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Small firms slow to shop in exchange

Publish date: FEB 01, 2012

IN 2014, STATES WILL LAUNCH health insurance exchanges that will enable individuals and small companies to purchase insurance at competitive rates. While the nuts and bolts of how such programs operate will vary from state to state, Massachusetts provides one example from which other states can learn.


Commonwealth Choice Members By Benefit Level (August 2011)
Massachusetts launched its exchange, the Commonwealth Health Insurance Connector, in 2007. A quasi-public entity, the Connector was established for the dual purpose of administering the state's subsidized coverage program (Commonwealth Care) and providing an avenue for individuals and small businesses to compare and purchase non-subsidized products (Commonwealth Choice).

As of last August, nearly 40,000 people had used the Connector to purchase Commonwealth Choice plans, according to a November report sponsored by the Blue Cross Blue Shield of Massachusetts Foundation. Members include more than 30,000 individuals, more than 3,200 young adults and roughly 6,500 members covered under small business plans.

To participate in Commonwealth Choice, health plans must earn the Connector's "seal of approval" for quality, value and the adequacy of their provider networks. Currently eight carriers have the seal, up from six in 2007.

Although individuals can purchase the same products for the same price directly from the carriers, the Connector facilitates comparison shopping. Commonwealth Choice plans are grouped in three tiers—bronze, silver and gold—according to their benefit levels. Currently consumers can choose from six benefit designs and a total of 35 products.

In merging the individual and small-group markets, Massachusetts health reform restructured the private insurance market. As a result, the price of coverage for individuals has fallen, but the cost for small businesses has increased. A state report on cost trends found that, on average, premiums per-member per-month in the individual merged market were 33% lower in 2008 than premiums in the pre-reform, non-group market.

The Connector is also the exclusive seller of young adult plans, which can be purchased only by Massachusetts residents 18 to 26 years of age who are not eligible for employer-sponsored insurance or subsidized coverage. Young adult premiums are significantly lower than Commonwealth Choice plans because the plans are allowed to include higher out-of-pocket costs and optional prescription coverage.

While about half of all individuals seeking coverage now obtain it through the Connector, the exchange has had trouble making headway in the small business market, says Alan Raymond, author of the report.

That's because small businesses in Massachusetts have traditionally relied on associations and brokers to obtain coverage, he says. What's more, prior to the 2011-2012 benefit year, the state's largest insurer, Blue Cross Blue Shield, did not participate in Business Express, the Connector's most popular small-business product.

In an effort to encourage greater uptake, the Connector has lowered the administrative fee it levees on health plans and made it possible for small businesses to earn premium subsidies if they offer a qualifying employee wellness plan.

In administrating Commonwealth Care the Massachusetts' Connector has been "hugely" successful in enrolling people in subsidized health plans, keeping pressure on carriers and using procurement methodology to make sure plans keep rates low, he says.

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GOP candidate Mitt Romney argues that his proposal to convert Medicare from a defined-benefit program to a defined-contribution program will rescue Medicare by creating competition among plans and drive down costs. Republican Paul Ryan and Democratic Senator Ron Wyden have a similar proposal.

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Health Care Service Corporation offers defined-contribution plans in a private-exchange model.


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