Small Business Health Options Program (SHOP)

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1 Small Business Health Options Program (SHOP) Exchange Board Update October 23, 2012 A service of Maryland Health Benefit Exchange

2 SHOP Background States must establish a Small Business Health Options Program (SHOP) in order to achieve CMS certification as a State-Based Exchange SHOP Required Functions Include: Certify SHOP Qualified Health Plans (QHPs) Determine Employer Eligibility to Purchase on the SHOP Support Employee Open Enrollment and Special Enrollment Perform Premium Aggregation, Billing and Collections Maryland Model Includes: Prominent role for Brokers and Agents Certification of TPAs to perform SHOP-based Service

3 SHOP Statutory Requirements Already in Place Federal Requirements (45 CFR 155) Must offer an employee choice option (at a metal level) Must offer a premium calculator inclusive of employer contributions (for employees) Carriers prohibited from varying rates during the plan year Must provide electronic data to the IRS for tax administration purposes State Requirements Must offer an employer choice option (any plan from a carrier parent company, not just legal entity) MIA will assess QHP actuarial value and approve rates Individual and small group community pools will remain separate Definition of small group size stays at up to 50 until 2016

4 Employer vs. Employee Choice Carrier A Carrier B Carrier C Carrier D Carrier E Carrier F Platinum Gold Silver Employer Choice Employee Choice Bronze

5 SHOP Policy Decisions

6 Stakeholder Input and Policy Establishment Forums for Stakeholder Input Issues common between Individual and SHOP addressed through: Plan Management Policy Development Process Navigator Policy Development Process Exchange Board Meetings Exchange Implementation Advisory Committee Maryland Insurance Administration (MIA) Met with a number of the prominent small group carriers and members from the small group broker community to discuss group rating. The MIA also accepted written comment from these groups. Methods for formalizing and establishing policies SHOP implementation policies (largely operational) Business Agreements with QHPs Interim Procedures (Plan Management) Legislation sponsored by the MIA Legislation initiated by the Exchange

7 SHOP Policy Decision List 1. Methodology for Counting Employees to Determine SHOP Eligibility 2. Employer Defined Contribution Set-up Options 3. QHP Rating Options in the Employee Choice Model 4. Employer Minimum Participation Requirement Eligibility Determination 1 Employer is evaluated for eligibility to purchase QHP based on demographic information Employer Plan Set-up 2 Employer selects a metal level (Employee Choice) or a carrier (Employer Choice) and sets defined contribution amount Estimated Quote SHOP provides an estimated quote based on employer choices and employee census (age, income, etc.) Employee Enrollment 3 Employees make plan selections with information on employer contribution and their expected cost Validate Group 4 Validate that all requirements for the employer (e.g. minimum participation, creditable coverage for employees) have been met Notify Carriers Notify carriers to contract with employer and start coverage for employees

8 Counting Employees for SHOP Eligibility Federal Guidance Awaiting guidance on SHOP rules as well as state flexibility Existing federal law requires counting all employees when determining group size regardless of hours work. PHSA 2791(d)(5) Under IRS regulations for determining tax credit eligibility, employers must aggregate the hours of part time employees into full time equivalents for determining group size. Broker / Employer Group Viewpoint Maximize opportunities to purchase on the SHOP by not counting part time employees the same as full time employees Carrier Viewpoint Most concerned with consistency across federal and state regulations

9 Methodology for Counting Employees to Determine SHOP Eligibility Federal and/or State Requirements MD Health Benefit Exchange Act of 2011 specifies that "all employees shall be counted, including part-time employees and employees who are not eligible for coverage through the employer" (z)(2)(iii). Although CCIIO has indicated that final guidance for SHOP eligibility is forthcoming, the Public Health Services Act 2791(d)(5) indicates upon determination that an individual is an employee of an employer their status as part time or full time is irrelevant for the purposes of determining employer size (i.e. part time employees count the same as full time employees) Key Considerations Consistency with Federal rules Carriers must use federal employee counting methodologies for MLR and other reporting purposes. Multi-state plans including the new OMB-sponsored plan will want consistency among states. Employers must adhere to IRS guidelines in counting employees for tax credit / penalty purposes Maximizing the number of groups that qualify for SHOP QHPs Aggregating part time employees into full-time equivalents will allow greater numbers of small groups qualify to participate in the SHOP Off Exchange market Differing definitions for small group in the on-exchange and off- Exchange market could: be confusing to carriers, brokers, and small groups and complicate MLR calculations, rating pools, etc. Create a potential for adverse selection for groups who purchase in and out of the Exchange based on what s best for them. Options 1. Count each part time employee as equivalent to a full time employee when calculating group size 2. Aggregate the hours of part time employees to calculate full-time equivalents (FTEs) current IRS rule for tax credits Recommendations MIA is in the process of aligning the Insurance Code with federal guidelines for the overall small group market Since the final rule for SHOP is expected to be issued by CCIIO in late November / early December, the staff recommends deferring this decision until regulations are published 9

