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June 2009 St@teside

A Closer Look at the Healthy Texas Reinsurance Program

The Texas legislature recently passed a bill (SB 78) that would create the Healthy Texas Program to assist small employers with purchasing affordable health insurance.  The program was created in response to legislation enacted in 2007 which directed the Texas Department of Insurance (TDI) to conduct a study and develop recommendations for a small employer insurance program.  During the interim, TDI worked closely with the Texas State Coverage Institute (Texas SCI) working group, funded by a grant from the State Coverage Initiatives (SCI) program.  The working group included staff representing the Governor, Lieutenant Governor, and Speaker, as well as several key Senate and House members. 

The Texas SCI team discussed a number of alternative mechanisms and ultimately agreed to focus on the Healthy Texas reinsurance model because it builds on the existing private insurance market by using commercial insurance plans to provide affordable, private insurance.  The proposal was presented in numerous stakeholder meetings attended by individuals representing providers (physicians and hospitals), insurance companies, insurance agents, small businesses, consumer advocacy groups, faith-based organizations, and local government leaders—all of whom are interested in new solutions to address the growing problem of uninsured Texans. Healthy Texas is modeled after the Healthy New York program for uninsured individuals and businesses. While there are some distinct differences, the Texas program builds on the experience of New York..

The reinsurance approach is driven by the fact that a small percentage of people account for most health insurance costs.  Reducing private insurers’ responsibility for high-cost claims allows them to provide lower cost insurance for the large majority of enrollees who have low health care costs.  Enrollees in Healthy Texas will select from a variety of comprehensive, state-approved, private market health plans, including approved three-share programs.  The state-funded reinsurance fund will pay 80 percent of an individual’s total claims between $5,000 and $75,000 incurred in a calendar year. The health benefit plan covers 100 percent of claims below the $5,000 threshold and above $75,000 and 20 percent of claims between $5,000 and $75,000, up to the maximum annual benefit limit.  Based on Texas data reported to TDI by health insurers and similar national data, approximately 10 percent of insured people incur claims of $5,000 or more in a year and less than two percent incur claims exceeding $25,000 in a year.

Actuarial analysis supported by the SCI grant estimates Healthy Texas premium costs will be reduced by at least one-third through the provision of reinsurance.  Total employer/employee premiums are expected to average approximately $200 per month, with the employer paying a minimum of 50 percent.  To ensure the program reaches the lowest wage workers, small employers are eligible for the program if at least 30 percent of their workers earn wages that do not exceed 300 percent FPL.  Businesses also must not have offered insurance within the past 12 months.  The program also requires a lower minimum employee participation rate of 60 percent compared to 75 percent in the current small employer market.

The legislature provided $35 million to pay reinsurance claims for fiscal year 2010– 2011, with unspent funds remaining in the program for subsequent years.  Depending on when Healthy Texas begins enrolling members and the level of actual claims costs, TDI estimates that enrollment in the first year will reach 26,000 to 30,000 lives.  The Department has also applied for a federal grant through the Health Resources and Services Administration (HRSA).  The additional funds would allow higher enrollment levels and would provide premium assistance for employees who cannot afford their share of the premium contribution.  TDI hopes to begin enrolling groups as early as April 2010.

Creation of Healthy Texas evolved with the help and support of many partners in Texas.  The program builds on the work conducted under the HRSA State Planning Grant Program that included multiple surveys and population analyses, focus groups, and extensive working sessions with health plans, providers, employers, employees, and consumer advocates.  Under a HRSA Pilot Implementation Planning Grant, TDI worked with the city of Houston, Texas to design a small employer program specifically geared toward low-wage workers.  Many of the lessons and experiences learned in that process were used in the creation of the Healthy Texas Program.