h e a lt h p o l ic y b r i e f
1
w w w. h e a lt h a f fa i r s .o r g
The
COMMONWEALTH
FUND
Health Policy Brief
september 18, 2014
Employee Choice. In some SHOP Marketplaces,
small-business employees can select health
coverage from multiple insurers. By 2016 the
option is expected to be available nationwide.
what’s the issue?
Small businesses have historically been less
likely than larger firms to offer comprehensive
health insurance or a choice of health plans,
and their employees are more likely to be uninsured or underinsured. In addition to reforming insurance rules for the small-group market
to address marketwide inefficiencies that have
hindered many small businesses from offering
coverage, the Affordable Care Act (ACA) created Small Business Health Options Program
(SHOP) Marketplaces in each state.
SHOP Marketplaces were intended to further assist small businesses with offering
affordable coverage by providing a one-stopshop for small businesses and their employees to compare and enroll in qualified health
plans, promoting transparency and price competition among participating insurers and
creating a mechanism for employee choice,
in which small-business employees can select from among multiple insurers and health
plans made available through the SHOP.
©2014 Project HOPE–
The People-to-People
Health Foundation Inc.
10.1377/hpb2014.19
To date, the majority of state-based SHOP
Marketplaces have chosen to implement employee choice, but federal regulations have
made implementation of employee choice
voluntary until 2016. This feature has not yet
been made available in federally run SHOP
Marketplaces. Fourteen states with federally
facilitated SHOP Marketplaces are expected
to offer employee choice for 2015, with the remaining eighteen federally run SHOP states to
follow in 2016. Not all stakeholders have embraced the employee-choice concept: While a
majority of small businesses say they are interested in giving employees more plan choices,
detractors have raised concerns that employee
choice may overwhelm employees with too
many choices or result in higher premiums in
the SHOP if higher-risk employees can select
more comprehensive plans than lower-risk
employees.
The implementation of employee choice
has also been hindered in some instances by
broader technological problems with health
insurance Marketplaces and insufficient insurer participation. While it is too early to
determine the success of employee choice and
SHOP Marketplaces generally, their phased
implementation across the country offers an
important opportunity to evaluate these longstanding policy ideas.
what’s the background?
Improving small employers’ access to coverage
has long been a challenge for policy makers.
h e a lt h p o l ic y b r i e f
“Various state
and private
efforts to help
small businesses
offer coverage
and to provide
them with better
choices have
yielded mixed
results.”
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e m p l oy e e c h o ic e
Prior to the ACA, legislation at the federal level
had envisioned various mechanisms through
which small employers could pool their purchasing power to buy health insurance coverage. Various state and private efforts to help
small businesses offer coverage and to provide
them with better choices have yielded mixed
results with attracting adequate enrollment
and keeping premiums competitive.
Small businesses have historically been less
likely to offer health insurance coverage than
larger firms. Those firms that did offer coverage had typically provided limited, if any,
health plan choices for their workers. According to the Agency for Healthcare Research
and Quality, only 20.7 percent of firms with
fewer than fifty employees offered two or more
health insurance plans in 2012, compared to
50.4 percent of firms with 100–999 employees
and 67.3 percent of firms with fifty or more
employees.
These limited choices for smaller firms
have been due to several factors. First, small
businesses have typically been subject to insurer requirements that a minimum number
of workers participate in any given plan, and
there have not been widespread mechanisms
to allow employers to contribute to more than
one plan selected by employees, making it impractical to offer workers a choice of plans.
Second, the small-group market has to date
been very concentrated, limiting small employers’ choice of insurers overall. According to a Kaiser Family Foundation report, the
small-group market in most states was not
competitive as recently as 2010, with a single
insurer accounting for more than half the
market in twenty-six states and the District of
Columbia that year.
Finally, prior to 2014, insurance companies
in most states were also allowed to charge
small businesses different rates depending
on factors such as employees’ gender, occupation, and prior health status, pricing some
businesses out of the full range of plans that
might otherwise have been available to them
or out of coverage altogether.
While the small group-market reforms attempt to create a more level playing field for
small businesses whether or not they purchase
through SHOP, the SHOP Marketplaces are
intended to add value to small employers by
providing the opportunity to view comparable
plans side by side and establish a mechanism
for employee choice.
what’s the law?
To make the SHOP Marketplaces more attractive to small businesses, the ACA requires the
Marketplaces to offer a feature known as employee choice, in which employers can offer
their employees a choice from multiple health
insurance plans. When the law was enacted,
it envisioned employee choice being available
in all SHOP Marketplaces beginning in 2014.
