Chair Oshio, Vice Chair Lee and Committee Members:
The League of Women Voters of Hawaii supports SB2434, SD1, HD1, and we respectfully offer comments for your consideration.
SUMMARY OF PREVIOUS TESTIMONY ON SB2434
As outlined in SB2434, SD1, HD2 the League of Women Voters of Hawaii strongly believes health insurers and health insurance producers (agents and brokers who sell health insurance) should be prohibited from serving on the Connector Board which sells its products or those of a competitor. We think insurers and insurance providers have important expertise to offer the Connector, but in a public advisory capacity only. We have also testified that consumer representation on the Board should be greatly strengthened; our specific suggestion was five of the fifteen Board members should be independent health care consumers, as outlined in Section 3, b of SB2434.
We also previously testified that with respect to the design of the Connector, indications are there should be a single pooled market for the small group and individual sectors1, and a single risk pool for this program. Whether this is a good design for Hawaii can only be determined with certainty after an actuarial analysis of the population expected to be served in the Connector, so we urge this be done as soon as possible. It will be the foundation for operating the Connector responsibly, and alternate designs should be reexamined regularly as a normal part of achieving the goals of ACA in Hawaii. As outlined in SB2434, SD1, HD1 we do think that qualified health plans must be required to offer a plan to both the small group and individual sectors; otherwise “cherry picking” the more profitable sector and ignoring the less profitable sector could occur.
Regarding the Navigator program, SB2434, SD1, HD1 correctly prohibits insurance producers and brokers from serving as navigators for the connector, since these parties play an active role in marketing exchange products.
Finally, we have testified that the functions of the Hawaii health connector are of such significance to the public that all of its business should be conducted in accordance with the Sunshine Law, §§ 92-1 to 92-13, and all Board members and employees should be subject to the State ethics law. These requirements are still missing from SB2434, SD1, HD1 and presumably this is because the Connector is a private nonprofit exempt from these State laws.
PUBLIC FINANCE IMPLICATIONS
State governments have substantial latitude in how they implement various aspects of the Affordable Care Act (ACA). I have comments on four public policy issues: 1) consumer protection, 2) the Basic Health Plan option, 3) requirements for a self-sustaining Connector and 4) accountability.
Consumers’ Union surveys document the widely held perception that people dread shopping for health insurance.2 In view of Hawaii’s legacy as the ‘health” State, its tradition of protecting consumers and the obvious financial implications to the State if we don’t, I submit that it is the State, and not the nonprofit Connector, who should establish a quality rating system and other related standards for Connector health plans. Quality ratings should include affordability, provision of chronic care management and care coordination, and provision of interpretation and transportation assistance. How will the Connector be able to provide such assessments without a conflict of interest when Qualified Health Plan executives are members of the Board of the Connector?
Premium regulation for buyers deserves much emphasis. Hawaii’s 2011 Act 205, which enabled the Federal ACA here, was not clear on whether the Exchange is to duplicate or replace the duties of the Insurance Commissioner. It simply states, “The commissioner, a member of the Board, shall retain full regulatory jurisdiction pursuant to the authority granted to the commissioner by part II of article 2 of chapter 431 over all insurers and qualified plans and qualified dental plans included in the Connector.” Yet the Insurance Commissioner is only 1 of 15 Connector Board members. Can the Insurance Commissioner be outvoted on proposed rates for a Qualified Plan? This strikes at the core consumer protection of independent ratemaking.
What happens to ratemaking after the Insurance Commissioner admits Qualified Plans to the Connector? The Federal ACA states that “Rate regulation for qualified plans and qualified dental plans included in the Connector shall be pursuant to applicable state-and Federal law.” We think sorting out the respective roles in rate regulation is critical, and strongly urge the Legislature to pursue a legal clarification of this most important consumer protection. Is the Federal Government to share ratemaking responsibility with the nonprofit Connector? Is the State Insurance Commissioner to share ratemaking oversight with the nonprofit Connector? Some of this dilemma could be eliminated entirely if the Connector were not a separate nonprofit organization.
A Basic Health Plan for Hawaii?
The Affordable Care Act contains a little known but potentially significant provision that would allow Hawaii to create a more affordable alternative to the health insurance Connector – the Basic Health Plan (BHP), a Medicaid-like insurance plan targeted at people with incomes between 133% and 200% of the federal poverty level. Legal immigrants who are not eligible for Medicaid could qualify for the BHP as well. Hawaii would contract with health plans or providers to create a managed care plan meeting essential health benefit requirements.
