for. The same calculations were performed for all other plans to get a total monthly cost. Table 1. Sample Calculations for, Region 6 for Enrollees < Age 30 Age Tier Level Number of Monthly Total Cost Region Plan Plan Type Group of Coverage subscribers Premium 6 < $ $ 12,650 6 Standard < $98.29 $ 7,077 6 < $ $ 4,923 6 Standard < $ $ 4,015 6 < $ $ 3,053 6 Standard < $ $ 1,769 6 < $ $ 3,381 6 Standard < $ $ 609 Subtotal 263 $ 37,478 Comparison of Small Group Rates in California: vs. Non- 3

6 The total monthly cost of purchasing small group insurance through the for the 46,062 subscribers was $8.8 million (see Table 2). For this calculation, we identified those counties where at least one of the five plans offered a small group product both inside and outside the and calculated the costs of purchasing small group insurance for the enrollees in only those counties. Approximately 100 additional subscribers, representing about $25,000 in premiums, were in counties where these health plans only offered a small group product inside the or outside the, but not both. 5 Table 2. Number of Subscribers and Monthly Premiums, Plan Year 1997 Number of Subscribers Total Monthly Premiums, ,218 $1,104,263 25,549 $4,328,814 3,173 $707,237 6,472 $1,411,002 5,650 $1,256,123 TOTAL 46,062 $8,807,439 Costs of Purchasing Small Group Insurance Outside the Using premiums for the five health plan products offered outside the and enrollment information, we estimated the cost of purchasing small group coverage for this group of subscribers outside the. Premiums from the plan rate books were multiplied by the enrollment (by age group and tier level of coverage) for each county where each plan offered an HMO product both inside and outside the. Benefit adjustments were calculated for each plan, by county, for both the preferred and standard plans. As an example of how premiums were calculated for the non- preferred HMO product in Los Angeles County, see Table 3. In this example, the non- preferred package of benefits was estimated to be about 5 percent less valuable overall than the preferred package of benefits. 5 There were seven counties where a small group HMO product was offered by at least one health plan either through the or outside the, but not both. Comparison of Small Group Rates in California: vs. Non- 4

7 Table 3. Calculation of Premiums for ($5) Plan, Los Angeles County, (RAF=1.0) Total Monthly Unadjusted Premiums Total Monthly Benefit-Adjusted Premiums Number of Tier Level of Coverage Subscribers Employee only 336 $68,172 $71,958 Employee + spouse 89 $38,654 $40,800 Employee + child(ren) 31 $10,624 $11,214 Employee + family 49 $25,968 $27,410 TOTAL 505 $143,418 $151,382 For the total group of 46,062 subscribers, we estimated that monthly premiums would be $8.3 million or 6 percent less expensive to purchase equivalent coverage for these subscribers outside the (see Table 4). Equivalent here means adjusted for benefit differences to make the premiums comparable. While benefit packages for the various HMO plans varied considerably, we calculated that the unadjusted monthly premiums for these plans would be $8.4 million (5 percent less expensive than inside the ). This means that despite significant variability by plan and by county, on average the non- benefit package was slightly richer (1 percent) than the benefit package for the HMO products 6. This is somewhat counterintuitive, since the s benefit package is generally recognized to be quite rich. However, Table 4 shows that the direction of this 1 percent difference is almost entirely driven by one plan, ; this plan has a richer benefit package than the s combined with over one-half of the subscribers. The presence and level of coverage for certain benefits have a substantial effect on the premium e.g., prescription drug copayments, office visit copayments, and emergency room copayments. By contrast, the presence of other benefits has a much more modest effect on premiums e.g., 100 percent coverage for speech/hearing exams, allergy tests and treatment, and ambulance/transportation services. As an example, for the Oakland MSA, the difference in per member per month (PMPM) costs for a $5 office visit copayment versus a $15 office visit copayment was about $2.75. For four of the five plans (,, and ), overall benefit-adjusted premiums outside the were lower than premiums inside the, by 7 to 8 percent. By contrast, for, benefit-adjusted premiums outside the were 1 percent more expensive overall than premiums inside the. 6 We compared the benefit packages of each of the non- HMO products to the benefits of the most similar products; for example, we compared the non- $5 copayment product to the $5 copayment product and the non- $15 copayment product to the $15 copayment product, etc. The values of the benefit packages for the various non- HMO products were estimated to range from 93 percent to 110 percent of the values of the benefit packages of the products. Comparison of Small Group Rates in California: vs. Non- 5