Subsequently, the Department of Health and
Human Services (HHS) delayed the employeechoice requirement until 2015. Then, in a later
rulemaking, HHS allowed insurance commissioners to recommend an additional one-year
delay of employee choice in their states until
2016, if they believed such a delay would be
in the best interests of small employers, their
employees, and dependents.
Along with the delays in the employeechoice requirement, HHS delayed an accompanying feature known as “premium
aggregation,” in which SHOP Marketplaces
are required to present small employers with a
single bill regardless of how many plans their
employees choose.
Variants on employee choice: There are several variants on the employee-choice concept.
In the only employee-choice model required
by the ACA, the employer designates a level of
coverage from among the bronze, silver, gold,
and platinum coverage levels, or “metal tiers,”
defined in the law. Employees can then select
a plan from different insurers offering coverage at that metal tier within their geographic
area. This option is also known as “horizontal
choice.”
Federal regulations specified that states
running their own SHOPs may provide additional employee-choice models, which, subject
to employers’ decisions, would allow employees to select from multiple metal tiers or from
any plan offered through the SHOP. The regulations also gave SHOP Marketplaces the flexibility to allow employers to offer a single plan
to employees—a model known as “employer
choice.”
Implementation to date: Implementation
of employee choice to date has varied based
on whether the SHOP Marketplace is being run by an individual state or the federal
government.
As of July 2014, seventeen states and the
District of Columbia were operating their own
h e a lt h p o l ic y b r i e f
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e m p l oy e e c h o ic e
SHOP Marketplaces, while thirty-three states
had SHOP Marketplaces operated by the federal government (see Exhibit 1).
•State-based SHOP Marketplaces: Although
seventeen states plus the District of Columbia
planned to offer employee choice in 2014, in
practice, it was not available in all of these
states as of September 2014. For example,
only one insurer participated in the Washington State SHOP, while other states, including
Maryland, Massachusetts, and Oregon, had
technological problems or made policy decisions to delay the availability of employee
choice.
•Federally facilitated SHOP Marketplaces: As
a result of the delay in the employee-choice
requirement, the federal SHOP Marketplace
allowed employers to only offer a single plan
in 2014. In June 2014 the feds granted an additional one-year delay to the eighteen states
with federally facilitated SHOP Marketplaces
that requested a delay—allowing them to postpone employee choice until 2016. Fourteen remaining states with federally facilitated SHOP
Marketplaces will have employee choice available in 2015. Like several of the state-based
Marketplaces, the federal government also
delayed online enrollment through the federal SHOP Marketplace. Small businesses could
instead enroll through agents and brokers,
or directly through insurers offering SHOP
plans. HHS plans to have both online enrollment and employee-choice capability in time
for the 2015 plan year.
•States in transition: The availability of
employee choice in some states may change
next year depending on the functionality of
exhibit 1
States Planning to Offer Employee Choice in 2014, 2015, and 2016
State-based SHOP Marketplaces with choice planned for 2014
FF-SHOP Marketplaces planning to offer choice in 2015
FF-SHOP Marketplaces with choice delayed until 2016
State-based SHOP Marketplaces with choice delayed until 2016
sources Centers for Medicare and Medicaid Services (CMS), Small Business Health Options Program; Department of Health and Human Services, SHOP Early Access in
Five States Benefits Small Employers Nationwide, September 2014; Authors’ analysis. notes FF stands for federally facilitated. CMS selected Missouri, Illinois, Ohio,
New Jersey, and Delaware to pilot test certain features of the federal SHOP online portal prior to November 15, 2014. Employee choice was delayed in 2014 in Maryland,
Massachusetts, Oregon, and Washington. States transitioning to the federal SHOP platform for 2015 include Nevada and Oregon. Idaho is a state-based Marketplace but
used the federal IT platform in 2014. Although it is transitioning to a state-based IT platform in 2015, it does not plan to offer employee choice until 2016. Arkansas plans
to establish a state-based SHOP Marketplace for the 2016 plan year.
h e a lt h p o l ic y b r i e f
20.7%
of firms
20.7 percent of firms with fewer
than fifty employees offered two
or more health insurance plans in
2012.
