Connector Plans

Health insurance "Connector" proposals (also labeled "Exchanges") are popping up in state legislatures throughout the country. They are based on portions of legislation that Massachusetts enacted during 2006 and, if signed into law, would represent a major shift in the way private health insurance coverage is purchased and delivered. This overview is designed to answer some of the most commonly asked questions about Connectors in order to help you evaluate proposals that may be under discussion in your area.

Connectors are purchasing pools designed to offer consumers greater accessibility to a wider range of tax-advantaged employer health insurance choices than many employees of smaller businesses enjoy today. Connectors intend to operate like the Federal Employee's Health Benefit Plan does today, where many private insurance plans compete for federal workers' business.

All health insurance products sold through a Connector will be individual policies even if they are purchased by an employer in lieu of traditional group insurance coverage. Employers purchasing coverage through a Connector may be required to establish premium-only Section 125 "cafeteria" policies through which the Connector policies would be purchased. Through the Section 125s, someone with multiple jobs could pool money from multiple employers to buy tax-advantaged health insurance.

While the Connector goals of increased consumer choice and accessing federal insurance tax advantages are certainly commendable, NAHU's view of a Connector will depend on the many fine details of the legislation. From a producer's perspective, a Connector can be an innovative private/public partnership to expand health insurance choice, or a taxpayer-subsidized entity directly competing with licensed health insurance producers.

How are Connectors governed and operated?
Similar to most state high-risk pools, Connectors are governed by boards of political appointees. Legislation dictates the board's composition and the members' qualifications. The board members may be appointed by the governor, attorney general, speaker of the House, Senate president or other elected officials. Appointees may have to meet specific qualifications, like a consumer advocate or health insurance producer.

How much do policies cost?
Visit the Massachusetts Health Connector's webpage to see plan and premium information. http://www.mahealthconnector.org/

Different Connector Variations

Pending Connector bill(s) would not necessarily create a Connector like the one that currently exists in Massachusetts. NAHU members must carefully evaluate each bill's fine print.

Some differences among Connector proposals include:

• Individual Mandates: The Connector legislation in Massachusetts was accompanied by a mandate requiring individuals to obtain health insurance coverage or be subject to state income tax penalties. However, not all Connector bills being considered in other states include a mandate to purchase health insurance coverage; some may limit mandates to residents who earn above a certain threshold, like three times the federal poverty rate.
• Eligible Populations: Different populations may be eligible to purchase insurance from the Connector:
  • Individual market only
  • Small-group market only
  • Individual and small-group markets (1 to 50)
  • Small-group plus (2 to 100)
• Status of Traditional Insurance Markets: The Massachusetts Connector will replace the state's existing individual market but is being designed as a supplement to the state's small-group market. Some Connector proposals would have dissolved the existing individual and small-group markets within a set time frame of the Connector's establishment.
• Rating Factors: In Massachusetts Connector products will be sold on a guaranteed-issue basis and will be rated on a modified community basis. This is how all individual and small-group products were required to be sold in the state even before the passage of the Connector legislation. Other state Connector proposals may use different rating factors than what are currently being used in Massachusetts (age, geography and tobacco use), and they may or may not include the same guaranteed-issue requirements.

Here are some specific examples from the past legislative session. As you can see, the fine details are extremely important.

• HB 2120 A simple small group-only Connector
• HB 0818I The Connector as the sole source of individual and small-group coverage. This bill would have terminated all non-Connector individual and small-group products upon renewal. Read from the end of page 19 to see these details.
• HB 1045 An individual market and "any employer" Connector. Note: This legislation, as introduced, would have permitted unlicensed and unregulated entities to sell Connector health insurance and compensated them.
• SB 556 Another individual and small-group market Connector. Note: While a traditional small group market could exist outside the Connector, taxpayer funds would have reinsured Connector plans to create an unlevel playing field.

What are producers' roles in a Connector and how are they compensated?
This answer depends entirely upon how the legislation is written. In Massachusetts, residents can buy from producers or directly from the Connector. Legislation can, of course, be written in a way that bypasses agents all together. In fact, before the Massachusetts Association of Health Underwriters successfully sought an amendment to that state's legislation, policies could be sold by non-licensed entities as well as through producers.

How will Connectors interact with current markets?
State health insurance market rules vary significantly. Connector products are designed to be offered on a guarantee-issue basis and not be medically underwritten but instead rated on a community or modified community basis, which would not take into account enrollee health status. The vast majority of states currently employ medical underwriting in both their individual and small-group markets, and most do not require that individual policies be offered on a guaranteed-issue basis. So, in most states, the implementation of a Connector would represent a significant regulatory shift.

If a Connector bill is introduced in your state, please pay attention to it and read and understand the fine print. As always, NAHU is prepared to help you evaluate Connector proposals. Don't hesitate to contact your director of state affairs if you have questions.

Connector-related Resources

Massachusetts

The Massachusetts Association of Health Underwriters http://www.massahu.org

The Massachusetts Connector's page www.mahealthconnector.org Connector board reports and updates are available on this website.

Massachusetts agents launch site on Mandatory Health Insurance Law

The Massachusetts Executive Office of Health and Human Services files regular reports to the state legislature. Connector updates are included. The reports are available.

The law firm of Mintz Levin has published An Employers Guide to the 2006 Massachusetts Health Care Reform Act.

The Center for Studying Health System Change published an update of the Massachusetts reform.

Other Connector Resources:

NAHU's Connector study- a new independent academic research study on the legal and economic issues associate with state-level health insurance connector or exchange proposals.

On August 6, 2007, the IRS clarified that individual policies can be purchased through a Section 125 and receive the group insurance tax-favored status. (This tax treatment can be achieved with or without a Connector). IRS Cafeteria Plan Ruling

NAHU's Connector "Hot Issues" piece

The Colorado Association of Health Underwriters proposed a Connector-like entity to verify an individual's eligibility for public assistance program. To see the chapter's proposal, click here

State Coverage Initiatives - Health Insurance Connectors & Exchanges: A Primer for State Officials

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