Feds to Nix HealthCare.gov Enrollment for Small Business Plans

Small business tax credit to be available outside of SHOP exchanges

Stephen Miller, CEBS By Stephen Miller, CEBS May 18, 2017
Feds to Nix HealthCare.gov Enrollment for Small Business Plans

The Affordable Care Act's (ACA's) future may be in doubt, but federal agencies are continuing to propose regulatory fixes for its ongoing problems. And among the act's persistent challenges, federal regulators say, has been the largely unused Small Business Health Options Program (SHOP).

The federal Centers for Medicare and Medicaid Services (CMS) announced on May 15 that it plans to propose making it easier for small businesses—those with fewer than 50 full-time or equivalent employees—to offer ACA-compliant SHOP plans to their workers while maintaining access to the small business health care tax credit. The change would take effect next year. Critics see this move as another assault on the ACA by the Trump administration.

Under the CMS plan, not yet released as a proposed rule, employers would no longer be able to enroll in SHOP plans through the federally run SHOP exchanges available in 33 states through the HealthCare.gov portal. Employers could still use the federal portal to check if they qualify for the small business tax credit.

While SHOP enrollment would be removed from HealthCare.gov, small employers would have access to SHOP plans through an agent, broker or insurer of their choice, for plan years beginning on or after Jan. 1, 2018. Small businesses with SHOP coverage that took effect in 2017 would be able to continue using HealthCare.gov for enrollment and premium payments until their current plan year ends.

States that run their own SHOP exchanges may choose to continue to offer online enrollment or to direct employers to purchase coverage directly with insurers, brokers or agents.

"Our goal is to reduce ACA burdens on consumers and small businesses and make it easier for them to purchase coverage," said CMS Administrator Seema Verma in a statement. "This new direction will help employers find affordable health care coverage for their employees and make the SHOP exchanges function more effectively."

But "small employers have always had the option of enrolling directly with insurers or through agents or brokers, and removing enrollment through the federally facilitated SHOP as an additional option does not expand their choices," blogged Timothy Jost, a professor at the Washington and Lee University School of Law in Lexington, Va.

"A primary purpose—if not the primary purpose—of the SHOP exchange was to allow employees of small businesses to choose among a broad range of health plan options. With the end of the [federally run] SHOP, it is more likely that the choices available to employees of small businesses will be limited to a single plan or to a few plans offered by a single insurer," he argued.

Legislative developments helped to undermine the SHOP exchanges, Jost said. The PACE Act, which kept the definition of small employer at 50 employees rather than expanding it to 100 employees in 2016, diminished the small group market. Also, legislation that took effect this year lets small businesses offer their workers health reimbursement arrangements, funded by employers with pretax dollars, to purchase coverage in the individual market, which "further reduced the need for a SHOP exchange," Jost noted.

[SHRM members-only toolkit: Complying with and Leveraging the Affordable Care Act]

A Little-Used Option

Out of the nearly 30 million small businesses in the country, less than 8,000—just .1 percent of small businesses—currently participate in the federally run SHOPs, which cover less than 40,000 individuals nationwide, the CMS said.

Nationwide, including both federally run and state-based SHOP exchanges, as of January 2017 approximately 27,000 employers had active coverage through SHOP, covering nearly 230,000 individuals. "These numbers fall significantly short of the Congressional Budget Office estimate that 4 million people nationwide would enroll in coverage through the SHOP marketplaces by 2017," the CMS said.

"I don't think we ever expected SHOP to become as important as the individual exchanges," Jonathan Gruber, one of the ACA's chief architects, told SHRM Online. "I think we're still a bit surprised it hasn't worked at all."

Tax Credit Also Under-Used

The small business health care tax credit, intended to help some employers purchase small group plans through SHOP, is also largely unused. Currently, the credit is limited to small group plans purchased through a SHOP exchange. Under the agency's forthcoming proposal, the tax credit would become available for SHOP plans purchased directly through agents, brokers or insurers.

The credit is limited to employers with fewer than 25 full-time equivalent employees that pay an average wage of less than $50,000 a year, and that pay at least half of their employee health insurance premiums. The maximum credit is 50 percent of premiums paid for small business employers, or, at small nonprofit organizations, 35 percent of premiums paid for tax-exempt employers. The credit is available to eligible employers for two consecutive taxable years.

"The small employer tax credit was targeted at very small employers with low-wage employees and the application process is quite burdensome," noted Jost. "It never reached more than a small fraction of small employers."

Since an employer could only claim the tax credit for two years after 2013, "presumably, most employers who found it attractive initially have now exhausted their eligibility," he said.

Roadblocks Remain

If a qualifying small employer had previously concluded that the tax credit was not advantageous enough for it to purchase a plan through the SHOP marketplace, then "offering the credit through a carrier is not likely to change its opinion," said Bobbi Kloss, HR director at the Cleveland-based Benefit Advisors Network (BAN), a consortium of health and welfare benefit brokers across the U.S.

Another roadblock Kloss pointed out: brokers lack an incentive to sell SHOP insurance to the smallest employers that "typically have less budget, yet traditionally require much more support because staffing is so low and HR/benefits is handled by ancillary staff," all of which "eats away at any commission received."

In addition, the Republican's proposed ACA replacement, the American Health Care Act (AHCA), which was passed by the House in May and awaits Senate action, would do away with the small business health care tax credit and seeks to undo many coverage requirements for employer-sponsored plans. 

"AHCA is unclear as to what a small employer's continued role in offering insurance should be," Kloss said. "Small employers may decide to wait on sidelines before they jump to make any other decisions" regarding SHOP plans.

Related SHRM Articles:

New Law Lets Small Employers Use Stand-Alone Health Reimbursement Arrangements, SHRM Online Benefits, December 2016

'Secret' SHOP? Small Biz Health Exchange Still Worth Considering, SHRM Online Benefits, September 2016

ACA’s Small Business Tax Credit Goes Largely Unused, SHRM Online Benefits, March 2016

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