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e m p l oy e e c h o ic e
the underlying technology, insurer participation, and state policy decisions. For example,
Nevada and Oregon, which originally had
opted to offer multiple variants of employee
choice in 2014, instead are relying in 2015 on
the same information technology that the federal government uses in operating its SHOP
Marketplaces online and, therefore, will offer
only the single coverage level model of employee choice. By contrast, California decided to
expand its employee-choice options next year.
Idaho, which is a state-based Marketplace, relied in 2014 on the information technology
that the federal government uses in operating SHOP Marketplaces but is transitioning
to its own state-based system in 2015. It does
not plan to offer employee choice until 2016.
Washington State, which had only one insurer
in 2014, expects to have more in 2015. In Hawaii that dynamic will be reversed, and only
one insurer will participate in 2015.
what’s the debate?
Stakeholders—including some small employers, insurers, brokers, and state regulators—
have expressed varying levels of support for
the employee-choice concept. While small
employers are interested in offering workers
a choice of plans, at the same time maintaining a predictable contribution to employee
coverage, other stakeholders have cautioned
that too much choice can add complexity, as
employers or brokers must assist employees
with selecting the right plan.
Insurers have also raised concerns that allowing employees more choice will result in
higher premiums related to insurers’ expectations about attracting higher-risk enrollees,
but it is too early to determine whether this
trend, known as adverse selection, is actually
occurring. Employee choice may also increase
competition and reduce the market share of
dominant insurers.
Finally, employee choice necessitates the
creation of new insurance premium allocation methods and technology that can accurately distribute a single employer payment to
multiple health plans. Particularly within the
context of broader technological difficulties
with SHOP Marketplaces, stakeholders have
expressed concerns that the complex formulas
required to implement employee choice could
lead to problems with properly allocating payments to insurers.
These issues, among others, have played
a significant role in overall state and federal
policy decisions to delay employee choice,
state decisions about how to structure employee choice, and insurer decisions to participate
in SHOP Marketplaces.
choice without complexity
Employee choice—which has long been
available for large companies and public employers—represents a clear departure from
the single-plan model most commonly used by
small employers today. While employee choice
can simplify the process of offering coverage
for employers in some respects—for instance,
relieving employers of the challenge of finding a single plan that works for all of their
employees’ needs and preferences—it can add
complexity in other ways. Research shows that
too much choice can be confusing and can result in consumers selecting health plans that
may not adequately meet their health needs or
protect them financially.
Employee choice requires employers to
decide how much choice to provide their employees. It also gives employees more responsibility for selecting a health plan, a process
with which they may not be familiar if they
were previously uninsured or did not have a
choice of plans in the past. Although the required choice of different plans on one metal
level may be less choice than consumers may
have in Marketplaces for individuals, some
employers fear that they will have to master
an entirely new way of offering group coverage
and take responsibility for helping their employees to understand new, complex choices,
or (worse) take the blame if they make what
turn out to be “wrong” choices.
Notwithstanding these trade-offs, according to a survey of small employers conducted
by Jon Gabel and colleagues, 56 percent would
prefer “offering workers a choice of plans, with
the employer paying a fixed amount, and the
employee paying any extra cost for choosing a
more expensive plan”…than in “offering workers one plan with less administrative work for
your firm.”
As implementation of the employee-choice
model continues to develop, both small employers and their employees are likely to continue to need personalized assistance with the
plan selection process and can be expected
to continue to use the services of agents and
brokers, as 80 percent of small businesses do
now. State and federal SHOP Marketplaces
can also be expected to continue building on
technology to facilitate a more user-friendly
h e a lt h p o l ic y b r i e f
shopping experience, including a functioning
online enrollment process, plan comparison
tools, and portals to allow agents and brokers
to manage their clients’ portfolios.
predictable contributions
17states
As of July 2014, seventeen states
and the District of Columbia
were operating their own SHOP
Marketplaces.
Small employers are extremely sensitive to
the price of health insurance coverage. The
premiums of SHOP Marketplace plans will
depend on a number of factors, but the SHOP
Marketplace does offer employers something
that large businesses and public employers
have offered for years: the ability to provide
their workers a choice of plans while making
a predictable contribution to coverage, regardless of the plan an employee chooses.
This is also known as “defined contribution,” which is relatively simple to administer
when employers contribute a set percentage
toward a single plan for all employees. To
make employee choice possible, SHOP Marketplaces must develop a mechanism to allow
employers to contribute to each employee’s
individual premium.
