Insurance and Real Estate Committee

JOINT FAVORABLE REPORT

Bill No.:

SB-596

Title:

AN ACT CONCERNING THE DUTIES OF THE CONNECTICUT HEALTH INSURANCE EXCHANGE.

Vote Date:

2/5/2013

Vote Action:

Joint Favorable

PH Date:

1/31/2013

File No.:

SPONSORS OF BILL:

Insurance and Real Estate Committee

REASONS FOR BILL:

The bill authorizes the Exchange to actively negotiate premiums with insurers who offer plans in the Exchange in order to obtain more affordable rates.

RESPONSE FROM ADMINISTRATION/AGENCY:

Kevin Lembo, State Comptrollor, submitted testimony in support of the bill, stating that the Exchange must have the authority described in the bill “to meet its own basic, essential mission – to increase the number of insured Connecticut residents, improve health care quality, lower costs and reduce health disparities while providing an exceptional consumer experience.” He stated that currently small business face on average 18% higher insurance costs than larger companies purchasing insurance and “the Exchange presents an opportunity to bring premiums in the individual and small group markets in line with those paid by larger entities. It is estimated that one in ten CT residents or between 250,000 and 300,000 state residents will be purchasing” through the Exchange by 2016. He also stated, “The large pool of participants will provide the Exchange board with significant leverage in negotiating premiums.” He described how his office is able to secure very low costs for third-party administrative services, and deep discounts on prescription drug coverage with pharmacy benefit managers, due to the size of the State employee health plan pool which covers more than 200,000 lives. He stated “The Exchange, which is anticipated to cover even more lives than the State plan, has an opportunity to do the same for the benefit of individual and small group purchasers.” The Comptroller also asked that the committee consider expanding the bill to include authority for the Exchange to also negotiate with insurers on plan design. He stated, “It is difficult for consumers to measure value when purchasing insurance. Research performed by Consumers Union revealed that consumers would prefer that the confusing list of insurance options be already sorted out for them.”

Victoria Veltri, Office of the Healthcare Advocate, submitted testimony in support of the bill, stating that the state statute creating the Exchange, CGS 38a-1083(c)(20), “includes a mandate to reduce the number of Connecticut consumers without health insurance and assist consumers with the selection of Qualified Health Plan… [and] to do all acts and things necessary and convenient to carry out the purpose of the Exchange.” She also stated that while the Insurance department maintains rate review authority, the Exchange “should be empowered to use its position as representative of hundreds of thousands of consumers when it is appropriate to accomplish its goals.”

Kevin Counihan, CEO of Access Health Connecticut, the Connecticut State Health Insurance Exchange, testified that “price negotiation, at least in the start-up period of the ACA, is impractical and risks diluting a key competitive advantage of the Exchange. We do not know at present the number of health plans that will be participating, the number of enrollees in the Exchange, what products they will buy, their health status, their utilization level, their geographic or demographic mix, the stability of the enrollee population or other details required to have a substantive negotiation. In other words, such negotiation is analogous to negotiating the purchase of a car without noting, without knowing the desired year, make, model, accessories or condition. Further, the idea of perspective rate negotiation without facts or data may result in fewer carriers participating on the Exchange” which may result in higher prices. He concluded his testimony by stating that “The term "active purchasing" is used somewhat misleadingly as a process for rate negotiation. While rate negotiation in our initial launch phase may not be in the best interest of consumers or small businesses, we support continuing to be an active advocate for consumer-focused market reforms. These include such changes as the elimination of medical underwriting, the elimination of exclusions for preexisting conditions, the removal of price differentiation based on gender, benefit plan standardization based on metal tier, and providing consumers with health plan quality ratings. I polled the CEOs of each of the 17 states implementing state-based Exchanges to determine which were prospectively negotiating rates with carriers, including Massachusetts and California. And the result was that not one of the 17 states were negotiating rates with, for the reasons I outlined. I respectfully suggest you consider adding the word "may" to Section 24 of the bill so that it reads: "and may negotiate premiums with health carriers offering or seeking to offer qualified health plans through the exchange." In this way, the bill provides the exchange with a flexibility for written negotiation in the future, as needed or as appropriate.”

NATURE AND SOURCES OF SUPPORT:

Kevin Galvin, Small Business for a Healthy CT, testified in support of the bill, stating that “legislation to make active purchasing an integral part of the Connecticut Health Care Exchange, as described in H.B. 596 is critical to meeting the goal” of ensuring Connecticut residents get the highest quality and most affordable health care possible. He also stated “the fact that the Exchange exists does not guarantee rates will be lower. The fact that the Insurance Department reviews and approves rates does not guarantee rates will be lower. The fact that the ACA is being implemented does not guarantee rates will be lower. And relying on the carriers to bring plans onto the Exchange without real structure to challenge pricing, in my opinion, is irresponsible. There's no clear data that not using active purchasing lowers prices, but there clearly is data that shows the use of active purchasing does yield lower rates to the consumer.”

