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Posts Tagged ‘Small Business Health Options Program’

Utah to operate its own SHOP, have federally-facilitated individual exchange under deal with federal government

Early this year, Utah received conditional approval to operate a state-based health insurance exchange marketplace from the federal government.  The approval was somewhat surprising given the state’s insistence on operating only what amounted to a scaled down, online Small Business Health Options Program (SHOP) that it put in place before the 2010 enactment of the federal Patient Protection and Affordable Care Act.  Utah’s Avenue H wouldn’t have met federal exchange requirements, primarily because it didn’t offer plans for individuals.  The likely outcome would have been disapproval of Utah’s state-based exchange status and the feds taking over Utah’s exchange.

Under the terms of an agreement between the state and the federal government reported today by The Salt Lake Tribune, the feds will run the Utah’s individual exchange marketplace while the state will operate Avenue H as a state-run SHOP exchange.  Avenue H will operate “without a competing SHOP exchange or interjection by the federal government” Gov. Gary R. Herbert wrote in a May 9, 2013 letter to U.S. Health and Human Services Secretary Kathleen Sebelius conveying his understanding of the deal.

The newspaper notes if the deal is approved as expected this week, Utah would be the only state exchange operating under such an arrangement:

The agreement is unique to Utah and essentially opens up a fourth alternative for operating the federally-mandated exchanges. Previously states had only three choices — a state-run exchange, a federally-run one, or a state-federal partnership exchange

California measure that would deter self-insurance of medical risk by small employers advances

To insure or self-insure?  That’s the policy question underlying pending California legislation that passed its first committee test this week.  SB 161 is designed to reduce the incentive for small employers to self-insure their workforces for medical costs by making it less feasible for these employers to limit their losses once they reach a certain point.  Supporters of the bill maintain it’s needed to give the state health benefit exchange’s Small Business Health Options Program (SHOP) the opportunity to bring down insurance rates by aggregating small employers’ purchasing power into a single buying mechanism starting in 2014.  Click here for an analysis of the measure prepared by the Senate Health Committee, which passed out the bill May 2.  A similar bill stalled in 2012.

Self-insurance arose as a solution for small employers beleaguered by rising small group insurance premiums over the past decade.  But self-insuring medical risk is a high risk proposition for small employer since unlike large employers, they are unable to spread the risk of a large claim over a sizable group of employees.  That’s why it’s a no go for small employers without “stop loss” coverage to kick in when an individual employee’s or all employees as a group incur losses in a policy year exceeding a set amount.  SB 161 would bar stop loss coverage from protecting a small employer until an individual employee incurred medical bills of $65,000 or those of the entire workforce reach dollar amounts specified in the bill.

Opponents of the bill argue that the market should determine which approach works best for small employers: self-insurance or insurance.  Other issues cause consternation among supporters of the measure.  Only larger small employers are likely to consider self-insurance given the inherent risk that favors size.  That could leave the SHOP with the low end of the small group segment – employers having less than 20 to 30 employees.  This could reduce the SHOP’s market power with health plan issuers since there would potentially be fewer “covered lives” and larger employers to bring to the bargaining table.  (In California, the small group market is employers with 50 or fewer employees.)

Apparently concerned about stop loss coverage’s potential to undermine the SHOP exchange marketplace, the U.S. Department of Health and Human Services issued a proposed rule April 5, 2013 barring entities with relationships to issuers of stop loss insurance, including those who are compensated directly or indirectly by issuers of stop loss insurance, from serving as exchange navigators.

Stop loss coverage for small self-insured employers getting attention again in 2013

About a year ago, this blog noted concern among policymakers over small employers opting out of small group health insurance by self-insuring and buying stop loss insurance to defray the cost of major claims.  The concern is stop loss coverage that kicks in when a claim reaches as little as $10,000 to $20,000 could adversely affect the Small Business Health Options Program (SHOP) of state health benefit exchanges by making self-insurance a more appealing option than usual for small employers who typically don’t self-insure.

SHOPs function as marketplaces for small employers to purchase health insurance, aggregating their purchasing power into a single risk pool to enable them to get better premium rates than they could otherwise obtain on their own.  The issue was covered this week by Kaiser Health News (KHN).  The KHN story quoted a stop loss consultant describing the bulk of small employers interested in self-insurance paired with stop loss coverage as having 25 to 30 workers – right in the sweet spot for SHOPs that like California’s that will serve employers with up to 50 employees.

In California, legislation that would have increased the minimum attachment point of stop loss coverage to make it less palatable for most small employers died in committee last year.  The legislation has been recycled in the current session as Senate Bill 161, which would outlaw stop loss coverage with an attachment point of $95,000 per employee, $19,000 times the total number of covered employees and dependents, or 120 percent of expected claims – whichever is greater.

Undermining demand in the SHOP market isn’t the only concern. Some fear adverse selection in the small group insured market as a whole if small employers with mostly younger workers self-insure their workforces for medical risk, leaving insurers to cover older, higher cost workers.  Michael Ferguson, chief operating officer at the Self-Insurance Institute of America, downplays the prospect, telling KHN small employers can also face large claims from younger employees.

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