In 2014 most state-based SHOP Marketplaces chose to establish a mechanism allowing
employers to designate a percentage contribution toward one particular plan—known as
a “reference plan”—from among the menu of
plans available to employees. This percentage
contribution can then be translated into a defined dollar amount, based on the premium
for the reference plan. If employees choose
plans that are more expensive than the reference plan, they pay the difference.
“Small businesses
have historically
been less likely
to offer health
insurance
coverage than
larger firms.”
5
e m p l oy e e c h o ic e
Federal regulations allow premiums in the
small-group market to be adjusted based on
the allowable rating factors (age, geography,
tobacco use, and family size) for each employee for plan years beginning January 1, 2014.
In most states, employer contributions will be
based on an employee-specific premium, also
known as a “list bill,” and will, therefore, vary
by the employee’s individual rating factors. As
a result, some small-business employees may
experience the effects of age rating for the
first time, with older employees paying more
and younger employees paying less than they
would have under composite billing.
Some states have attempted to develop models that mimic group coverage by allowing
employers to contribute equally to all workers regardless of their age, but such models are
challenging to implement. As SHOP Marketplaces continue to develop, it will be important
to monitor the effect of different contribution
strategies on the actual premiums paid by employers and their workers.
adverse selection
Employee choice gives individual employees greater freedom to select plans based on
their anticipated health needs. This raises
concerns that adverse selection could result if
higher-risk employees within the SHOP disproportionately choose more comprehensive
coverage at higher metal tiers than lower-risk
workers. The ACA includes programs intended to mitigate the impact of adverse selection.
Nonetheless, insurers have raised concerns
that employee choice could result in higher
premiums in the SHOP because insurers price
their plans based in part on anticipated use of
health services by enrollees. Adverse selection
may be of particular concern to insurers with
greater market share or name-brand recognition in a given small-group market.
The manner in which employee choice is
structured can affect the likelihood that adverse selection will occur in a given SHOP
Marketplace. In general, the more choices
employees are given to select plans across
metal levels and carriers, the greater the risk
that adverse selection will occur. Less selection can be expected to occur under the basic
“horizontal choice” variant that will be available under the federal SHOP Marketplaces because employees are given a choice of only one
metal tier, in which the comprehensiveness of
coverage is similar from one plan to another.
Among states that opted to provide employee
choice in 2014, all but California opted to offer more than the “horizontal choice” variant, with seven states offering “full employee
choice” (see Exhibit 2). California recently announced that in 2015, employers will be able
to offer coverage in two contiguous coverage
levels rather than the single benefit level they
were able to offer in 2014.
To mitigate concerns about adverse selection, some state-based SHOP Marketplaces
placed constraints on the coverage levels
employers and employees could choose. For
example, some states limited employers’ and
employees’ choice of plans to contiguous metal tiers, even while offering broad employee
choice.
plan participation and competition
In order to provide employee choice in practice, SHOP Marketplaces must attract enough
h e a lt h p o l ic y b r i e f
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e m p l oy e e c h o ic e
insurers and enough plans to offer a meaningful range of choices to small employers. Insurers have indicated that their participation in
the SHOP may be predicated, at least in part,
on states’ approaches to implementing and
structuring employee choice. In 2014 nearly
all state-based SHOP Marketplaces attracted
enough insurers to offer small employers and
employees a choice of insurers and plans,
across a range of coverage levels and in nearly
every county.
In Washington State only one insurer chose
to participate in 2014, but additional insurers are considering participating in 2015. In
Hawaii, however, one of the small-business
insurers recently announced it will no longer
participate in 2015, leaving small employers
there with just one insurer in the SHOP.