10 Minimum Participation Rate Federal Guidance ACA gives flexibility to state-based Exchanges to determine a minimum participation rate across all SHOP QHPs (not just for a single carrier) Broker / Employer Group Viewpoint Employers not want a minimum participation rate citing flexibility and the fact that eligible employees often have other sources of insurance Carrier Viewpoint 75% minimum participation maintains group integrity and creates a balanced risk pool Minimum participation rate encourages employers to make larger defined contributions

11 SHOP Minimum Participation Rate for the Employee Choice Model Federal and/or State Requirements 45 CFR (b)(6)(ii) allows states to specify a minimum employee participation rate for participation in the SHOP and not on the rate of employee participation in any particular QHP or QHPs of any particular issuer. Current Maryland law allows carriers to specify a minimum employee participation rate of up to 75% (c)(2). The original intent of the Maryland requirement was to ensure that healthy individuals didn t leave groups to go to the underwritten individual market. Key Considerations SHOP Uptake A minimum participation rate potentially increases the number of enrollees into SHOP QHPs as well as drives employers to create incentives (e.g. defined contributions) to meet participation targets. Such a rule may also cause certain employers who can t or won t hit minimum participation rate targets to not purchase on the SHOP. Options 1. Do not impose a minimum participation rate for employers purchasing SHOP QHPs in the employee choice model 2. Establish a minimum participation rate for employers purchasing SHOP QHPs 3. Establish a minimum participation rate for employers purchasing SHOP QHPs at the same level the Maryland Insurance article allows carriers to set for off-exchange products Recommendations Require that at least 75% of employees of a group enroll into SHOP QHPs for the employee choice option. Employees who are covered under other group health plans will not be included in the calculation when determining whether an employer has met the minimum participation requirement. Off Exchange Market Impact If carriers continue to require a 75% employee participation rate for off-exchange products, certain employers may opt to purchase SHOP QHPs to avoid the minimum participation requirement if an equivalent minimum doesn t exist on the Exchange. 11

12 Individual Rating vs. Average Rating for the Employee Choice Model Individual Rating General Approach 1. Use the specific demographic information for the individual employee for rating purposes as they select their plan within the employer designated metal level 2. The premium that the carrier receives is based on the specific demographic information of the employees that enroll into their plans. 3. New employees that come in mid-plan year are quoted using their specific demographic information but at the rates that were in effect at open enrollment Example 1. Company A has 12 employees 2. During open enrollment 4 employees select Carrier X, 4 employees select Carrier Y, and 4 employees select Carrier Z 3. Each carrier collects the premiums associated with the specific demographics of the employees that selected the plan. 4. A new employee joins the group mid-plan year. They are 50 years old and select Carrier W. Carrier W rates the employee on their age at the rates from open enrollment. Average Age Rating General Approach 1. Based on an employee census, calculate an average age for the employer group 2. Use the average age for rating purposes as each employee selects their plan within the employer designated metal level 3. Regardless of the age of the actual enrollees that select the carrier, the carrier receives the premium for the average age of the group times the number of enrollees. 4. New employees that come in mid-plan year are quoted using the average age of the group established at open enrollment Example 1. Company B has 12 employees with an average age of 35 years 2. During open enrollment 4 employees select Carrier X, 4 employees select Carrier Y, and 4 employees select Carrier Z 3. The average age of employees that selected Carrier X is 45 years old. For Carrier Y, the average age is 35. For Carrier Z, the average age is 25. The premium collected by each carriers is based on the average age of 35 years. 4. A new employee joins the group mid-plan year. They are 50 years old and select Carrier W. Carrier W must honor the 35 year old average rate. 12

13 Individual Rating vs. Average Rating for the Employee Choice Model Federal Guidance No direction provided, however, FFE appears to be implementing individual rating methodology Broker / Employer Group Viewpoint Prefer composite average age rating due to simplicity and concerns about higher premiums for older employees Mirrors existing market and easier to explain and administer Massachusetts switched from individual rating to average rating due to issues with consumer and broker acceptance of individual rating methodology Cost is the biggest issue for employers would not want average age if it means higher premiums Carrier Viewpoint Strong preference towards individual rating to avoid adverse risk selection Average age rating may result in carriers increasing premiums to hedge against adverse selection Believe that average age would encourage younger employees to drop out to the individual Exchange