BHP would be state-run and federally-state financed, but this is important because the federal government foots such a large share of a BHP. If Hawaii decided to create a Basic Health Plan it would mostly likely contract with private Medicaid managed care organizations, but Hawaii could also adopt a fee-for-service reimbursement approach combined with primary care case management.
The League believes Hawaii should give the Basic Health Plan serious consideration, for both financial and policy reasons. We are still facing budget pressures at the same time that we are grappling with how to establish the Connector and update insurance and Medicaid administrative systems to meet requirements of the Affordable Care Act by 2014. The Basic Health Plan could offer a cost effective option distinct from the Connector for reducing the number of lower-income uninsured people. We have options, but the League suggests these options are best evaluated by the State itself (not the Connector), under the oversight of the Department of Human Services and the Insurance Commissioner. A careful independent analysis is best in the long run.
It’s possible the Basic Health Plan could repurpose federal Connector funds and help to shore up the State Medicaid program by infusing money into Medicaid provider networks and reducing member turnover. To finance the BHP, Hawaii would receive 95% of the federal money that otherwise would have been spent on premium and cost-sharing subsidies for the target population in the Connector. One estimate suggests that states would save up to $1,000 per member annually based on the lower rates charged by Medicaid providers if they are able to access Medicaid provider network discounts for BHP participants. 3 The formula for Federal subsidies to such a BHP is not set yet, to my knowledge, and understandably Hawaii would want to minimize the risk that the cost of providing benefits under Basic Health may exceed the federal funding we receive.
We do not know how many people in Hawaii could be eligible for this alternative plan. Tabulations by the McKinsey Center for U.S. Health System Reform from the most recent Current Population Survey suggest that 19% of the non-elderly uninsured in the United States have incomes that would qualify, 4 and the Urban Institute estimates that states could garner about $1,000 of excess subsidy per enrollee if they guide those near poverty into BP’s. However, any savings has to be returned to the BHP for things such as increased provider rates or higher subsidies.
One option would be to design the Basic Health Plan similar to the Children’s Health Insurance Program (CHIP), setting provider rates and consumer co-payments a notch above what Medicaid pays, yet still lower than Connector rates. This might be an ideal approach for both the State and providers.
Detailed federal guidance for BHPs is still unclear, and to our knowledge the Connector Board has not made a formal evaluation of this option, though they discussed this matter in 2011 Board meetings. We are aware that advocates for low-income consumers such as the Hawaii Primary Care Association are pressing to put the idea on the state’s agenda.
If Hawaii establishes a plan, enrollees would not have the option of purchasing insurance through the Connector. Without enrollees from the BHP target income group, Connector enrollment would fall. If adopted, the Basic Health Plan could pull a significant percentage of the individual population out of the Connector, making it harder for the Connector to be self-sustaining. That is because the anticipated risk pools would likely be smaller and administrative costs higher since they would be spread across fewer enrollees. This could also reduce the Connector’s leverage in the marketplace, because it will be offering insurance to a smaller group. Similarly, the converse is true: the Medicaid program would gain leverage, since it would be purchasing for more people. This is a complex policy decision, and obviously underscores the importance of making an independent analysis of the feasibility of a Basic Health Plan for Hawaii, since leaving the Connector for the BHP is not in the financial interest of the insurer members on the Connector board. The impact and feasibility of this option should be studied, before the nonprofit Connector rushes to make a decision on behalf of Hawaii. Can health plan payment rates be sufficient to ensure access to a robust provider network yet not be excessive?
Requirements for a Self-Sustaining Connector
Through 2014, the Connector’s operations will be supported through the Federal grant of approximately $15 million to Hawaii. But under the terms of the Affordable Care Act and Hawaii’s Act 205 that implemented the Federal Act, the Connector must be self-supporting in 2015. The ACA permits “assessments or user fees to participating health insurance issuers, or to otherwise generate funding, to support its operations.” Since the Connector will provide administrative functions in marketing and acquisition that are now conducted and paid for by health plans it seems appropriate for health plans to pay the operating assessments.
We haven’t seen a business plan for the Connector, which should include estimates of the revenue required for operation. In December 2010, Oregon estimated its annual operating expense would be approximately 3% of average premiums (decreasing to 2.8% by 2016). If there were 100 thousand Hawaii residents with an average annual premium of $3,500 dollars, a conservative estimate is about $10,500,000 annually in what is easily construed as a premium tax; this taxation will occur outside the State treasury because the Connector is established as a nonprofit.