The employee-choice mechanism allows
employees to make their own decisions with
respect to health plan features, such as premiums, cost sharing, and provider networks,
instead of having the employer select one plan
for the entire group. Employee choice thus creates the potential for increased competition
among insurers, must attract the enrollment
of individual employees instead of relying on
exhibit 2
Intended Employee Choice Variants in State-Based SHOP Marketplaces, 2014
Employee choice plan selection models a
State b
Single plan
CA
One tier, multiple
insurers
Multiple tiers,
one insurer
Multiple tiers, multiple
insurers
○c
○
CO
○
○
○
CT
○
○
○
DC
○
○
○
HI
KY
○
MD f
○
○d
○
○
○
○
MA
○
○g
○g
MN
○
○
○
MS
○
○
NV b,h
○
○
NM
○
○
NY
OR
All tiers,
all insurers
b,i
RI
○
○
○
○
○
○
○
○
○
○
○
○d
e
○
c
○i
○
UT
○
○
VT
○
○
WA
j
○
○
source Sarah Dash, Kevin Lucia, and Amy Thomas, Implementing the Affordable Care Act: State Action to Establish SHOP Marketplaces (New York, NY: Commonwealth
Fund, March 2014). notes These data reflect state-based Marketplace design decisions for policy or plan years beginning on or after January 1, 2014. The data may not
reflect current functionality of the Marketplaces and do not identify the options that a state-based Marketplace may be considering for future years. a Employee-choice
models include the following: allowing employers to choose a single metal tier and employees to select plans from different insurers; allowing employers to choose a
single insurer and employees to select plans at different metal tiers; allowing employers to select multiple insurers and employees to select plans from multiple insurers
at different metal tiers; or allowing employees to select any plan on the SHOP Marketplace. bThe federally facilitated SHOP will not offer employee choice in 2014. In
2015 the federal SHOP will offer employers the option of choosing a single plan for their employees or a single metal tier of coverage. Nevada and Oregon will use the
federal SHOP platform in 2015 and will have only the single plan (employer choice) or single metal tier option of employee choice available on their SHOP Marketplaces.
c
Colorado and Oregon limited employees to choosing plans on the SHOP Marketplace on metal tiers that are adjacent to the reference plan chosen by the employer
(for example, if the employer selects a silver plan, employees can only choose a plan from among bronze, silver, and gold options). d In Hawaii, the two models are only
available for employers not subject to the requirements of the Prepaid Health Care Act. In 2015 only one insurer is expected to participate in the SHOP. eIn Kentucky,
employers are limited to choosing plans on the SHOP Marketplace on metal tiers that are contiguous (for example, the employer may not select only the bronze and gold
levels for employees). f Maryland delayed online enrollment and employee choice in its SHOP Marketplace in 2014. g Massachusetts delayed implementation of employee
choice in 2014. h In addition to the available models shown here, Nevada originally opted to offer the multi-tier, multi-insurer (“multi-insurer partnership”) and all-tier,
all-insurer options. However, those will not be available to employers in 2014 because carriers did not structure their plan offerings to allow those options. iIn Oregon,
this model was to be made available only if the employer selects a gold plan as its reference plan. iIn Washington, the SHOP Marketplace is operating as a pilot program
in 2014 with only one insurer. More insurers are expected to participate in 2015.
h e a lt h p o l ic y b r i e f
e m p l oy e e c h o ic e
small employers as an intermediary for plan
selections.
“Horizontal” employee choice models—such
as those that allow employees to choose among
multiple insurers—may foster more competition than “vertical” models that allow employers to offer plans at multiple metal tiers, but
only from a single insurer.
what’s next?
Employee choice is considered one of the central selling points of SHOP Marketplaces. The
launch of SHOP Marketplaces in all fifty states
and the District of Columbia over the next several years offers policy makers an important
opportunity to evaluate the success of employee choice, along with related strategies for improving the accessibility and affordability of
coverage in the small-group market.
7
To date, implementation of employee choice
has been uneven across the country, with
state-based SHOP Marketplaces leading the
effort in 2014. Enrollment data for SHOP
Marketplaces are limited to date. As more data
become available, it will also be important to
evaluate how often employers are opting to
give their employees a choice of plans; which
variants of employee choice are most appealing to small employers; and their effects on adverse selection, competition, and premiums.
Finally, as technology improves and employee choice is phased into states with federally run SHOP Marketplaces in 2015 and 2016,
it will become easier to understand whether
employee choice—independent from the current operational challenges—is successfully
attracting more small businesses to offer coverage through the SHOP. n
About Health Policy Briefs
Written by
Sarah Dash
Vice President for Policy
Alliance for Health Reform
Kevin W. Lucia
Senior Research Fellow
Center on Health Insurance Reforms
Georgetown University Health Policy
Institute
Editorial review by
David Chase
California Director/Healthcare Policy
Director
Small Business Majority
Jon Kingsdale
Director, Boston
Wakely Consulting Group
Rob Lott
Deputy Editor
Health Affairs
Health Policy Briefs are produced under
a partnership of Health Affairs and
the Robert Wood Johnson Foundation.
This Health Policy Brief is based on the
authors’ ongoing research at Georgetown
University Health Policy Institute
supported by the Commonwealth Fund .
Cite as:
“Health Policy Brief: Employee Choice,”
Health Affairs, September 18, 2014.
Sign up for free policy briefs at:
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healthpolicybriefs
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