Which of the following is a recommendation to address adverse selection in Small Business Health Options Program (SHOP) exchanges?

The recommendation to increase premium subsidies for firms that purchase SHOP plans effectively addresses adverse selection by making health insurance more affordable for small businesses. Adverse selection occurs when higher-risk individuals are more likely to apply for insurance, leading to unbalanced risk pools. By increasing premium subsidies, SHOP exchanges can attract not only healthier individuals but also those who may have previously considered insurance too costly. This broader participation helps to create a more diverse risk pool, spreading the costs of care across a larger group and mitigating the effects of adverse selection.

In contrast, decreasing premium subsidies would likely exacerbate the problem by making it harder for small firms to afford health insurance, potentially driving away healthier individuals and leaving a higher proportion of higher-risk individuals within the risk pool. Similarly, complicating the purchasing process would discourage engagement with the program altogether, reducing the likelihood of participation and potentially increasing the concentration of high-risk applicants. Encouraging small firms to maintain relationships with traditional brokers may provide some support but does not directly tackle the core issue of affordability and risk pool diversity that is critical to mitigating adverse selection.