State delays ’employee choice’ on Obamacare insurance exchange

Crain’s Chicago Health Care Daily reports:

“Illinois plans to delay by at least a year a key feature of its Obamacare health insurance exchange that potentially would give employees of small businesses more choices when shopping for coverage.

“Employee choice” would allow employees to select from a range of plans from multiple carriers on the Small Business Health Options Program, also known as the Shop exchange, rather than being limited to a single plan chosen by their employer. The three dozen states on the federally administered marketplace, Illinois included, operated under the latter model, called “employer choice,” in 2014.

The federal government gave state insurance commissioners the option of adding “employee choice” in 2015. If states wanted to opt out, they had to request approval from the U.S. Department of Health and Human Services by June 2.

In a letter to HHS, Illinois Department of Insurance Director Andrew Boron wrote that employee choice could cause “potential disruptions in the marketplace, including a decrease in choices for consumers and higher premiums.”

“In my expert judgment, delaying employee choice for one year would be in the best interest of small employers and their employees and dependents in Illinois,” Mr. Boron wrote.

Across the country, 14 states on the federal exchange opted to add employee choice, including Indiana, Ohio and Texas. If their employer chooses the employee-choice route, workers going to the Shop exchange in those states will be allowed to buy any plan within the metal level selected by their employer, a model known as multi-issuer/one-tier. In general, the more generous a plan, the more “precious” its metal level — bronze, silver, gold or platinum.

Another 18 states, including Illinois, Pennsylvania and Michigan, chose to delay employee choice. HHS approved the requests.

A crucial part of President Barack Obama’s health reform law, the Shop exchange is aimed at providing health coverage choices to companies with 50 or fewer full-time workers. Employee choice is seen as a point of differentiation that would set the Shop exchange apart from the way firms have traditionally bought small-group coverage for employees.

But in early 2013, the Obama administration said it would delay employee choice, saying that it couldn’t have it ready in time for this year. Then, in November, federal officials said that the Shop exchange would not be available online for 2014. That meant small businesses that wanted to participate had to apply on paper or through an insurance broker.

The initial delay in implementing employee choice and the lack of online enrollment likely contributed to the meager numbers on Illinois’ Shop exchange for 2014. According to Mr. Boron’s letter, only 340 people enrolled in small-group plans offered on the exchange.


Before opting out of employee choice for 2015, the department surveyed insurers for their concerns. The companies told the agency that employee choice would lead to higher administrative costs and potential losses for certain carriers if less healthy people disproportionately purchased their plans, a phenomenon known as adverse selection.

Given the current tiny size of the small-group market on the exchange, insurers would be compelled to increase premiums to shield against losses, Mr. Boron writes, and some might exit the market. He notes that six of 13 medical and dental insurers contacted by the agency indicated they wouldn’t participate in Shop in 2015 due to concerns over employee choice.

The agency singled out Blue Cross & Blue Shield of Illinois, saying the state’s largest insurer warned that the “cost of employee choice would be significant.”

The insurer “is supportive of the position of the Illinois Department of Insurance that it takes additional time to be thoughtful, and further study the implications of offering employee choice, as well as developing the operational requirements necessary to offer it on the Shop Marketplace for small businesses,” Blue Cross spokesman Michael Deering said in an email.

A study cited in Illinois’ letter estimates that the multi-issuer/one-tier variety of employee choice would result in a 0.1 to 1 percent impact on premiums due to adverse selection.

Alternatively, under a broader, “full menu” approach in which employees would be allowed to choose a plan from any metal level, from any carrier, premiums would rise 1 to 10 percent, according to the 2012 paper from the Princeton, New Jersey-based Robert Wood Johnson Foundation.