14 SHOP QHP Rating for Employee Choice Federal and/or State Requirements CMS has not provided prescriptive guidance (yet) on how employer groups will be rated in the Employee choice model. This decision has a significant impact on employer billing and carrier revenue. CMS intends to issue final regulations in late November / early December with no indication on whether a method will be prescribed or if there will be state flexibility. Options 1. Rate by individual (list billing) 2. Average age rating for the entire group 3. Average age rating for the group adjusted for each carrier Key Considerations Adverse Selection and Distribution Risk Average age rating creates a situation where some carriers will receive a disproportionate number of higher risk individuals whose estimated medical expense will not be commensurate with premiums received. Risk adjustment may mitigate but carriers may raise premiums to counter this risk. SHOP Uptake Small group proprietors may be more inclined to offer Employer Sponsored Insurance if they can receive the benefit of an average age rating calculation. Younger healthier individuals may go to the Individual market if they don t receive a lower price on the SHOP. Administrative Ease Adjusting rates based on enrollment to each carrier would address adverse selection but would be potentially misleading to employers whose quoted price will be different from actual price. Such an adjustment strategy will be complex to administer and difficult to explain. Recommendations Apply individual rating in the employee choice model to address adverse selection risk concerns and to avoid the potential premium increases that may arise due to these concerns. Retain the average age method for the employer choice model. Assess the success of this model and determine if changes are required in

15 Employer Defined Contribution Set-up Federal Guidance No direction provided, however, CCIIO has discussed implementing a percentage contribution approach against a reference plan to provide contribution consistency for the individual rating methodology Federal discrimination and tax credit eligibility rules will drive employer contribution Broker / Employer Group Viewpoint Prefer maximum flexibility to set employer contributions Opposed to minimum contribution requirements Carrier Viewpoint For the individual rating methodology, allowing different contribution amounts using the age bands of a reference plan mitigates concerns of individual rating for older employees the California model

16 Employer Defined Contribution Set-up Federal and/or State Requirements The SHOP must allow employers to set a defined contribution for their employees as part of the open enrollment process: 45 CFR (b)(2). Specific method of making defined contributions are not codified in current regulations; however. Maryland law prohibits carriers from imposing contribution minimums in the small group market ( ) Options 1. Most flexible: allow employers to specify a contribution amount or % for each individual employee 2. Least flexible: a uniform % rate for all employees regardless of job class. Variation for tier allowed (single employee, employee plus one, family) 3. Use a reference plan selected by the employer to fix the dollar amount when using a % contribution 4. Use a reference plan selected by the Exchange to fix the dollar amount when using a % contribution Key Considerations Employer Flexibility and Stability of Contributions Contributions are not currently regulated by the MIA so employers currently choose their contribution amount and method. Larger employers may have different contribution amounts based on job class. Employers will want predictability of how much they contribute which is harder to effect in the employee choice model unless a reference plan is used. Anti-Discrimination and Eligibility for Tax Credits Certain types of contributions may be considered discriminatory or prevent employers from meeting the requirements to obtain tax credits. Employers need to contribute at least 50% to get the tax credit Recommendations Allow contribution flexibility with the goal of addressing discrimination and tax credit eligibility Allow employers to designate a reference plan within the target metal level Allow employers to designate a % contribution by tier (individual, family, etc.) Calculate a fixed contribution dollar amount based on the age of employee/family, % contribution, and reference plan older employees will receive a larger contribution to offset higher premiums due to individual rating. Additionally, allow employers to increase contribution of lower income bands 16

17 Sample SHOP Operational Decisions to be included in Carrier Business Agreements Carrier Contracting and Account Set-up Group files are sent to carriers when a employer commits to the employee choice model and when employees select the carrier at open enrollment If a new employee who joins the group mid-plan year selects a carrier with no prior enrollment, the carrier must backdate the quote to the start of the group plan year and establish a partial year contract with the employer Billing and Payment All carriers must agree to a uniform billing and collections cycle The Exchange issues the employer bill on the 15th day of the preceding month unless a weekend or holiday The Exchange issues the first late notice on the 20th day of the coverage month (e.g. for October 1st coverage, the first late notice is issued on October 20th) The Exchange issues the second late notice on the last day of the coverage month (e.g. for October 1st coverage, the second late notice is issued on October 31st) Groups are terminated on the 15th day of the subsequent month (e.g. for October 1st coverage, the termination date is November 15th) No grace period where claims are pended due to non-payment of premiums Reinstatement can occur if payment received in full within 30 days of termination for non-payment Enrollment and Financial Reconciliation The SHOP will send daily enrollment / eligibility files to carriers Employer have the choice of when to end coverage for terminated employees (upon event or 1st of next month). If employer misses carrier notification window, it goes to the 1st of the next month. For an administrative discrepancy resulting in an inappropriate coverage gap for an employee, if the issue was due to a carrier admin error and payment was received, the carrier must provide retroactive coverage. If the issue was due to an Exchange or employer error, the carrier will provide retroactive coverage as long as premium is received.

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