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State may drop SHOP, go to third-party providers

State officials are preparing to abandon their original plan for creating a small business health insurance exchange.

The state was supposed to develop a website portal where small employers and their employees could browse and purchase coverage. But the Small Business Health Options Program, called SHOP, will likely not materialize — at least not in the form originally envisioned.

The Maryland Health Benefit Exchange board is now weighing an alternative: asking third-party administrators — companies that work with insurance brokers — to create the portal themselves, using their existing systems and building on their existing relationships within the industry.

That option could cost the state about $3 million, according to a preliminary analysis, but would likely be cheaper than hiring a technology contractor to develop a SHOP exchange from scratch.

The MHBE board hasn’t yet officially committed to pursuing a third-party-managed exchange but is “definitely heading in that direction,” said Dr. Joshua M. Sharfstein, secretary of the state’s Department of Health and Mental Hygiene. The board voted at a Wednesday meeting to evaluate the option in more detail and make a decision next month.

A consultant hired by MHBE suggested engaging third-party administrators because most small employers who provide health insurance choose to purchase plans by working with brokers, who have existing relationships with administrators. Therefore, they already have in place many of the systems and processes that would be required of a SHOP exchange, according to Christopher Brandt, the managing partner of Audacious Inquiry LLC, a Catonsville-based consultancy.

Audacious Inquiry was hired last month to evaluate potential options for how Maryland should proceed with the SHOP. The Affordable Care Act requires that states create a portal for employers and employees to comparison shop for health plans.

An exchange created by third-party administrators would, theoretically, serve the same functions as a state-run SHOP exchange but would be built upon existing processes. It would allow employers to offer a wider selection of plans than they are currently able.

Businesses would also be able to access federal tax credits made available under the ACA to help pay employees’ premiums.

“It’s building on what we have in Maryland instead of trying to build it separately,” Sharfstein said.

Sharfstein said that, unlike the state’s contracts with IT companies to build the individual insurance exchange, MHBE would not pay third-party administrators upfront to create the portal. The state and the administrators would first agree on what functions the portal should have, and the state would then reimburse the company in incremental payments after each function is up and running.

“Basically, instead of contracting to build something, we’d be paying for functionality,” Sharfstein said.

Sharfstein also said that the exchange board failed to realize during the initial planning stages years ago that a state-run SHOP website would duplicate existing infrastructure and processes. But he said he’s glad the board now has the opportunity to find a better solution.

“There’s a silver lining to the fact that we’ve pulled the plug on the SHOP and are taking a second look at this so we can do it better,” Sharfstein said.

Brandt said based on research and surveys conducted by his firm, brokers and third-party administrators are open to the idea of working with the state to create the portal, but the state still needs to decide the details of such an arrangement.

MHBE could select a single administrator to create the portal or ask several to participate. But the state must weigh the advantages and disadvantages of each.

For example, Brandt said, not every administrator has a relationship with every broker in the state, so if MHBE selected a single one to build the exchange, many brokers could be left out — or at least be at an initial disadvantage.

There did seem to be broad interest among MHBE board members for further exploring both options.

Because the small-group health insurance market in Maryland is driven largely by employers’ relationships with their brokers, “alienating [the brokers] or forcing them to change their behavior is likely to lead to lower utilization” of the SHOP, Brandt said. “So we think the [third-party administrator] options are more attractive.”

However, some board members raised concerns about whether the consulting firm solicited enough input from a large and diverse enough group of stakeholders. Brandt said his firm talked with two carriers, but there are several more insurers that currently sell in the small-group market.

The board will hear more details about both options at next month’s meeting.