8 Table 4. Simulation of Small Group Health Insurance Costs for Non- Products, Number of Subscribers Simulated Monthly Non- Unadjusted Premiums, 1997 Simulated Monthly Non- Benefit-Adjusted Premiums, 1997 Percent Difference of Benefit-Adjusted Non- Premiums from Premium Costs in 5,218 $959,933 $1,020,827-8% 25,549 $4,245,203 $4,046,462-7% 3,173 $715,238 $716,000 1% 6,472 $1,339,320 $1,317,336-7% 5,650 $1,144,566 $1,164,183-7% TOTAL 46,062 $8,404,262 $8,264,809-6% Examples of Small Group Insurance Premiums There are many ways of comparing small group insurance costs inside the vs. outside the. The previous analysis was aggregated at the plan level. This section presents information in a different way, with specific examples of costs for enrollees with various characteristics. We developed 12 different small group purchasing examples, with two from each region, for illustrative purposes (see Attachment). Differences in benefit-adjusted premiums between a health plan s product (preferred plan) and its outside-the- small group product (most similar to the preferred plan) are shown. For these examples, administrative and broker fees were calculated based on the actual size of the group. As an illustration, Example 5 shows the small group premiums for a product and non- product for the five health plans for Alameda County ( region 3), for employee only coverage, age group <30, and group size 3. In this case, the benefit-adjusted premium is less expensive outside the, for all five plans. The non- small group product would cost 9 percent less than the product; for each of the other 4 health plans, their non- product would cost percent less than their product. By contrast, premiums for the and non- products are much more similar in Sacramento County ( region 2), for employee only coverage, age group 55-59, and group size 25 (see Example 3). In this case, there is no difference in cost between the non- product and the product for two health plans and. The non- product 7 This table uses 1997 enrollment data by health plan and includes only subscribers in these plans that offer a small group product both inside and outside the. Comparison of Small Group Rates in California: vs. Non- 6

9 is slightly less expensive than the product for (-4 percent), (-4 percent), and (-3 percent). CONCLUSION In theory, one may expect the costs of purchasing insurance through a purchasing pool such as the to be lower than they would be outside the. This could be due to leveraging of group purchasing power or a willingness on the part of health plans to provide lower rates to a purchasing pool in the hopes of gaining enrollment, or to lower administrative costs. However, the findings of this rate comparison do not support that hypothesis. For the group of subscribers studied here, the costs of purchasing small group HMO coverage outside the (using a RAF of 1.0) were 6 percent lower than the costs of purchasing similar small group coverage inside the. 8 From J. Yegian, et al., Health Insurance Purchasing Alliances for Small Firms: Lessons from the California Experience, Oakland: The California HealthCare Foundation, May 1998, Table 2). Comparison of Small Group Rates in California: vs. Non- 7

10 TECHNICAL NOTES Data Sources Enrollment data file from Tom Buchmueller/Bob Town, University of California Irvine Premiums Employer Handbook ( ) Benefits Employee Handbook ( ) Non- Benefits plan descriptions for,,,, and Non- Premiums rate tables,,,, and (1.0 RAF Rates) California Population by County U.S. Bureau of the Census Web site: (for all counties in MSAs) and United States Zip Code Atlas, 1997 (for all counties not in MSAs). For counties in MSAs, population numbers are U.S. Bureau of the Census estimates of the July 1996 population; for counties not in an MSA, R&A estimated 1996 population numbers using 1990 information from the United States Zip Code Atlas. Distribution of Subscribers by Region, County For the, there were six regions, each of which represented one or more counties. enrollment data were not available at the county level. For the non- small group HMO products, each health plan defined its regions differently, and often those regions did not match the regions. As a result, we performed the analysis at the county level rather than at the region level. We assumed that within each region, the distribution of enrollees by county matched the county-level distribution of the population of the state of California. We used the distribution of population by county to get the percent of the California population in each county. We used this information to distribute enrollment in the regions by county and later used this enrollment distribution for the non- plans to estimate total plan costs. Assumptions/Limitations of Benefit Model The benefits model that we used to estimate the actuarial value of each health plan is based on cost and utilization data specific to 26 MSAs in California. We entered detailed benefit information for each health plan, although the level of detail differed across plans. In cases where critical information was missing, we contacted the health plans to obtain additional benefit information. The R&A model allows the user to specify one of three levels of medical management loose, moderate, or well. Loose managed care refers to levels of medical management usually associated with PPOs, while moderately managed refers to a level of management Comparison of Small Group Rates in California: vs. Non- 8

11 associated with an average HMO. Well-managed care refers to focused and wellimplemented medical management, usually achieved by experienced managed care organizations. For this analysis, we assumed that all health plans were well managed; i.e., that levels of utilization were reflective of experienced managed care organizations. In reality, there would be some variation in this across plans and across geographic regions, but without significant additional data collection efforts we could not obtain this information. We also ran the analysis assuming a moderate level of medical management, with virtually the same results the overall cost of purchasing coverage inside the was about 6 percent higher than the cost of equivalent or benefit-adjusted coverage outside the. There were slight (about 1 percent) variations in the cost for a particular plan using the moderate management level compared with the well-managed level; for example, for the overall premium cost for the plan using a moderate management level was 6 percent higher than the overall cost of the non- plan. This compares with the plan being 7 percent more expensive using the assumption that care is well-managed. For prescription drug coverage, we assumed 40 percent generic vs. 60 percent brand and 95 percent retail pharmacy vs. 5 percent mail order (based on recommendation of R&A staff with experience in analyzing prescription drug claims). For mental health/substance abuse, we used the copayment for mental health individual therapy visit (when it differed from copayment for substance abuse individual visit or from a group therapy visit copayment). Even though we made an effort to include all benefits in the actuarial model, there were undoubtedly some plans that offered some benefits that were not included in the model. In addition, while there was some variation in out of pocket maximums, we did not account for these differences because we believed them to have a negligible effect on premiums. If plans offered vision or hearing exams only for children, it was not counted as a benefit; we assumed any cost differences would be immaterial. Comparison of Small Group Rates in California: vs. Non- 9

