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Covered California News & Commentary

Topics of interest to both consumers and agents related to Covered California and the ACA biased in favor of the successful implementation of the Exchange and deliberately apolitical.

Recently in SHOP Exchange Category

It seemed that the ACA was saying that insurance companies would be allowed to decline to offer coverage to small employers for failure to satisfy minimum contribution or group participation requirements under state law or the SHOP standards.

In a final rule published 3.27.13, the HHS clarified, saying: ” Upon further consideration of this issue, we have determined that small employers (less than 100 employees) cannot be denied guaranteed availability of coverage for failure to satisfy minimum participation or contribution requirements.”

The carriers will continue set minimum contribution or group participation requirements beyond 1.1.14., but HHS says, “…in the case of a small employer that fails 
to meet contribution or minimum participation requirements, an issuer may limit its offering of coverage to an annual open enrollment period, which we set forth in this final rule as the period beginning November 15 and extending through December 15 of each year.

Generally, the group market will have continuous open enrollment, except for small employers that fail to meet contribution or minimum participation requirements, for which the enrollment period may be limited to the annual enrollment period described above, from November 15 through December 15. This approach addresses concerns about adverse selection.

Covered California will contract with a vendor the for administration of the SHOP Exchange as opposed to developing its own administrative infrastructure. Several business functions such as governance and policy management are considered “core” and will be maintained internally.

Rationale Considered

The federal government must certify that Covered California will be capable of performing all minimum functions in time for open enrollment in October 2013. The complexity of the Individual Exchange and the interrelationship with other state health programs require the Exchange to devote significant staff and consultant support to policy and systems development that will assure the success of this effort. Because of this, the Exchange will go with a contracting arrangement strategy for the initial administration of the SHOP at least in the early years. Covered California will implement a transition strategy contracting for establishment and operational services for SHOP in the near term, and then they will evaluate bringing operational control of the SHOP operations in-house after after 2015. This transitional approach will allow Covered California to focus on standing up the individual exchange in the near term while taking advantage of consultant outside expertise to ensure that small businesses and their employees receive best-in-class service.

The rationale for contracting with a vendor for the establishment and initial administration of the SHOP include:

  • The time required to build an internal operational capability for SHOP is significant, and the time may not be sufficient to be in a position to implement small business open enrollment by 2013
  • External vendors have existing functionality that serves the small business market today that could be easily adapted to the Covered California functions
  • There are other competing, high priorities with tight timelines facing Covered California Staff (i.e. building and operationalizing the Individual exchange)
  • Variations in enrollment volume (higher volume at the end of the month and immediate enrollment growth during open enrollment) are expected in the near term. These factors will require flexibility in service center operations - and possibly other areas - which could be challenging to manage internally

SHOP Functions to Retain

It is important to note that Covered California considers some functions to be “core” operational and policy functions. “Core” functions that will be internal to the Exchange include:

  • Governance, policy development, and quality assurance: Covered California will retain ultimate governance and policy-making authority and ensure that contractors are meeting contractual quality, service and related standards.
  • Health plan management: Covered California will retain control over health plan selection, certification and ongoing management of plan relationships for the SHOP.
  • Marketing: Covered California will lead SHOP marketing efforts and will maintain direction of marketing campaigns and outreach.

Questions and Concerns Remain

  • How should Covered California best use marketing expertise and agent relationships that may reside with potential vendors?
  • How can Covered California best assure coordination and integration between it and a contracted vendor to assure maximum enrollment of individuals who may be family-members of covered small business employees who are eligible for Exchange tax- credit support or Medi-Cal?

Employer contributions to employees’ health insurance premium is directly linked to affordability for employees. However, premium contributions are becoming more unaffordable for employers as well. Employers are increasingly looking toward benefit plans that shift a higher share of costs to employees or are choosing to stop offering coverage altogether. The Covered California SHOP must consider the extent to which it requires small businesses to make premium contributions on behalf of their employees.

The following options were considered:

  • Option 1. Require contributions consistent with current market underwriting rules: Establishes minimum employer contributions at levels consistent with the current small employer market.
  • Option 2. Require contributions at least meet minimum federal tax credit: Establishes minimum employer contributions at levels that ensure the tax credit can be taken, if other requirements are satisfied.
  • Option 3. Require contributions at a level higher than current market or federal tax credit: Establishes minimum employer contributions at levels higher than the current market or federal tax credit requirements to qualify for a tax credit to support more affordable coverage for employees.

Covered California SHOP is going to go with Option 1 - matching current market underwriting rules - which require an employer to pay 50% of the employee’s premium for the lowest price plan among those options offered. Option 2, matching the federal tax credit rules would amount to nearly the same thing - 50% - but add unnecessary complexity. Option 3, higher requirements than the outside market, would negatively affect the SHOP’s enrollment.