If the governance and structure described in Act 205 isn’t remedied, it’s conceivable the “Connector” could operate in this manner even if the Federal health care act is repealed, though Act specifies that “the State shall not be responsible for the financial operations or solvency of the connector.” Act 205 prohibits State general funds from being used to fund development or operation of the Connector, but if revenues are insufficient, just where will the money come from? We see that Act 205 tried to address this by authorizing acceptance of “grants, endowments, fees or gifts in cash or otherwise from public or private sources, including corporations, businesses, foundations, governments, individuals and other sources subject to rules adopted by the board.” Rules for acceptance of gifts from vendors who sell health plans through the Connector should be strict, comparable to those proscribed in the State Ethics Code. For that matter, the League believes rules should be identical to the State ethics code, but once again we are confronted with the fact that this is a private nonprofit, outside the purview of State Ethics law.
Accountability – Where is It?
The ACA requires that the Connector be self-supporting beginning in 2015, when there will no longer be Federal funds available to operate for the exchange. Since the Connector was organized as a private nonprofit under Act 205, little accountability is required of the Connector. It will not take part in normal State budgeting review, yet it is inconceivable to us that the State would not make up any operating budget shortfall for this critical resource.
Act 205 of 2011 established the Connector, so that it “shall not be an agency of the State and shall not be subject to laws or rules regulating rulemaking, public employment or public procurement.” This is very troubling to the League because of the criticality of the Connector, and the League’s core values of transparency, ethics and accountability in government.
We wonder too if this nonprofit status will result in expense that could be avoided if the Connector were a public venture which could leverage existing State resources for information technology, contracting, hiring and other management functions .necessary to establish and operate the Connector.
The Exchange could have been housed in a State agency, and it should be, given the importance of this venture and the fact that Federal funds were awarded to the Department of Commerce and Consumer Affairs to implement the Connector. Instead, it is to be run by a nonprofit with little consumer participation and no-day-to-day regulatory oversight. The Exchange employees will not be state employees, so their recruitment, hiring, and compensation are not known. Does Act 205 specify Board members should serve without compensation? Connector employees and the Board will not be subject to State Sunshine laws or State Ethics regulations by virtue of being employees of the nonprofit.
Was the Board required under Act 205 to create an initial operational and financial plan? Though Act 205 specifies that the connector “shall be audited annually by the state auditor,” we expect this means the legislative auditor will provide a management audit, not audited financial statements. If true, this is certainly a departure from typical management controls. There is an attempt to address this in SB2434, SD1, HD 2, Section 3 e which states: “the board shall manage the budget of the connector in accordance to generally accepted accounting principles and a plan for financial organization adopted by the legislature based on recommendations of the interim board.” A budget is not the same as pro forma financial statements, and pro forma financial statements are not subject to audit – they are merely a projection for planning purposes. More to the point, did the interim board complete this task, and did the legislature adopt a plan for financial organization? If the Connector is a private nonprofit why make it responsible to the legislature for its operational plan? This comes across as a half-hearted attempt to introduce some accountability to the State, when the State has no governance role in the Connector.
Is this a situation where the Governor should appoint all nominees to the Board, or is this a situation where the legislature should appoint some Board members?
On March 23rd, during interviews in the Senate Consumer Protection Committee confirmation hearings for the Governor’s nominees to the Connector Board, at least two holdover nominees from the interim Board mentioned the extreme time pressure the Board felt during their 2011 meetings. It’s obvious to the League that this atmosphere continues. Having secured Federal funding for startup of the Connector, the Board’s agenda is to use as much of that as possible, as quickly as possible.
But let’s take a deep breath here. Hawaii already has a marketplace where more than 90% of our citizens have health insurance, even if we don't have the full promise of the ACA. While we support the intent of SB2434, S.D. 1, H.D. 2 to properly restructure the governance of the Connector, we are left with more questions than answers about whether this can be done with a nonprofit model. Our opinion is the present Connector arrangement gives too much authority to this nonprofit Board, an untenable arrangement for a public insurance market. Please use SB2434, SD1, HD2 to restore the hope of a fair deal for Hawaii’s small group and individual health care markets. We have time to do this, but the time has come.
Thank you for the opportunity to submit testimony.
1 “Nagao, Mark, “How Choices in Exchange Design for States Could affect Insurance Premiums and Levels of Coverage,” Health Affairs, pp. 293-294.
2 What’s behind the Door: Consumers’ Difficulties Selecting Health Plans, Consumers Union, Health Policy Brief, January 2012.
3 Day, Rosemarie, Garrett, Bowen and Connolly, Ceci, ““The Basic Health Plan – an Emerging Option for States,” McKinsey Center for U.S. Health System Reform, March 24, 2011, pp. 2.
4 Ibid, p.2.