THE CONNECTICUT EXPERIENCE
A Case Study on the Successful Implementation of a Health Reinsurance Pool
Written by: Karl Ideman
Unreasonable insurance rates and increases were significant problems in the Connecticut marketplace in 1989, with the most pain felt by employer groups of less than ten employees. Entities were generally engaging in risk avoidance, and some were even splitting groups to only take the good risks. There were employer inequities, and the practice of steering business to specific insurance carriers was becoming more widespread.
To compound the negative developments even further, Multiple Employer Welfare Arrangements (“MEWAs”) were emerging, and insurers were experiencing a reduction in capacity due to the movement of employers to partial or full self-funding arrangements. Additional incentives for change came from the Public Sector’s national reform movement. “Guarantee issue” and rate reform were being introduced in the states and National Health Insurance was a distinct possibility.
Since the Public Sector was embroiled in the reform movement, the Private Sector felt the urge to take the initiative to find a solution to the market instability. Significant collaboration began to be seen amongst traditionally rival insurance carriers. These carriers shared an overriding belief that differences in the makeup of the state markets, along with the varying strengths of the different insurance coverage elements in the state infrastructures, made a private sector approach the most efficient and effective way to implement reform.
The state of Connecticut possessed all of the ingredients necessary to ensure a successful outcome for such an ambitious initiative. There were a core group of insurance carriers with ample talent, willing to dedicate resources to implement change. The carriers trusted the Connecticut Insurance Commissioner, and the Insurance Commissioner had the confidence of the employer community.
This collaborative effort produced a small employer reinsurance model that was based on the first individual high risk pool model in which all licensed insurers are members. The reinsurance pool members cast a weighted vote to elect board members and to establish an Annual meeting of all members. The board members essentially took off their ‘company hats’ and put on their ‘pool hats’ for both the good of the industry and the good of the market. Karl Ideman, then VP at the Travelers Insurance Company, and colleagues, in conjunction with the newly-elected Board, established a process for equitable assessment of losses, a line of credit to help manage cash flow between assessments, and an annual financial audit by an independent CPA firm to assure adequate support for assessments.
The resulting prototype design became the Connecticut Small Employer Health Reinsurance Pool (CSEHRP). The key features of CSEHRP fostered the nationally recognized NAIC Model for small group health reinsurance. This model contains no option for a carrier to be risk-assuming and, therefore, avoid assessments. The results achieved were truly impressive! CSEHRP carefully balanced reinsurance rates against carrier benefits. It also eased the transition to modified community rating by allowing for some ceding from the insurers’ existing book of business. Passage of any group’s reinsurance costs back to customers was prohibited. This critical component positively affected pricing, and proved to be a key principle in the model’s success.
Perhaps most notable in the success of CSEHRP has been the existence of a Board committed to a fair and efficient market. This commitment was clearly exhibited through the introduction of Fair Marketing Guidelines. These guidelines limited case characteristics to demographics and disallowed any rate up at all for health conditions. In addition to the Board, there has always been active participation from producers and the legislature. CSEHRP could have received its greatest compliment yet, through the federally legislated Affordable Care Act, which reinforces and mandates the same policies and processes that have been part of CSEHRP for the last twenty years.
BUILDING ROME IN A DAY
In October 2007 Pool Administrators Inc. entered into the arena of Medicare prescription premium subsidy administration via the award of a state contract. One of the conditions of that contract was that a complex custom eligibility system be designed, developed, tested and deployed by January 1, 2008.
Due to PAIs’ commitment, ability, size and teamwork approach, which included the client, we committed to meet that tight deadline. Aside from the custom system requirement, in the two and a half months preceding the commencement of our role in the administration of the program, we also had to hire and train staff as well as reconfigure our office space and our communication and technology systems to accommodate the increased staffing levels.
On the contract commence date, January 1, 2008, the participants in the plan experienced a seamless transition from the former administrator to Pool Administrators Inc. Although there were bumps in the road leading up to and subsequent to the go live date, they were minimal when compared to what could have been.
Approximately eighteen months later, the same client advised us that funding had been made available to implement and administer a Medicare Part D coverage gap subsidy. Again, this required the design and implementation of a custom system to efficiently and effectively administer the coverage gap subsidy. PAI was subsequently contracted to perform that work.
What we have found throughout our experiences with this client and all of our various clients’ needs is that legacy systems are difficult to fit to new insurance reforms if their design was not intended for that new purpose. Our approach was to tailor a new system to the specific needs of the state but our challenge was to meet our client’s tight deadline. Our solution was to partner with another firm that had the resources, and our combined project management skills to “go live” by the deadline.