Utah Governor Gary Herbert recently signed H.B. 294 into law, enacting several additional market reforms to the existing Utah Health Exchange (see 2010 State of the States pages 31 and 33) which was implemented in August 2009 as a pilot. During the state’s first year running the Exchange, it experienced some problems in risk transfer, risk pooling, and risk allocation. H.B. 294 includes several provisions to address those market inefficiencies.
Risk Adjuster: While the Exchange was originally implemented with a risk adjustment mechanism, it did not go far enough in protecting the small-group market. In the past year, insurers found that using traditional methodologies in the new “defined contribution” market resulted in significantly higher rates for employer groups inside the Exchange than for those same employer groups in the traditional market. To address the issue of dual markets, the risk-adjustment mechanism will also apply to the small group market. All the small group insurers will pay into a pool and those who end up with a disproportionate share of sicker customers will be allocated funds from the pool. The state views that provision as a way of ‘equalizing the markets rather than allowing one market to be advantaged over the other.’ Should the statewide risk-adjustment process not lead to this equalization, the bill includes the option of pooling the two markets together in 2013.
Coverage Standards: Given the prospect of more employers participating in the Exchange, the bill requires that all plans offered in the Exchange meet federal standards for employer-sponsored coverage. The state hopes that this will help in coverage portability.
Underwriting and Rating Practices: Starting Jan. 1, 2011, the underwriting and rating practices in both the Exchange and the small-group market will be modified. Age bands and family status categories will be standardized. Five-year age bands between ages 20–65 will be applied, with a maximum age rating variation of five to one. Insurers will also be required to use the same base rates for both markets. Gender, group size, and industry classification will be excluded in the rating process.
Large Employer Pilot: Also starting in Jan. 1, 2011, a limited number of large employer groups will be allowed to enter a pilot program within the Exchange. Seven large groups have signed up to participate and with the potential to bring approximately 45,000 lives to the Exchange.
In an effort to address costs and transparency, the bill authorizes the Department of Health to analyze data from its all-payer database. Likewise, the insurance department will be looking for demonstration projects to test delivery and payment reform strategies, as well as mechanisms to help consumers compare the value of plans sold in the Exchange.
Sources:
“Comprehensive Reform Bill Seeks to Address Insurance Rates in Health Exchange Program.” BNA’s Health Care Policy Report. March 22, 2010.
Haislmaier, E. State Health Care Reform: An Update on Utah’s Reform. April 9, 2010.
The Statewide Risk Adjuster & HB294 Myth Versus Fact. Utah Health Policy Project. February 19, 2010.
