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expressed concern that the deferral of employee choice could go on for years, and could possibly be permanent.
Response: We believe that the option to permit a State to recommend that employee choice not be implemented, if the State fulfills the regulatory requirements, might be important to preserve market stability in certain States in 2015. We recognize that some State Insurance Commissioners and issuers have concerns about the potential for adverse selection in the small group market in light of the fact that employee choice will be a new feature in many markets and issuers at this point in time may feel that they do not have sufficient data available concerning expected enrollee risk in an employee choice environment. This may lead issuers to price coverage more conservatively than they otherwise would price it, even taking into account premium stabilization programs and other considerations. Further, we understand that some State Insurance Commissioners believe that this potential for adverse selection will result in less robust issuer participation in a SHOP that offers employee choice.
Therefore, consistent with the proposal that this policy reflect issuer and State concerns about adverse selection we are finalizing §155.705(b)(3)(vi) to allow a SHOP to elect to provide employers only with the option set forth at paragraph (b)(3)(ii)(B), or in the case of a FF-SHOP, only with the option set forth at paragraph (b)(3)(iv)(B) only if the State’s Insurance Commissioner can adequately explain that it is his or her expert judgment, based on a documented assessment of the full landscape of the small group market in his or her State, that not implementing employee choice in 2015 would be in the best interest of small employers and their employees and dependents, given the likelihood that implementing employee choice would cause issuers to price products and plans higher in 2015 due to the issuers’ beliefs about adverse
2016, States and issuers will be able to learn from the experiences of issuers in a wider range of SHOPs that have implemented employee choice so that any adverse selection concerns will no longer be material. For example, we believe that by 2016, issuers will have much more information on which to make pricing and plan design decisions for an employee choice environment. HHS anticipates that the conditions for a State to recommend a transition in employee choice will apply in a subset of markets, and HHS remains committed to implementing employee choice in all SHOPs by 2016. In any event, in light of the statutory language providing that employee choice should be implemented in all SHOPs, this policy will not be extended beyond 2015. HHS will approve an FF-SHOP State’s recommendations with the understanding that the transitional policy applies for one year.
While the rule would also permit State-based SHOPs to decide against implementing employee choice in 2015, HHS believes it is unlikely that State-based SHOPs will opt not to implement employee choice in 2015 because most of them currently offer employee choice.
We are not finalizing the proposal that States include a statement describing how the plan to increase meaningful choice or reduce adverse selection concerns for 2016 and beyond in their recommendation because HHS anticipates that the conditions that would support the State recommendation required under this final rule will not apply in most markets.
Comment: One commenter does not support allowing States to not implement employee choice because the participation provision in 45 CFR § 156.200(g) requires issuers with more than a 20 percent share of the State’s small group market share participate in the FF-SHOP as a condition of participating in the FFE individual market. Therefore, most issuers participating in the FFE are unlikely to decline participating in an FF-SHOP. The commenter expressed the view
participate in an FF-SHOP, thus expanding the competitive choices available to small business employees.
Response: 45 CFR 156.200(g) was finalized to help provide employers a choice of QHPs in FF-SHOPs. While employee choice may encourage rather than limit choice of issuers and plans, we believe that States are in the best position to make an assessment of the choice of issuers and plans that are available at this time.
Comment: We received several comments on the proposed circumstance under which a State Insurance Commissioner could recommend that the SHOP not implement employee choice based on significant adverse selection that could not be remediated by the single risk pool or the premium stabilization programs. One commenter recommended that adverse selection could be addressed by limiting choice within one issuer. Another commenter stated that risk adjustment would eliminate the risk of adverse selection, but that this would not happen until several months after the State must submit its recommendation regarding employee choice. Another expressed concern about employers continuing to offer grandfathered health plans.
Response: We generally agree with the commenters who questioned including the adverse selection circumstance as drafted in the proposed rule and agree that the single risk pool, risk adjustment program, and other considerations are likely to address adverse selection concerns in the small group market, including small group markets in which the SHOP offers employee choice. Nonetheless, we recognize that some State Insurance Commissioners and issuers have concerns about the potential for adverse selection in the small group market due to employee choice, given that this will be a new feature in many markets and issuers at this point in time may feel that they do not have sufficient data available concerning expected enrollee risk
conservatively than they otherwise would price, even taking into account premium stabilization programs and other considerations. We also understand that some State Insurance Commissioners believe that issuer concerns about adverse selection will result in less robust issuer participation in a SHOP that offers employee choice. Accordingly, in this final rule, we have modified the proposed recommendation that the State Insurance Commissioner would submit regarding adverse selection to better capture the circumstances under which issuers’ concerns about adverse selection might negatively affect the small group market.
Comment: Several commenters provided recommendations about how to define meaningful choice. Such definitions ranged from ensuring employees have a choice among health plans within those metal levels to ensuring there was at least one plan in every metal level.
