OFFICE OF FISCAL ANALYSIS
Legislative Office Building, Room 5200
Hartford, CT 06106 ↓ (860) 240-0200
http: //www. cga. ct. gov/ofa
AN ACT CONCERNING THE ESTABLISHMENT OF THE SUSTINET PLAN.
OFA Fiscal Note
This bill establishes the SustiNet Plan to extend health insurance coverage. There are a variety of major impacts, as detailed below.
The bill establishes a quasi-public entity called “SustiNet” to be operated by a nine member board of directors who have the authority to hire staff to develop and implement the SustiNet Plan, a self-insured health care delivery plan to a variety of enrollees. Board members are not compensated, but can be reimbursed for expenses related to carrying-out their duties. Expenses would also be incurred for the hiring of staff necessary to carry-out the responsibilities of the SustiNet Authority.
The board must adopt procedures governing how it: (1) adopts an annual budget and operational plan; (2) hires, dismisses, promotes, and compensates employees; (3) contracts for professional services; (4) establishes a system for electronic health records for members and providers; (5) awards loans and grants; and (6) contracts with insurers or other entities for administrative purposes, such as claims processing, risk management, utilization review, and credentialing of providers. Implementation of each of these items will result in significant expenditures by the quasi-public authority. The effective date for creation of this entity is July 1, 2009, thus the funding requirements would be necessary in FY 10.
While the bill contains numerous references to carry-out its duties “within available appropriations”, none have been provided for in this bill or in the Appropriation Committee's proposed FY 10–FY 11 biennial budget, sHB 6365. The board is charged with indentifying all funding sources that will be utilized to establish and administer the SustiNet plan. The board is required to offer, by July 1, 2011, the SustiNet health plan to those eligible within the bill. At that time the Authority may receive revenue from administrative charges applied to its insurance product. Administrative savings may accrue to certain state agencies that are currently carrying out some of the authority's health care functions.
The bill establishes a separate, nonlapsing General Fund account (the “SustiNet Account”) for claims payment and related administrative costs. The bill charges the Authority with depositing all funds received into the account and allows the Authority to use the account to defray the costs to the state of providing health care coverage under the SustiNet Plan. The earliest funds could be received would be July 1, 2011, assuming the Authority was ready to deliver its SustiNet Plan to potential members.
While no similar entity currently exists in Connecticut state government, the Office of Fiscal Analysis has examined the administrative operating costs associated with the Massachusetts Commonwealth Health Insurance Connector which became operational in 2007. While the two entities different in certain aspects of their operations, they are similar in scope.
The Massachusetts Commonwealth Health Insurance Connector currently employs 43 staff members and provides health care coverage to 165,000 members. The Connector has an estimated administrative operating budget for FY 09 of $35. 1 million with total health premium coverage of $782 million. Direct staff salaries and benefits are estimated to be $6. 2 million for FY 09. Other administrative costs of $28. 9 million are for such items as communications, customer service, premium billing and consulting services. The Connector does not provide any self-insured health plans rather contracts with existing health plan providers for its members. The Connector does provide subsidies for certain members based on income. The Connector was provided with an initial $25 million appropriation from the Massachusetts legislature prior to start-up.
The SustiNet Authority would be responsible for providing a self insured health care plan, by July 1, 2011, for the HUSKY population which is estimated at 391,000 members, with a premium equivalent cost of $1. 2 billion. In addition, SustiNet may be the sole provider of insurance to state employees and retirees if a collective bargaining agreement is negotiated with the State Employee Bargaining Agent Coalition prior to July 1, 2011. Currently, the state provides health care coverage for 183,000 members at a cost of $870 million. There would be potential administrative savings in the agencies currently administering both the HUSKY and state employee health care.
State Employee & Retiree Health Plan
This bill may require conversion of the state health plans to self-funded SustiNet Plan coverage beginning on or after July 1, 2011. For this change to occur, consent would be required from the State Employees' Bargaining Agent Coalition (SEBAC) to amend a collectively bargained agreement in effect until 2017. As a self-insured health care delivery plan, the SustiNet Plan would pay directly for participant claims on an incurred-and-reported basis. When the state health plans move from fully-insured plans to a self-insured mechanism, the premiums paid to private contracted health insurers cease and claims begin to be paid directly from a self-insured pool. In the event that SEBAC decides not to offer only one plan through SustiNet, there is no requirement that the remaining state employee health care coverage be moved to a self-insured plan. Therefore, the savings accrued from a delay in claims payments would be diminished.
