Over at FiredogLake, Jon Walker points out that the merged merged Senate bill would “create two exchanges per state. There would be an exchange for individuals and a “Small Business Health Options Program” know as the SHOP exchange for businesses.” “This is, pure and simple, a dumb idea,” he writes. “The more customers using one exchange the larger the risk pool and the better the bargaining power.”
It’s unclear why the Senate separates the individual and small business markets rather than follow the Massachusetts model of combining the two markets. Under the Senate bill, insurers would pool risk for all policies in the individual market (inside and outside of the exchange) and all small business policies (inside and outside of the exchange) but couldn’t combine the risk unless the state voluntarily merges the two markets.
As Sarah Lueck explains, allowing multiple exchanges to participate in the same geographic area would increase administrative costs and “diminish the ability of an exchange to improve efficiency by creating a well-functioning marketplace”:
If there were multiple exchanges in the same area, the exchanges would have to spend money on marketing and advertising in order to attract customers….Also, permitting multiple exchanges in a single area would require a vastly more complex risk-adjustment system. Risk adjustment provides higher payments to insurers enrolling higher-cost beneficiaries, while lowering payments to plans enrolling healthier individuals with lower-than-average costs. In areas with multiple exchanges, the risk-adjustment mechanism would have to compensate for risk differentials across the various exchanges, as well as among the insurers within each exchange. This would make it more difficult to risk-adjust accurately.
One possible reason for the separation, a source suggests, is the reluctance of some insurers operating in the small group market to expand their options to individuals. The may not want to change their business model or cover a potentially sicker crop of newly insured individuals.
The so-called SHOP-exchanges have also been promoted by the National Federation of Independent Businesses (NFIB) and championed in the Senate by Sens. Dick Durbin (D-IL), Blanche Lincoln (D-AK) and Sen. Olympia Snowe (R-ME). But why they’re still necessary in the broader context of health reform is somewhat of a mystery.
SHOP may not make policy sense, but it may help win the support of a few moderate lawmakers.