Anthem Blue Cross's absence from the California small-business health insurance exchange is curious on many levels. Why would one of the state's biggest small-group insurers shun a ready-made source of business, with the muscle of a massive federally funded marketing campaign behind it?
Executives from parent company WellPoint have said that they are very selective about participating in the small-group exchanges. They see more growth opportunities in the individual and self-insured markets than the fully insured employer-group market.
But some market insiders speculate Anthem may have been forced or otherwise pressured to sit out the Small Business Health Options Program (SHOP). Interestingly, the state removed a requirement that health plans that participate in the individual exchange must also participate in the SHOP, paving the way for Anthem to make its move. One theory is that the SHOP gained bargaining leverage with Blue Shield of California by excluding its main Blue competitor.
Regardless of whether Anthem jumped or was pushed, its absence begs the question: What do health insurers get out of the SHOP and is this marketplace viable? Success is not a given going into the first year, based on some challenges facing the public marketplace.
First, some background. The SHOP exchanges have emerged under the shadow of the individual marketplaces, although both are required of states as part of the Affordable Care Act. Like private exchanges, they allow employers to define a financial contribution to employee health coverage and select from a menu of plans offered by various carriers, with administration handled through one clearinghouse.
Under California's model, employers can choose one level of benefit among bronze, silver, gold and platinum designs and give employees the option to pick a plan among all carriers offering that particular design. California is moving ahead with this employee choice option in 2014, while the federally facilitated exchanges have been given a one-year delay meaning they will not require employers to offer more than one plan design from one carrier until 2015.
Six insurers have decided to join the California SHOP: Kaiser Foundation Health Plan, Blue Shield of California and Health Net, all statewide; Western Health Advantage in Sacramento; Chinese Health Plan in San Francisco and San Mateo counties; and Sharp Health Plan in San Diego. Health plans face a challenging push-pull when pondering participation. For almost every upside, there is a corresponding downside.
Issue 1: Choice
Pro: The SHOP gives health plans the opportunity to pick up members they cannot ordinarily reach in the small-group market because participation requirements typically limit small-group employers to one carrier's plans for their offices.
Con: Employee choice generally increases the risk of adverse selection for carriers. One theory holds that employees who know they will need medical services will gravitate to broader network PPO plans. In California, SHOP participants must price their products inside the exchange at the same rate as the comparable products they sell outside the exchange. This gives a non-SHOP participant, like Anthem, the ability to undercut price on a similar product in the small-group market. (However, there's nothing to prohibit exchange participants from offering other plan designs at different price points outside the exchange.)
Issue 2: Membership
Pro: The biggest edge of the SHOP is its unique ability to offer a 50 percent tax credit to qualifying businesses with 25 or fewer employees. Covered California estimates 375,000 businesses qualify, so the potential pool is sizeable.
- While the individual exchange has the advantage of the individual mandate, small businesses with fewer than 50 employees are not required to provide workplace coverage, which limits the membership potential of the SHOP.
- State officials have estimated the SHOP will attract about 90,000 members the first year a target they say is essential to making the SHOP financially self-sustainable. But that enrollment is really a drop in the bucket of the 3.8-million-member-strong small-group market in California and will be spread among six carriers.
- There are many skeptics who don't see the SHOP reaching higher than 30,000 members. One reason is that many employer groups are taking advantage of carriers offers to renew early to lock in their plans for 2014, thus avoiding the first year of ACA changes.
Issue 3: Competition
Pro: Without Anthem in the mix, the other six insurers will have one less competitor. Plus they have the advantage of the state's massive marketing campaign steering customers their way, as well as the tax credits.
Con: Some brokers believe the SHOP will face a formidable competitor in CaliforniaChoice, a private exchange 17 years running. It functions much the same way as the SHOP but without the state regulation or tax credit. That exchange has Anthem's Blue Cross, but not Blue Shield. There are some who believe that the SHOP's viability is hurt without Anthem.
Issue 4: Rates
Pro: Rates could make or break the exchange. The state's latest summary of SHOP rates shows that for the three lowest-priced silver plans, the average premium is lower than comparable plans in the regular small-group market in most major urban areas. That includes 17 percent lower rates in southern Los Angeles County and 28 percent lower in San Francisco.
Con: On the other hand, Covered California officials also said that overall proposed SHOP rates (including plans at all price points) are comparable to the small-group market a stark difference to the debut of the individual exchange rates, touted to be substantially lower than anticipated.
What now? It will be a few months before we know if the SHOP will come through, delivering new business for those insurers who decided to give it a chance. But whatever the result, Anthem Blue Cross should do just fine by not being in the SHOP. It is well-entrenched in the small-group market, where it will continue to sell policies. And there's always the individual exchange which it didn't have to give up in the end.
Follow Chris Lewis on Twitter @ChrisLewisHLI