Many of us who are interested in the development of the Covered California SHOP, had thought the primary appeal of the SHOP would be its ability to offer a wide range of choices to the employees of California small businesses - both among carriers and benefit plans. Yet as discussions with stakeholders progressed, some experts presented opposing views.

Experts Presented Limited Choice Views

James Robinson, Ph.D. Director of the Center for Health Technology at UC Berkeley advised, “There is always this back-and-forth between choice and efficiency. You have to either rely on the individual to make choices among a broad menu of choices, or you have to use the leverage of enrollment and limit contracting to a small number of plans.”

Bill Wehrle is Vice President, Health Insurance Exchanges for Kaiser Permanente said, “Kaiser Permanente believes that offering a choice of carriers is crucial. However, introducing unfettered choice among benefits is expensive. We favor a system where the employer picks a benefit level (bronze for example) and the worker can buy up one level (silver) if he chooses. That offers some choice, but is not completely unfettered.”

The Pacific Community Ventures small businesses survey, “Understanding Health Care Decision Making in California” published the following: We asked small business owners if an employee choice option in the Exchange would make it more attractive, less attractive, or about the same - 54% said “about the same”, 29% more attractive, 13% less attractive.

Available Choices Considered

So it is not a foregone conclusion that the Exchange Board will opt for a wide selection of choices for employees in the SHOP exchange. At the Exchange Board Meeting on May 22nd, staff presented the options it has considered and its recommendations regarding the choice issues. The following options are available:

  • Option 1. Employer chooses issuer (insurance company) and tier (bronze, silver, gold, etc.) employee selects the health plan and coverage level within the available SHOP options.
  • Option 2. Employer chooses issuers, employee chooses tier: Employer chooses among available health plans and allows the employee to select the level of coverage among metal tiers.
  • Option 3. Employer chooses tier, employee chooses issuer: Employer establishes the metal tier for all employees, and allows employee to select among available health plans.
  • Option 4. Paired or defined choice: Employee chooses a specific combination of health plans for employees to select from. Further choice may or may not be available among coverage tiers.
  • Option 5. Full employee choice: Employer determines the maximum contribution that will be made on behalf of employee, and allows employee to select health plan and coverage level.

Staff Recommendations

Staff, advised by its Price Waterhouse consultants, made a preliminary recommendation to pursue option 5 - full choice of Qualified Health Plans (QHP) and coverage tiers for employees, with a defined contribution paid by the employer. “This option provides maximum choice for employees which may encourage long term participation of employers in Covered California, requires minimal decision-making by the employer, and enhances competition among health plans.”

We applaud the staff’s recommendations and agree wholeheartedly that employee choice with defined contributions by employers is the way to go, This decision empowers employees and frees employers from making benefit decisions based on the “greater good”.

The CBIA Health Connections private sector exchange is nationally recognized as a successful small business exchange. Ken Comeau, who is VP Products & Services with CIBA, shared some of the lessons learned when he participated in a forum on how to best implement the SHOP Exchange in California sponsored by The California Endowment and the California Small Business Majority on November 16, 2011. We have gathered some of Mr.Comeau’s comments here.

On Standardization “The plans offered through CBIA are standardized. CBIA, not the insurers, designs the products. In order to avoid adverse selection, CBIA offers four carriers, 11 standardized benefit levels plus four HSA plans for a total of 48 plan choices. This allows significant employee choice. With standardized benefits, carriers have to find other ways to stand out other than plan design.”

On Ease of Use “Services that make the exchange easy to use are crucial. Many have compared using the exchange to booking an airline ticket online. That is a mistake. Making travel plans is fun; buying insurance is not. That is why CBIA works hard to make the complex and time-consuming tasks of buying, selling and administering insurance easy. For instance, CBIA, which sells entirely through brokers, pays the broker commissions and transmits all premium payments to the carriers. CBIA has also made sure brokers can manage their business from the CBIA website. All their information is in one easy-to-access location.”

On Navigators Navigators’ key role will be reaching under-served populations. Agents and brokers have training and licensing to ensure they are knowledgeable about health insurance. It is critical that navigators have similar training to ensure they are providing valuable assistance to underserved people—many of whom will be purchasing health insurance for the first time.”

HealthPass is a private, nonprofit, multi-carrier health insurance exchange in the New York City metropolitan area small group market. It insures, nearly 3,300 businesses with about 30,000 employees and dependents. In achieving those numbers, HealthPass learned several important lessons. Mark Kessler, Director, Strategic Initiatives for HealthPass shared some of those hard-learned lessons when he participated in forum on how to best implement the SHOP Exchange in California sponsored by The California Endowment and the California Small Business Majority on January 11, 2012. We have gathered some of Mr. Kessler’s comments here.

