California’s Health Benefit Exchange (HBEX)  also known as “Covered California,” sent an email to agents on Friday, April 5, 2013 to announce that they had selected Pinnacle Claims Management, Inc. to run the California SHOP exchange for small businesses. This shocked many in the insurance community including carrier reps, general agents and agents because most expected SHOP to select California Choice (CalChoice) as the administrator.

CalChoice has decades of experience running the exchange that grew out of California’s small group reform legislation, AB 1672.  HIPC and PacAdvantage had unsuccessfuly administered the state’s small group exchange.  Both shut down. Cal Choice began operating a small business exchange in California in 1996 and continues to do so. CalChoice has existing relationships with carriers, agents and GAs. They know how to run an exchange and they have been actively marketing their services as an exchange to assist States with the task (see their Choice Administrators Exchange Solutions web site.)

Pinnacle Claims Management Inc. (PCMI) is unknown to most carriers, agents and GAs in the small group market. So, in addition to the herculean effort of creating an exchange for small groups in California – the state with the largest uninsured population in the country, – PCMI must also establish relationships, trust and credibility with the carrier, agent and general agent community.

According to HBEX’s press release California has about 375,000 small businesses and PCMI has a “current client base of some 800 small employer groups in California and Arizona.”  Assuming that most of PCMI’s small group clients are in California and not Arizona, they have fewer than two-tenths of one percent of eligible small groups.   Many insurance agencies have more small group clients than PCMI.

The SHOP exchange must be able to enroll small businesses by October 1, 2013 with a January 1, 2014 effective date – less than 6 months. This short time period caused HHS to allow states to delay portions of the SHOP exchange implementation. Not in California which intends to have its SHOP exchange enrolling groups with an effective date of January 1, 2014.

PCMI must be up to the task. Their corporate web site is easy to navigate, so they have put thought, effort and resources into making it work.

Also, the fact that HBEX selected them is a strong vote of confidence. HBEX has made many very wise decisions in their short life. For example, HBEX selected Michael Lujan as the director of SHOP. Michael is know in the insurance world, well-liked and respected. He immediately brought credibility to the exchange – something HIPC and PacAdvantage struggled with in their early years.

I would be fascinated to learn why HBEX selected PCMI rather than CalChoice.  CalChoice carries some baggage: it is owned by Word & Brown, a large GA. I imagine that the other GAs could not have been too thrilled with the prospect of a competitor becoming the administrator for HBEX.  Perhaps price was the issue… however with a $50 million price tag over 3 years, it seems that HBEX wasn’t too price conscious – especially since HBEX will be spending the Federal government’s money.

Hopefully, we will learn why California’s HBEX SHOP selected this small TPA to manage the enrollment of hundreds of thousands of small businesses.  No matter what the reason, I hope that PCMI succeeds.  We all want the California Covered SHOP exchange to be easy to work with, offer low rates and good benefits… that’s not too much to ask for, is it?