Ellen Andrews, CT Health Policy Project, testified in support of the bill, statingthe best available tool for keeping [health insurance] affordable within the Exchange is to negotiate premiums; that's what Massachusetts did. There are only two state Exchanges right now, Massachusetts and Utah. Utah doesn't have [active purchasing] and the premiums inside the exchange are actually higher than they are outside. The rate of increase in Massachusetts' exchange is half what it is outside because they actively purchased.” She also stated, “Unfortunately, Connecticut's Exchange has decided to pursue the Utah model and not actively negotiate premiums, claiming that insurers might find it too “adversarial.” The concern that plans will not participate is unfounded. California, which is doing active purchasing in their new exchange, got 30 letters of intent from insurers. Large employers seeking competitive bids also have no difficulty attracting bids.”

Tony Pinto, an independent health insurance consultant, testified in support of the bill, stating “active purchasing is something that should be included in this bill, maybe not for this cycle because we're only a few months away from actually having to have this up and running, but at least it should be included in the bill for the next bid cycle, a couple years down the road.” He also stated that when the ACA takes effect “everything you know pretty much about individual and small group insurance is going to be turned upside down. The way you shop, the benefits you get, the way you work with a broker, your options in a market, they're going to be completely different. It's going to require that people relearn everything, for the most part, including the brokers. A lot of education is going to be required.

Michelle Wolf, Vice President of Health Initiative for the American Cancer Society, testified in support of the bill stating, “Competition among insurers and the ability to negotiate premiums result in reduced cost for purchasers. Larger pools of consumers provide for greater incentive for insurers to provide coverage, and the exchange is expected to ultimately enroll hundreds of thousands of Connecticut residents. Smaller pools, such as those in small businesses lack the negotiating strength to pay on average of 18 percent more in health plans for their employees. To best promote high-quality care, innovative delivery system reforms and the slowing, and for slowing the rate of growth of health care cost, exchanges should have the authority to be active purchasers when selecting participating health plans as opposed to being required to allow every health plan that can meet the minimum requirements to participate.”

The following also submitted written testimony in support of the bill:

Tom Swan, CT Citizen Action Group

Michele Mudrick, Christian Activities Council

New Haven Legal Assistance Association

Matthew Brokman, Council 4 AFSCME

Frances Padilla, Universal Health Care Foundation of CT

Jean Rexford, Connecticut Center For Patient Safety

Karen Schuessler, Citizens for Economic Opportunity

Stephen Karp, National Association of Social Workers, CT

Mary Moninger Elia, CT Alliance for Retired Americans

Jamie Stirling, Stirling Benefits

Alta Lash on behalf of Caring Families Coalition

NATURE AND SOURCES OF OPPOSITION:

Susan Halpin on behalf of the Connecticut Association of Health Plans, testified in opposition to the bill, stating “active purchaser can be defined in many different ways, and, in fact, the process that currently is underway incorporates many underlining concepts such as requiring carriers to be designated as qualified health plans and thereby meet specific criteria outlined in the application process. Having said that, we believe that legislation before you seeks to implement active purchaser in the strictest sense, via selective contracting, limiting the numbers of carriers participating in the exchange and/or regulating the premiums they charge” and the products that will be offered. She also stated that while standard plans will allow for easy comparison shopping for consumers there are also consumers “interested in shopping for the carrier and the design that best meets their individual or business needs [who] may want the broadest choice possible, which we believe is what's afforded under the current model.” In conclusion she stated, “Connecticut already has a robust market and a number of carriers have already filed letters of intent to operate on the exchange. We are well underway. There are significant implementation tasks that the health carriers themselves have to undertake, IT building and testing, so on and so forth. We believe to kind of have the sands shifting at this point in time could have unintended, detrimental effects on the exchange, and we would strongly encourage you not to move forward with this bill.”

Jennifer Herz, on behalf of CBIA, testified in opposition to the bill stating that CBIA believes the current policy of managed competition being pursued by The Exchange is proper. She also stated support for the goal of a competitive marketplace, stating “One of the best ways to increase consumer choice is to increase competition. Requiring direct rate negotiation would decrease competition by regulating the market further. We want to encourage innovation in plan design; we don't want to further limit their ability to do so. So requiring rate negotiation would decrease choice and decrease competition. We urge you to reject this bill.”

The following also submitted written testimony in opposition to the bill:

Andy Markowski, National Federation of Independent Business

Brooks Goodison, Diversified Group Brokerage

Reported by: Sheila McCreven

Date: March 6, 2013