Twenty states with federally run small business health options program (SHOP) exchanges are taking the White House up on its offer to a launch more options in an effort to attract more employers to use the marketplaces.
Those opting out fear it will have a negative impact on their risk pools and lead to premium increases.
HHS introduced the “vertical choice” for plans on the SHOP exchanges, which were created by the Affordable Care Act for small businesses with 100 or fewer full-time employees.
These businesses generally pay much higher premiums, have fewer plan options and more acutely feel the administrative burdens of offering health benefits to their workers.
In most cases, small employers using SHOP pay nothing toward their employee's premium costs.
But interest in SHOP has been less than enthusiastic. Last January, the Congressional Budget Office estimated 1 million people would enroll for coverage through 2015. But in the latest figures released by the CMS in May 2015, only about 85,000 people employed by 11,000 small businesses, had signed up through SHOP.
Employers found that SHOP offered few plan options and often expensive policies. Many states had only one insurer on their SHOP exchange.
Employers normally could choose only within a single tier of coverage.
Beginning in 2017, federally run SHOPs will allow vertical choice or the option of picking all plans across all levels from a single insurer.
HHS said this “vertical choice” option would also appease issuers because they could offer all of their plans to employees.
This option also minimizes the risk of adverse selection by allowing insurers to enroll a more diverse risk pool.
The "vertical choice" option is voluntary. States not wanting to offer one had to notify the agency by March 25.
By then, 11 states with federally run shops had declined: Alabama, Arizona, Indiana, Michigan, Nebraska, New Jersey, North Carolina, Pennsylvania, South Carolina, South Dakota and Tennessee.
Pennsylvania's insurance commissioner, Teresa Miller, said in a letter to the CMS that her state's insurers still believe it would cause adverse selection and premium hikes.
The other states opting out made similar remarks in their letters to the agency.
The option was also slammed by major insurers such as United Healthcare, Kaiser Permanente, and the Blue Cross and Blue Shield Association, the parent organization of 36 plans.
In a letter, Kaiser said the option “would erode and restrict the availability of employee choice by limiting the plan offerings to a single issuer selected by the small business.”
HHS cited these and other comments when finalizing its rule and gave those concerns as reason to make the option voluntary.
“We believe states are best positioned to understand the small group market dynamic in their state,” HHS said in the final rule.
The 20 states expected to launch the vertical choice are Alaska, Delaware, Florida, Georgia, Illinois, Iowa, Kansas, Louisiana, Maine, Missouri, Montana, Nevada, New Hampshire, North Dakota, Ohio, Oklahoma, Texas, Virginia, Wisconsin and Wyoming.
