Connecticut policymakers have a large responsibility before them as they build our state health insurance exchange, which is expected to be ready in just a few months. Under the federal Affordable Care Act states are building exchanges to provide a user-friendly marketplace for consumers and small businesses to purchase affordable, decent coverage. Luckily, policymakers can learn from our five-year experience with the Charter Oak Health Plan, created for the same purpose and offering important lessons on what works and what doesn’t.
Former Gov. M. Jodi Rell created the Charter Oak plan in July 2008 using Medicaid as a platform with the best intentions to offer affordable insurance options for struggling, uninsured state residents. Because of the connection to Medicaid, there were no new administrative costs and no staff hired to run the program, thus keeping costs down. Monthly premiums started at an affordable $257 per month, with subsidies for low-income applicants, and the plan attracted enormous interest when it launched.
However, copays and deductibles were high and enrollment never came near expectations. Advocates predicted that the high costs and limited provider networks would limit participation, skewing enrollment toward people with high health needs. We predicted this would accelerate costs, driving more people from the program. Unfortunately, that is what’s happened. Enrollment is down 61 percent from its highest point and premiums have more than doubled to $589 per month.
Connecticut’s health insurance exchange was created under the federal Affordable Care Act with millions in federal funds with the same purpose as Charter Oak. Over 100,000 state residents are expected to buy coverage through the exchange, including thousands who are eligible for federal subsidies and required to shop for insurance there.
The exchange has built a new agency in just a few months, hiring 25 staff so far and signing very large consulting contracts. It is expected to have an annual budget between $25 million and $30 million when fully functional. Many important policy changes already have been set by the exchange’s governing board, which has no independent consumer members but includes four insurance industry representatives. Among those decisions is the standard cost-sharing package. Each insurer is required to offer the standard package at each exchange level allowing an apples-to-apples comparison between plans.
Unfortunately, the unsubsidized silver level standard plan costs are even higher than Charter Oak’s costs. Primary care visits are $5 more than Charter Oak, specialty visits are $10 more, and ER visits are $50 more. Total possible annual costs per person in Charter Oak are $1,800, aside from monthly premiums, but in the exchange costs could reach $6,000 for in-network care and $12,000 for out-of-network care per person. Unfortunately, there are reports that insurers are building limited exchange-only provider panels paying low Medicaid rates, replicating the other weakness of Charter Oak.
Connecticut’s 300,000 uninsured cannot now afford even Charter Oak’s cost sharing, so they are unlikely to be able to afford these new, higher costs from the exchange. Some will qualify for modest subsidies, but it will not be enough for many uninsured. Making matters worse, a new analysis by the Society of Actuaries predicts that premiums in Connecticut’s individual market next year will rise by 29 percent to average $514 monthly.
Connecticut’s health insurance exchange and their Board need to take strong efforts to keep costs down. The best hope for that is active purchasing to negotiate rates with insurers. Other state exchanges and most large employers negotiate to keep premiums down. With costs this high it is stunning that Connecticut’s exchange has rejected active purchasing, but S.B. 596 is moving through the legislature directing them to negotiate premiums. The exchange should reverse course and embrace this important tool to make coverage affordable. Here also is my testimony on the bill.
Ellen Andrews is executive director of the Connecticut Health Policy Project.