Small businesses push back on D.C. insurance-exchange mandate

October 4, 2012

The District’s small businesses may have to buy their employee health insurance through a city-run exchange come 2014, following a controversial vote by a city board.

The D.C. Health Benefit Exchange Authority, charged with implementing the federal health-care overhaul, voted Wednesday evening to accept a recommendation that all health-insurance plans sold in the city for 50 members or fewer must be purchased through the exchange.

Exchanges, a key mandate of the federal overhaul, are intended to make buying insurance more transparent, accountable and affordable. But while much of the national focus has been on creating exchanges for individual health plans, the District is only the second jurisdiction to limit the small group plans typically purchased by employers to an exchange.

The decision is driven largely by D.C.’s small individual-insurance market. The District’s population is not only smaller than 49 states, but it also boasts an above-average rate of insurance coverage, driven by the high percentage of residents enrolled in Medi­caid or a District-funded health plan for low-income residents not eligible for Medicaid.

“For the exchange to be sustainable, it has to have approximately 100,000 people,” said Mohammad N. Akhter, the authority’s chairman. “If the exchange isn’t sustainable in the long haul, if it does not have enough people, then we are wasting our time and our effort. ”

A report prepared last year for the D.C. Department of Health Care Finance said that in 2010 about 19,000 residents pur­chased individual health-insurance plans. The report also cited federal data from that year showing 7,300 District employers offered plans to 50 or fewer workers — about 125,000 employees in all.

Wednesday’s vote of the authority’s seven-member executive board was unanimous, despite withering opposition from the business community, which main­tains the exchange will lead to higher costs and less flexibility for employers.

A September letter signed by a coalition of more than 150 small businesses and associations said the exchange mandate betrayed “President Obama’s repeated assurances that, ‘If you like your health plan . . . you will be able to keep your health care plan. Period.’ ”

The businesses called the exchange “an undefined, untested, more expensive entity” that would offer “standardized, cookie-cutter coverage.” Plans sold through the exchange will have to meet coverage requirements imposed by the Obama health-care law and additional requirements mandated by the authority.

“The diversity of small employer health plans currently available in the District cannot be replicated in the standardized plans offered by the Exchange,” the letter said. It said there was a need for plans that “complement each employer’s unique budgetary and financial situations.”

Only Vermont, with a similarly small individual-insurance market, has also moved to restrict its small group market to an exchange.

Hannah Turner, a spokeswoman for the small-business coalition, said the exchange mandate is an “extreme choice” that seeks to solve problems that might not materialize. “The concern is about all these additional costs that are being added onto premiums that are already skyrocketing,” she said. “All of these things are just adding onto small-employer costs.”

Because per-member costs in the individual market are generally higher, merging the individual and small-group “risk pools” would lower individual plan costs while modestly increasing costs in the larger small-group market.

William P. White, the District’s insurance commissioner, said he expected any price increase to be “fairly minimal.” The Health Care Finance report cited data from Massachusetts, which merged its individual and small-group exchanges in 2007, that indicated small-group premiums would have to increase on average no more than 3 percent to maintain insurers’ financial stability.

Akhter said the business community has been unable to propose a workable alternative that would maintain the viability of the individual-insurance exchange. Among the board’s concerns, he said, was that employers with healthier workforces would tend to opt for non-exchange plans offering lower rates, threatening the viability of exchange-sold plans — so-called “adverse selection.”

“I have been asking the same question of every business leader I have had the opportunity to meet with: ‘Tell me an innovative way to make this work,’ ” Akhter said. “I haven’t gotten the answer. If it was simple, we would have made the decision in our first week.”

Turner said her group has proposed a compromise, allowing small employers to purchase outside the exchange but requiring insurers to merge the risk pools of their plans regardless of how they are sold. But Kevin Lucia, a Georgetown University professor who sits on the exchange authority’s board, said that arrangement would do little to help hold down insurance costs.

“Unless we consolidate these markets and we put them in one vehicle, we are forever going to be in a condition where we cannot start to look at the cost drivers,” he said.

Business critics did win a concession Wednesday when the authority voted to limit the exchange mandate to plans with 50 or fewer members rather than 100 or fewer members. But under the health-care law, the higher threshold will kick in regardless in 2016.

The exchange is set to open in 2014, when the federal exchange mandate begins. It is unclear what steps remain. Akhter said the board’s recommendation will be sent to White, who is tasked with implementing the exchange mandate. That could include seeking legislative action by the D.C. Council, meaning the debate could shift to the political arena.

Whether that will be necessary remains uncertain. “If I need their approval for something, I will ask the council,” White said Thursday.

Regardless, Turner said, the small-business coalition intends to lobby council members vigorously.

Akhter said he plans to move forward swiftly — even if the federal health overhaul is gutted, as presidential candidate Mitt Romney has pledged to do. “We’ve been given the funds to carry this out; we have the legislative authority,” Akhter said. “We’re going to go ahead and fulfill our duties.”

Mike DeBonis covers local politics and government for The Washington Post. He also writes a blog and a political analysis column that runs on Fridays.
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