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States to Offer New Choices on Small-Business Exchanges

By Erin Mershon, CQ Roll Call

April 11, 2016 -- Twenty-one states opted to add a new option for choosing insurance coverage to their small-business insurance exchanges—a move that regulators hope will encourage more participation from employers.

The Small Business Health Option Program, or SHOP, exchanges, created under the health overhaul to help small-business owners offer their employees more options for health insurance coverage, have until now focused on letting employees choose between different insurers. Under the new option, called "vertical choice," employers can select a specific insurer and let employees choose from among different benefit levels that the company offers on the exchange. Those levels include bronze, silver, gold, and platinum plans.

The Centers for Medicare and Medicaid Services (CMS), which finalized the option for states using the federal SHOP exchange platform in a March regulation, announced late Friday which states will participate in the option. State-run SHOP exchanges have always had the flexibility to offer vertical choice, and a CMS spokesman said the option is popular among small employers in states that offer it.

"This is a win for small business owners," said David Chase, the healthcare policy director at the Small Business Majority advocacy group, which generally supports the health care law. "The SHOP exchanges haven't been as robust and as successful as we'd originally hoped, so adding new bells and whistles—we're hopeful that will increase its value proposition and help in recruiting more small-business owners to participate."

Regulators hope the option will draw new participants to the SHOP exchanges, which have enrolled fewer consumers than their designers had hoped. The marketplaces suffered an even rockier rollout than the federal website. Many weren't ready as the first open enrollment season launched, and several attracted just a single participating insurer. CMS has not released official enrollment data for the SHOP program and declined to offer details Monday.

"The SHOP only has a couple years to really prove itself or else I don't know what happens to it," said Kevin Kuhlman, manager of legislative affairs at the National Federation of Independent Businesses, which unsuccessfully challenged the health law's mandate in a lawsuit that the Supreme Court decided. "It's just kind of been an afterthought, unfortunately."

Kuhlman said adding vertical choice would help attract some employers, but probably would not be a "game changer."

Insurers also said the changes would not dramatically impact their business on SHOP. A spokeswoman for the industry's major trade group, America's Health Insurance Plans, pointed out that few employers have signed up for SHOP and noted the changes would only affect a small subset of the small employer market.

The health law requires SHOP exchanges to offer so-called "horizontal choice," under which small business employers select a metal tier offered on the exchanges, like the silver tier, and then let their employees choose their specific plan on that tier. States can no longer opt out of horizontal choice.

Under both the horizontal and vertical options, employers may pay a defined contribution toward an employee's plan; employees make up the difference if they choose a more expensive option.

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