Anthem Blue Cross, a unit of WellPoint Inc., won't sell policies next… (David McNew/Getty Images )
Health insurance giant Anthem Blue Cross said it won't participate in California's new insurance market for small businesses.
Anthem, a unit of WellPoint Inc., is California's largest insurer for small employers. This surprising move could hamper the state's ability to enroll businesses in its new exchange called Covered California that opens Jan. 1 as part of the federal healthcare law.
Instead, Anthem said it will keep selling coverage to small firms outside the exchange in direct competition with the state-run market. Anthem also remains one of 13 health insurers that will offer policies to individuals in Covered California.
Nonetheless, Anthem's decision stunned many observers.
"That's really surprising and not a good thing for the exchange," said Micah Weinberg, a senior policy advisor at the Bay Area Council, an employer-backed San Francisco group.
"Anthem is a very major player in the small-group market and you want a broad range of insurers, particularly the most compelling brand names," Weinberg said.
Story gallery: Healthcare law comes to California
[Updated, 12:24 p.m., July 19: Covered California said small-business customers should still have plenty of choice and see competitive rates without Anthem’s involvement.
“We don’t think it will have a huge impact,” said exchange spokesman Dana Howard. “There are other companies that are just as big. This will be a competitive market.”]
The state had required health insurers wanting to sell in the individual exchange to also submit a bid for the small-business market, which is limited to employers with 50 or fewer workers.
Darrel Ng, a spokesman for Anthem, said Covered California lifted the requirement last month so the company opted to leave what's known as the SHOP, or small-business health options program.
"Because Anthem is no longer required to participate in SHOP as a condition of being on the individual exchange," Ng said, "Anthem has withdrawn its SHOP application. Anthem will continue to participate in the individual exchange.”
Anthem also said it will remain part of a private exchange for small firms called California Choice.
Covered California is expected to announce the health insurers and their proposed rates for the small-business exchange in about two weeks. In the first few years, the state estimates up to 200,000 small-business workers and their dependents may get coverage through the state's market.
Last month, California Insurance Commissioner Dave Jones asked the exchange to bar Anthem from its small-group market because of what he viewed as unreasonable rate hikes in recent months.
At the time, Covered California said it would consider the commissioner's request alongside other factors. Some business groups opposed the exclusion, out of concern that Anthem's absence would limit competition and employee choice.
The insurer said the recommendation by Jones had no bearing on its decision.
Anthem led California with 31% of the small-employer market in 2011, according to the most recent Citigroup data. Kaiser Permanente was a close second with a 28% share, followed by Blue Shield of California with 18% of small firms.
Several major insurers have already spurned California ahead of the health law rollout. In May, UnitedHealth Group Inc., Aetna Inc. and Cigna Corp. opted not to participate in the state's individual exchange.
Last month, both UnitedHealth and Aetna went a step further and announced they were leaving the state's individual market entirely at year end, leaving nearly 60,000 customers to find new coverage.