1

“New Jersey’s Experiments With Limited Benefit Plans: Half A Loaf May Be Better Than None At All - - But Most Folks Won’t

Spend the Dough”

Wardell Sanders, Esq.Executive DirectorNew Jersey Individual Health Coverage (“IHC”) Program &New Jersey Small Employer Health Benefits (“SEH”) Programwsanders@dobi.state.nj.us

SCI ConferenceJune 28, 2004

2

Outline of Presentation Background: Features of New Jersey’s 1992

Individual/Small Employer Market Reforms

Experiment #1 in Limited Benefits Plans - - “Plan A”– Plan A Summary of Benefits– Rates and Enrollment– Observations and Lessons

Experiment #2 in Limited Benefits plans - - “Basic and Essential Plan” or “B&E Plan” – B&E Plan Summary of Benefits– Rates and Enrollment– Observations and Lessons

3

BACKGROUND: Features of New Jersey’s 1992 Individual/Small Employer Market Reforms

Guaranteed issuance for all small employers and for all individual residents not eligible for group coverage or Medicare

Guaranteed renewability of all plans Portability and limitations on pre-x waiting periods Rating restrictions: individual market - full community

rating; small employer market - phase in to 2:1 rate band based on age, gender and geography

75 percent minimum loss ratio: Refunds totaling $85 million since 1994

Regulatory oversight by volunteer Board of interested parties

5 Standardized plans including “Plan A”, a bare bones plan

4

Experiment #1: “Plan A” P.L.1991, c.187 - enacted prior to the 1992

individual and small employer market reforms Among other things, the law required carriers to

issue a basic health benefits plan with statutorily defined benefits; chiefly a hospitalization-only plan with internal limits; to be sold in both individual and small employer markets

Legislative response at a time of heightened anxiety about the cost of coverage

Small business community wanted a “benefit-lite” plan

The plan design from the 1991 law was incorporated in the 1992 individual/small employer market reforms as one of the 5 standard plans

5

New Jersey Individual Health Coverage ProgramLowest Monthly Single Rates: Comparison of Plan

A (bare bones) and Plan B (comprehensive)

QuarterPlan A$250

Deductible

Plan B$500

Deductible

4Q93 $113 $135

4Q94 $113 $135

4Q95 $124 $149

4Q96 $124 $196

3Q97 $124 $196

Note: The State Board regulating the individual market eliminatedPlan A as a standard plan option in 12/97.

6

Enrollment in Plan A - IHC

New Jersey Individual Health Coverage ProgramPlan A Covered Lives v. Total Covered Lives

IHCPlan A Total % Plan ALives Lives of Total

4Q94 4,611 112,964 4.082%4Q95 4,816 186,130 2.587%4Q96 5,335 160,106 3.332%4Q97 5,111 154,255 3.313%4Q98 3,286 131,168 2.505%4Q99 99 112,948 0.088%

7

Plan A Enrollment - SEH Plan A covered lives v. total covered lives

Plan A Total % Plan ALives Lives of Total

4Q94 201 694,312 0.03%4Q95 379 779,299 0.05%4Q96 382 816,716 0.05%4Q97 351 846,765 0.04%4Q98 41 869,594 0.01%4Q99 33 926,662 0.00%4Q00 71 899,162 0.01%4Q01 41 883,842 0.01%1Q03 4 869,191 0.00%

8

Observations and Lessons - - Plan A

Plan A was targeted to those with lower income, and therefore had low cost-sharing, but low cost-sharing increased rates

Benefits that are popular are those that drive rates What’s affordable, people don’t want; what people want, is

often not affordable Carriers are often reluctant to issue these plans; relative

pricing often reflects this fact Consumer appetite for limited benefit plans was modest in

the individual market, and nearly non-existent in the small employer market

In employer market, both the employer and the employee (due to participation requirements) must choose to buy

Without proper warnings, consumers may not understand the limits in the plan

9

Experiment #2: B&E Plan

In 2001 a new wave of concern about affordability and accessibility of coverage

P.L.2001, c.368 requires individual market carriers to offer a new limited benefits plan

Benefits based on 1973 Blue Cross Blue Shield Plan Rating flexibility of 3.5:1 permitted for this product only - -

Legislature was targeting younger residents

10

Detailed Summary of B&E Plan

11

Enrollment in B&E Plan

Quarter

IHC Community Rated Covered

Lives

Basic & Essential

Covered LivesTotal Covered

Lives

Basic & Essential % of Covered Lives

1Q03 78,443 0 78,443 N/A

2Q03 78,614 136 78,750 0.17%

3Q03 77,795 503 78,298 0.64%

4Q03 76,651 814 77,465 1.05%

1Q04 76,312 1,175 77,487 1.51%

12

Comparison of B&E to 3 Standard Plans/B&E Rates

Basic & Essential Plans Single Tier Premium Delivery Single Tier

PremiumMarket HMO Plan A/50 Plan C Covered System Lowest Highest

Carrier Share $30 copay $2500 ded $2500 ded Lives & Rating Premium PremiumAetna Inc. 14% $430 $514 $718 - Indemnity(1) $598 $1,900

AmeriHealth 7% $387 - - 1,034 HMO(3) $131 $458Celtic 0% - $1,080 $3,352 - Indemnity(3) $854 $2,987

CIGNA 1% $646 - - - HMO(4) $425 $1,488Guardian 0% - $624 $841 - Indemnity(4) $733 $2,129HealthNet 1% $562 - - - HMO(3) $157 $544Horizon 58% $384 $598 $658 6 Indemnity(1) $575 $575

Oxford(5) 18% $406 $408 $354 135 EPO(1) $117 $402Trustmark 0% - $2,141 $2,719 - Indemnity(1) $3,059 $3,059

United HealthCare 1% $476 $612 $861 - HMO(1) $420 $420Totals 100% 1,175

(1) Rating Structure = community Rated(2) Rating Structure = Age, Gender, and Location(3) Rating Structure = Age and Gender(4) Rating Structure = Age(5) Rate shown for Plan C is for PPO

13

Observations and Lessons - - B&E Plan

Too early to draw firm conclusions, but many of the lessons from Plan A appear to apply to B&E

Despite a statutory good faith marketing requirement for B&E Plan, many carriers have little or no enrollment

Carriers eager for individual market rating flexibility choose to use a community rate for B&E

Marketing may play a large role in the success of these plans