On Launching the Exchange The first year of the Exchange is very important because it is going to establish a risk profile that is very hard to change. Creating a good mix and diversity of enrolled individuals is very important in the first year. Focus your message on reaching a broad number of small businesses to make sure your exchange mix and risk is stable”.

On Using Brokers “HealthPass New York did not try to reinvent the wheel when it comes to marketing. It is significantly more efficient and effective to leverage existing productive systems than to develop new ones that must compete with the old. In other words, it is important to use sources of information that small business owners trust, like brokers, when trying to reach a large, diverse and scattered population like small business owners. The Exchange must compete very aggressively in the marketplace. HealthPass New York, which markets itself equally to insured and uninsured small businesses, knows brokers are a powerful way to reach small business owners. Most of its marketing is aimed at brokers. We attend broker events, publish broker publications, and have dedicated broker support relationship managers.

On Price “HealthPass New York openly says their prices are the same if not slightly higher, but says they address the hidden costs of health insurance like the time a small business owner spends choosing a product and working with employees on claims, enrollment and deciphering the material. We tell them those are all drags on your time. If you had that time free, what would you do with it? Those are the costs we can remove immediately.”

On Choice “HealthPass New York’s research shows that it is more important to the employer than the employee. Employers are happy to not have the pressure of choosing one or two plans for their employees. While this is less important for employees, they do enjoy having options.”

On Diversity “New York is very diverse and HealthPass relies on brokers to reach minority small business owners. We haven’t found a community that we couldn’t reach that way.”

Bill Wehrle is Vice President, Health Insurance Exchanges for Kaiser Permanente. In this role, he is responsible for influencing the policy development of health insurance exchanges in each state. In California, Mr. Wehrle is responsible for leading Kaiser Permanente’s relationship with the California Health Benefit Exchange and leading Kaiser Permanente’s strategy and execution for exchange products and membership.

Mr. Wherle participated in a forum sponsored by The California Endowment and organized by the California Small Business Majority. The three-part forum on how to best implement the SHOP Exchange in California took place between October 14, 2011 and January 11, 2012. We have gathered some of Mr. Wehrle’s comments here.

A Successful Exchange

“CaliforniaChoice, a private exchange that offers health coverage from several carriers including Kaiser Permanente…has been quite successful. However, adding choice can be very expensive. This is one reason why CaliforniaChoice is more expensive than the rest of the market”.

On Employee Choice

“Kaiser Permanente believes that offering a choice of carriers is crucial. However, introducing unfettered choice among benefits is expensive. We favor a system where the employer picks a benefit level (bronze for example) and the worker can buy up one level (silver) if he chooses. That offers some choice, but is not completely unfettered.”

On Standardization of Benefit Plans

“Kaiser believes standardizing plans can be an effective approach to promote healthy competition among insurers. With that said, the SHOP must offer more than just a very small number of plans in order to meet the needs of California’s diverse small businesses. Kaiser believes this can be accomplished by having one Health Maintenance Organization (HMO) plan and one Preferred Provider Organization (PPO) plan offered in each benefit tier, both inside and outside the exchange. That would help end the carrier practice of competing to attract the healthiest customers rather than on plan price or quality. By getting creative with plan design, insurers can control the type of risk coming into their pools,and can become quite profitable by attracting healthy customers. Once one insurer does this, its competitors will often follow suit to stay competitive. By making plans standard, or as close to standard as possible, insurers will be forced to compete on price and quality, not plan design. Plan standardization must be done market-wide. Only standardizing plans that are sold in the exchange would be a mistake and would lead to adverse selection.”

On Using the Active Purchaser Role

“The challenge will be to use the exchange’s tremendous power as an active purchaser to bring real change to the marketplace. The exchange can make use of their clout to set the terms by which plan choices are offered. For example, the exchange can use its active negotiation power to standardize products-meaning plans can compete on price and quality but not benefit design. Another thing the exchange can do is to require plans to set up competing networks so there are competing healthcare delivery systems, not just plans.”

On Underwriting Rules

“There are some areas where the SHOP exchange will not want to differentiate itself from the marketplace. Underwriting decisions, for instance, must be the same within the health benefit exchange as they are in the outside market to avoid adverse selection, This is what caused adverse risk selection in PacAdvantage.”

On Brokers

“Brokers must be paid market-rate commissions in the SHOP exchange. Failing to do so means brokers will be actively selling products that compete with the exchange rather than working for it.”

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