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Avalere Explores Differences Between Individual and Small Group Purchasers of Health Insurance

Contact: Lindsey Spindle, 202.207.1337, lspindle@avalerehealth.net

01.29.10

Washington, DC – Proposals to create state health insurance exchanges must take into account the different needs of individuals and group purchasers, says a new report by Avalere Health.  The report comes at a time when reform proposals are being carefully examined to see which creates the greatest opportunity for meaningful coverage expansion.   

Avalere compared two states – Massachusetts and Maryland – to see how the two have approached private market insurance reform, and which state has been more effective in meeting the needs of small employers, typically defined as those with 50 or fewer employees.  These small businesses account for 96 percent of all U.S. employers and 28 percent of private sector employment, making them the majority of businesses in the country, according to the Council of Economic Advisors.  Small businesses in 2008 paid 18 percent more than large employers for the same level of coverage. 

“Reform proposals often address individuals and small businesses as a single market, but the insurance purchasing process is very different for each group,” said Caroline Pearson, a senior manager at Avalere Health and co-author of the report.  “Small groups face more administrative complexity when selecting, enrolling, and paying for health insurance.  This places greater demands on the structure of exchanges that hope to sell to small groups.”

Massachusetts’ exchange model has been very successful at meeting individual purchasers’ needs but has been less effective in enrolling small groups.  The state relied heavily on a private sub-contractor to develop the administrative infrastructure required to serve small businesses.  The state set a goal of enrolling 100 businesses when it launched its pilot phase that opened the exchange to small groups.  However, in the first year of operation, only 42 small groups enrolled in the pilot, far short of the 100-group goal. 

In contrast, Maryland pursued different avenues to reform insurance markets for small group purchasers since 1993.  These reforms began when the state passed the Health Care Reform Act, which created a comprehensive standard health benefits plan (CSHBP) to serve as the base plan for the small group market.  A private market of general agents also evolved in the state to centralize the administrative functions of purchasing health insurance for small employers.  These general agents help businesses with plan comparison and selection, coordinate enrollment for all employees and dependents, provide consolidated billing, facilitate pre-tax payments by employees, and offer ongoing service for renewals and enrollment changes.  Consequently, Maryland’s small group market already operates with plan standardization and administrative simplification that are touted as two of the chief goals of insurance exchanges. 

“The Massachusetts model created a real benefit for individuals by simplifying their search for insurance, but thus far, it has not demonstrated the same value-add for small businesses,” said Pearson.  “Maryland’s private sector administrative capabilities have proven effective at helping many small groups in the state enroll in coverage similar to an exchange model, and may present some states an alternative way to achieve broader coverage.”

Avalere Health is an advisory services company whose core purpose is to create innovative solutions to complex healthcare problems. Based in Washington DC, the firm delivers research, analysis, insight, and strategy for leaders in healthcare business and policy. Avalere's experts span 125 staff drawn from the federal government (e.g., CMS, OMB, CBO, and the Congress), Fortune 500 healthcare companies, top consultancies, and nonprofits. The firm offers deep substance in areas ranging from healthcare coverage and financing to the changing role of evidence in healthcare decision-making. Its focus on strategy is supported by a rigorous, in-house analytic research group that uses public and private data to generate quantitative insight. Through events, publications, and interactive programs, Avalere also translates real-time healthcare developments into actionable information.

Learn more at www.avalerehealth.net.

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