Response: In response to concerns from commenters, HHS is not finalizing the provision of the proposed rule that would permit the State Insurance Commissioner to recommend that the SHOP not implement employee choice based on a lack of meaningful choice among QHPs or SADPs. Instead, HHS is modifying the proposal to permit State Insurance Commissioners to submit a written recommendation to the SHOP adequately explaining that it is the State Insurance Commissioner’s expert judgment, based on a documented assessment of the full landscape of the small group market in his or her State, that not implementing employee choice would be in the best interests of small employers and their employees and dependents, given the likelihood that implementing employee choice would cause issuers to price products and plans higher in 2015 due to the issuers’ beliefs about adverse selection. A State Commissioner’s recommendation must be based on concrete evidence, including but not limited to discussions
Comment: Several commenters are concerned about whether HHS will be ready to fully implement employee choice in the FF-SHOPs and recommended that concerns about operational readiness be added to the list of circumstances under which a State may recommend not implementing employee choice in 2015. They also stated that FF-SHOP functionality and design would also need to be completed well in advance of the launch and must be scalable to all FFSHOP States.
Response: HHS, with the assistance of appropriate vendors, has finalized business requirements necessary for the launch of the FF-SHOP online portal for 2015. We do not expect that operational and technological processes will pose a limitation to implementing employee choice and premium aggregation services in the FF-SHOPs.
Comment: Some commenters support allowing a SHOP to have the discretion of determining whether employee choice would have to exist for both medical QHPs and SADPs.
One commenter stated that SADPs do not have the protections of the single risk pool, risk corridors, and risk adjustment, which differentiates SADPs from QHPs.
Response: Because of operational limitations in the build of the FF-SHOP online portal, employee choice will either be implemented or not implemented for both SADPs and QHPs in the FF-SHOPs, depending on whether State Insurance Commissioners submit recommendations consistent with this final rule. However, State-based SHOPs could choose to provide employee choice for medical QHPs and SADPs, or vice versa for the 2015 plan year, if their IT systems can accommodate employee choice variation by plan type, and if a recommendation from a State Insurance Commissioner consistent with this final rule would support that approach.
Comment: Some commenters recommended that HHS require that the State’s
small group market. One commenter specifically recommended that the requirement for concrete evidence be included in regulatory text. Other commenters recommended that HHS adopt a more simplified waiver process giving States, including State-based SHOPs, greater discretion and flexibility in choosing SHOP options that meet local needs. These commenters stated that HHS should not include requirements, criteria, or standards that prescribe or limit State flexibility or State decision-making processes regarding implementation of employee choice. Additionally, some commenters urged HHS to require that a State’s recommendation include a mitigation plan describing how any adverse effects of not implementing employee choice in 2015 would be addressed so that these conditions do not persist into 2016. One commenter recommended that the requirement for a mitigation plan should indicate how the State intends to increase standalone dental plan participation in the employee choice market. Some commenters believe that all States should be required to have a public review and comment period on the State’s recommendation to not implement employee choice in 2015 and that all evidence should be subject to public review and comment.
Response: We are finalizing language in this rule requiring that the State’s recommendation must be sent by the State’s Insurance Commissioner to HHS (as operator of the FF-SHOP) or to the State-based SHOP and must be based on documented assessment of the full landscape of the State’s small group market. HHS is not being prescriptive about the specific types of evidence that must be included in this documented assessment, as this evidence may vary based on the State’s small group market. However, the documented assessment of the full landscape of the State’s small group market in a State must support the Insurance Commissioner’s expert judgment that not implementing employee choice would be in the best
implementing employee choice would cause issuers to price products and plans higher in 2015 due to the issuers’ beliefs about adverse selection. A State Insurance Commissioner’s recommendation would need to be based on concrete evidence, including but not limited to discussions with those issuers expected to participate in the SHOP in 2015. Nonetheless, in order that SHOPs will make an informed, fair decision about whether to approve a State’s recommendation, HHS has included in this final rule text the overarching standards on which the State Insurance Commissioner must base its recommendation. We think that the finalized standard accommodates the unique variation of States’ small group markets and provides flexibility to States in making their recommendation to a SHOP. The timeline and schedule that is being finalized in this rule does not make it feasible for FF-SHOPs to solicit public input on a State’s recommendation not to implement employee choice. However, State-based SHOPs and State Insurance Commissioners who make recommendations about not implementing employee choice in 2015 may choose to have a public comment period on their proposed recommendation.
If a State elects to hold a public comment period, it must submit a summary of all comments received with its recommendation to not implement employee choice in 2015 to the relevant SHOP.
Comment: We received several comments about how to address the timing issue presented in the preamble of the proposed rule. Some commenters prefer the timing option whereby the State agency would have to make recommendations prior to the close of the initial QHP certification application window, and stated that this provides time for QHPs to make informed participation decisions. One commenter recommended that the decision and announcement of a State’s recommendation regarding employee choice be made no later than
sound rates. One commenter preferred the second proposed timeline from the preamble of the proposed rule whereby issuers would have the option to maintain, modify, or withdraw their products from the SHOP market after the SHOP’s employee choice decision has been made.
Another commenter asked how issuers would file rates without knowing whether employee choice is required and was concerned that the timing of the letters from the States and the State decision were not in alignment with the QHP certification timelines.
Response: HHS is finalizing in this rule that a State Insurance Commissioner should submit a recommendation to the SHOP, and that the SHOP should make a decision based on that recommendation, sufficiently in advance of the close of the QHP certification application window such that issuers can make informed decisions about whether to participate in the SHOP.