There is a potential one-time savings due to the typical 30 to 60 day lag in the payment of provider health claims after services are rendered. Currently, the Comptroller pays approximately $70 million in fully-insured health care premiums each month for active and retired state employees. One-time savings will result from the lag in claims incurred but not yet reported to the new self-insured in the first two months of the transition. Assuming that half of the claims incurred are paid in the first two months, the General Fund would obtain a one-time savings of $70 million in FY 10.
The current fully-insured contract for state employee and retiree health insurance includes a rate cap of approximately 10% in FY 10 and 12. 5% in FY 11 across all health care plans to hold down costs in the biennium. The state's actual premium rates in FY 10 and FY 11 will be determined from the past year's average monthly claims per employee. For example, if the average FY 09 trend increase is 5%, then premiums would similarly increase by 5% in FY 10. If instead the average FY 09 claims were 13%, premiums would only increase 10% due to the rate cap. Other administrative charges would only increase according to the CPI index. By going self-insured, these rate caps become obsolete and the state assumes direct financial responsibility for all costs of enrollees' medical claims.
The first quarter of FY 09 had an average claims loss ratio of 97 percent (versus an average rate of 88% last year). 1 As a result, savings over the FY 10 - FY 11 period could be minimal or non-existent if loss ratios remain at current levels or continue to increase. Based on information obtained from the Comptroller's Office, switching to a self-insured plan could result in FY 10 rates that are 5. 9% higher than the maximum rate under the existing fully-insured contract, which equates to an additional $69 million in health costs for the state plan.
Section 3, subparagraph 15 provides the SustiNet Authority with the opportunity to enter into interagency agreements for performance of SustiNet duties that may be implemented more efficiently by an existing agency. To the extent that the SustiNet Authority continues to utilize the Office of the State Comptroller in executing its statutory responsibility to procure health care benefits for state employees and retirees, there will be no administrative cost savings to the State or to the plan itself.
To the extent that the SustiNet Plan can provide ongoing health coverage at a lower cost than private health plans, additional annual savings could be achieved. While the bill does not require SustiNet to provide for reserves to cover claims, it is a common practice to establish a rate stabilization reserve consisting of approximately 2 months worth of anticipated claims.
Public Assistance Programs
The bill requires all HUSKY A and B clients to be enrolled in the SustiNet plan by June 30, 2013. Additionally, it specifies that all uninsured individuals in the state with incomes under 300% of the Federal Poverty Level (FPL) are eligible to enroll in either HUSKY A or B.
The bill specifies that there be no reduction in HUSKY or State Administered General Assistance (SAGA) benefits or any increases in cost sharing or premiums as compared to the current benefit packages. The bill also requires that HUSKY provider reimbursement rates be gradually increased to the median cost for large group coverage.
These programmatic expansions and rate increases would increase quantifiable gross state costs by at least $1. 75 billion annually when fully implemented. This figure assumes that current levels of those with insurance are maintained. To the extent that employers or individuals currently insured opt to drop coverage to take advantage of the new eligibility levels, this cost could increase.
● Reimbursement Rates
Given the thousands of individual rates paid under the HUSKY programs, exact comparisons between current HUSKY rates and private coverage rates are not possible. The Office of Health Care Access' (OHCA) 2007 Annual Report on the Financial Status of Connecticut's Hospitals indicates that, on average, Medicaid pays 67% of actual costs, while private insurance pays 118% of actual costs. This would indicate that a 75% rate increase would be necessary to make Medicaid equivalent to private insurance for hospitals. As reliable data does not exist for other rate comparisons, the Office of Fiscal Analysis uses the rate hospital comparison as a proxy.
It is assumed that the required rate increases would apply to the services currently covered by the Department of Social Services (DSS) funded managed care organizations, as well as the dental and behavioral health carve outs. DSS pharmaceutical purchasing program is assumed to be outside this requirement. Based on an FY 12 current service projection for the applicable portions of the HUSKY programs of nearly $1. 2 billion, a 75% rate increase would result in an additional annualized cost of $900 million.
