The insurance agent protection

For Small Business Health Options Program (SHOP) exchanges to succeed merely setting up operational SHOP exchanges is not going to be enough; States will need to design SHOP exchanges in such a manner that it minimizes the risk of adverse selections.  While cost- effectiveness of plans will remain a critical point, smart designing and keen analysis of the insurance market and consumer behavioral patterns will aid in successful deployment of SHOP exchanges.

The fundamental principles that need to be considered while setting up exchanges are:

Understanding the insurance market

To be able to deliver on their promise, states will need to be very clear about the insurance related challenges faced by small employers. Small businesses typically have low administrative spending capacity, are more affected by increase in premium rates, and are not so well-informed about their available health insurance options.

Most importantly, states must also keep into consideration the important entities such as brokers, agents etc., who act as intermediaries between businesses and insurance firms. Exchanges will need to devise ways to efficiently and effectively employ these resources as they can prove invaluable in customer and information outreach.

Cost and value of featured plans

Insurance costs have traditionally acted as a primary barrier for small businesses to secure health insurance for their employees. Competitive premium rates will definitely spark interest among the small business community, always looking for high-value, low cost insurance plans, but other measures may need to be employed to ensure significant employers’ participation.

Lower administrative costs reduce the net expenses of managing and operating exchanges, which in turn help in reducing employer premiums.  To contain administrative costs, pricing incentives, such as employing reasonable broker commissions and introducing administrative expenses standards, can be introduced to encourage competitive rates among participating plans.

Small employer tax credits which will become effective after the exchanges come into operations will further help in lowering health insurance costs for small businesses.

Such initiatives may help in increasing employer participation and improving the net economies of scale for small businesses.

Aim for maximum participation

Without a large scale small businesses’ enrollment in SHOP exchanges, the states will find it difficult to compete with outside competition, mitigate risk and ensure low premium rates. SHOP exchanges’ success therefore leans on substantial exchange participation from small employers’.

A robust enrollment and a strong launch will help exchanges in building credibility and putting a strong foothold in the insurance market. The states may need to aggressively approach small employers’, brokers and other participants and keep them well-informed to drive for significant enrollment. If small employers’ are not well informed about exchanges and their functionalities in advance, they may not feel motivated enough to switch from their long time running insurance plans.

These few key decisions, if carefully considered, may go a long way in ensuring strong enrollment, successful takeoff of SHOP exchanges.

Next up in SHOP exchange blog series – Decisions that states will have to take while designing exchanges. A few key considerations are:

•    What roles will brokers’ play in exchanges?
•    Will the exchange be an active or passive buyer?
•    Who will be purchasing the plans – employers or employees?

Stay tuned for more!

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