Insurers worry SHOP exchange will cause adverse selection

Many insurers are concerned that the new small business health option program (SHOP) could lead to adverse selections and an unfair disadvantage for payers competing in the marketplaces, reported the New York Times.

Allowing employees to choose which insurer and plan they want to buy might not be in the "best interests of small employers and their employees and dependents," insurers say, according to the Times. One problem is the SHOP exchange would need to collect a single payment from the employer, calculate how much money goes to each insurer and then distribute it accordingly.

Insurers also are concerned that providing choice could cause adverse selection--younger employees who don't expect to use as many medical services may choose cheaper plans. 

"There's been a range of studies that have looked at what's the impact of essentially turning the small group market into an individual market, because that's essentially what you're doing" when you offer employees a choice of plans, Alissa Fox, a senior vice president for the Blue Cross Blue Shield Association, told the Times. "Costs are up to 5 percent higher when there's employee choice, and the increase is due to higher administrative costs and adverse selection."

The problem, Fox said, is that insurers can't change their rates for small groups, whether they're purchased on or off the exchange. If insurers raise premiums for their SHOP plans to accommodate for the adverse selection, they'll be at a disadvantage when competing off the exchange with other insurers.

Meanwhile, Rep. Sam Graves (R-Mo.), who is chairman of the House Small Business Committee, wants the Centers for Medicare & Medicaid Services to disclose how many employers have enrolled in SHOP plans and how many employees have paid their first premiums, The Hill's Healthwatch reported.

To learn more:
- read the New York Times article
- see The Hill's Healthwatch article