● Enrollment Increases
The bill allows anyone who is uninsured with an income below 300% FPL to enroll in the HUSKY programs. According to OHCA's Health Insurance Coverage Databook, it is estimated that in 2006 (the latest year for which data is available) there were 148,400 uninsured individuals below 300% FPL. Based on the reimbursement increases noted above, fully enrolling these uninsured individuals in HUSKY would cost approximately $800 million annually.
Since the time of the OHCA survey, the state has implemented the Charter Oak health insurance program. Therefore, some of the uninsured noted above are likely to already be covered in Charter Oak. Assuming that Charter Oak is subsumed by SustiNet, the $900 million cost noted above would be reduced by the estimated $40 million that the state is expected to pay for Charter Oak in FY12, resulting in a net cost of $760 million.
This estimate would also assume the enrollment of the current SAGA population in HUSKY. Currently, SAGA has a different benefit structure and payment mechanism than the HUSKY program. Therefore, enrolling SAGA clients in HUSKY would necessitate converting these aspects of SAGA to the HUSKY structure. The exact cost of such a conversion is not known. However, assuming that these changes add 40% to the FY12 current service cost for SAGA, an additional $90 million annual cost would result.
The above noted costs for enrollment increases assume that the enhanced rates paid for the HUSKY programs will be applied to the expansions. However, those rates are based on coverage mostly for women and children, who are a relatively low cost insurance group. Expanding this risk pool to include SAGA and other uninsured individuals may result in future actuarial increases in HUSKY rates.
The bill further states that immigration status shall not be a factor in determining eligibility for SustiNet or the HUSKY programs. Should this be read to allow illegal immigrants to enroll in these programs, additional costs will result. An estimated 39,000 illegal immigrants reside in Connecticut. It is not known how many are: 1) uninsured; 2) have incomes that would makes them eligible for HUSKY; or 3) are already counted in the above estimates of uninsured. For purposes of illustration, should this provision lead to a quarter of the 39,000 enrolling in the HUSKY programs, an additional cost of $50 million annually would result.
● Federal Reimbursement
Generally, the state receives federal reimbursement for the HUSKY A (50%) and the HUSKY B (65%) programs. Additionally, the state receives a 50% match for hospital inpatient and outpatient costs under the SAGA program through the federal disproportionate share hospital program.
The bill directs DSS to take any steps necessary to secure federal reimbursement for the eligibility increases mandated by the bill. As the increases are outside the normal eligibility standards allowed by the federal government, there is no guarantee that federal reimbursement will be secured.
Additionally, the substantial rate increases required by the bill may not be fully eligible for federal reimbursement. The federal government will not reimburse certain rates that exceed the upper payment limit. It is not known the extent to which this may reduce the potential federal reimbursement.
● Subsidized SustiNet
The bill requires SustiNet to subsidize benefits for certain individuals between 300% FPL and 400% FPL. These subsidies would allow individuals to pay for benefits on a sliding fee scale, depending on income. According to the US Census Bureau, there are approximately 174,000 households, with 435,000 individuals, within this income band. The cost of this subsidy cannot be known, as the cost of the SustiNet standard benefit has not yet been determined and it is not known how many potentially eligible individuals would partake in the benefit. However, given the total number of individuals in this income bracket, any such subsidy is likely to have a significant cost.
Other State Agency Impact
The bill has further requirements that may lead to additional administrative costs for the Departments of Public Health, Revenue Services, Labor, Insurance, and the Office of Health Care Access.
There are approximately 110,000 municipal employees (including boards of education). It is possible that certain municipalities (particularly smaller towns and non-state public groups), small non-profit organizations and small employers will achieve savings from SustiNet's large-group purchasing power, pooled risk and administrative economies of scale. In order for these groups to determine if they can achieve a savings under the proposed plan, employers must examine not only the rates and plan design but also 2 to 3 years of its utilization data.
Department of Social Services Caseload Information
Office of the State Comptroller
United States Census Bureau
U. S. Citizenship and Immigrations Services Reports
Various Reports on Massachusetts Health Reform
Office of Health Care Access Reports and Publications
1 Health insurance costs are attributed primarily to claims experience. These “loss costs” for state employees and retirees are generally in the range of 80 percent of the premium paid to health plans, but can vary from year to year based upon the health experience of the pool of covered lives.