12 Example 1. Small Group Insurance Costs, Region 1, El Dorado County Employee+Spouse Coverage, Age Group 40-49, Group size 10, Year 1 $450-11% -5% $400 $350-10% -13% $300-9% $250 $200 $150 $100 $50 $5 $5 Non- $5 Non- $5 Non- $5 Note: Rate differences are calculated relative to the plan.

13 Example 2. Small Group Insurance Costs, Region 1, Monterey County Employee+Child(ren) Coverage, Age Group 50-54, Group size 5, Year 1 $600-16% $ % -10% $400-11% $300 $200 $100 $5 $5 Non- $5 Non- $5 Non- $5 Note: Rate differences are calculated relative to the plan.

14 Example 3. Small Group Insurance Costs, Region 2, Sacramento County Employee Only Coverage, Age Group 55-59, Group size 25, Year 1 $350 0% $300 $250-4% -3% 0% -4% $200 $150 $100 $50 $5 $5 Non- $5 Non- $5 Non- $5 Note: Rate differences are calculated relative to the plan.

15 Example 4. Small Group Insurance Costs, Region 2, Solano County Employee+Family Coverage, Age Group 30-39, Group size 48, Year 1 $600-10% $500-5% -10% -5% $400-1% $300 $200 $100 $5 $5 Non- $5 Non- $5 Non- $5 Note: Rate differences are calculated relative to the plan.

16 $180 Example 5. Small Group Insurance Costs, Region 3, Alameda County Employee Only Coverage, Age Group <30, Group size 3, Year 1 $160-21% -9% -20% -22% $140-21% $120 $100 $80 $60 $40 $20 $5 $5 Non- $5 Non- $5 Non- $5 Note: Rate differences are calculated relative to the plan.

17 $1,000 $900 Example 6. Small Group Insurance Costs, Region 3, San Francisco County Employee+Family Coverage, Age Group 55-59, Group size 12, Year 1-2% $800 $700-9% -6% -11% $600-10% $500 $400 $300 $200 $100 $5 $5 Non- $5 Non- $5 Non- $5 Note: Rate differences are calculated relative to the plan.

18 Example 7. Small Group Insurance Costs, Region 4, Santa Barbara County Employee+Spouse Coverage, Age Group 40-49, Group size 6, Year 1 $400-11% $350-12% -1% % -8% $300 $250 $200 $150 $100 $50 $5 $5 Non- $5 Non- $5 Non- $5 Note: Rate differences are calculated relative to the plan.

19 Example 8. Small Group Insurance Costs, Region 4, Ventura County Employee Only Coverage, Age Group 50-54, Group size 24, Year 1 $250-4% +13% -2% -10% $200-2% $150 $100 $50 $5 $5 Non- $5 Non- $5 Non- $5 Note: Rate differences are calculated relative to the plan.

20 Example 9. Small Group Insurance Costs, Region 5, Los Angeles County Employee Only Coverage, Age Group 40-49, Group size 3, Year 1 $180 $160-16% -17% -2% -18% -17% $140 $120 $100 $80 $60 $40 $20 $5 $5 Non- $5 Non- $5 Non- $5 Note: Rate differences are calculated relative to the plan.

21 Example 10. Small Group Insurance Costs, Region 5, Los Angeles County Employee+Child(ren) Coverage, Age Group 30-39, Group size 28, Year 1 $350 $300-9% -3% -10% -9% $250-6% $200 $150 $100 $50 $5 $5 Non- $5 Non- $5 Non- $5 Note: Rate differences are calculated relative to the plan.

22 Example 11. Small Group Insurance Costs, Region 6, San Diego County Employee+Spouse Coverage, Age Group 40-49, Group size 35, Year 1 $350-8% -4% -3% -13% $300-2% $250 $200 $150 $100 $50 $5 $5 Non- $5 Non- $5 Non- $5 Note: Rate differences are calculated relative to the plan.

23 $1,400 Example 12. Small Group Insurance Costs, Region 6, Riverside County Employee+Family Coverage, Age Group 50-54, Group size 18, Year 1 $1,200-12% $1,000 $800-2% -10% -13% $600 +1% $400 $200 $5 $5 Non- $5 Non- $5 Non- $5 Note: Rate differences are calculated relative to the plan.