SHOP Exchange Delay Limits Small Employers' Options

By Joanne Sammer May 13, 2013

last updated 11/27/2013

In March 2013 the U.S. Department of Health and Human Services (HHS) announced a one-year delay to a key component of the Small Business Health Options Program (SHOP), set to launch in October. State-specific SHOPs will provide a separate marketplace for small group plans—which employers with up to 50 employees (and in some states up to100) could make available to their full-time workers—within each of the public exchanges that are a hallmark of the Patient Protection and Affordable Care Act (PPACA).

On Nov. 27, 2013, HHS announced plans to further delay a key part of the federal SHOP marketplace. Small employers won't be able to buy plans under the provision until November 2014. Prior to that announcement, it appeared that eligible employers would still be able to purchase a group health plan through the SHOP component of that met the PPACA's required four levels of coverage. However, exchange SHOPs were to be required to offer only a single plan option, rather than the multiple competitive options expected to be available when SHOPs are completely up and running (as now planned) in 2015.

The announcement threw an unwelcome wrench into the plans of many small businesses that were counting on SHOPs as a way to offer their employees more health benefit options with more competitive pricing and lower administrative costs. “It is a big deal,” said Josie Martinez, senior partner and general counsel at EBS Capstone in Newton, Mass. “Smaller employers had been looking forward to being able to offer our employees some choices in the form of more options with more competitive rates. Now those employers will have to figure out Plan B.”

'Smaller employers will have to figure out Plan B.'

It is important to note that the full impact of the SHOP delay will vary based on the states in which an employer operates and purchases health coverage. States opting for the federally run health insurance marketplace will experience the full effect of the delay (the Kaiser Family Foundation provides an up-to-date state-by-state list). Companies operating in states that run their own exchanges are likely to have more options. For example, “California and Connecticut have both said they intend to have multiple plans available through their SHOP,” said Frank Morris, a partner at law firm Epstein Becker Green in Washington, D.C.

In addition, “protections with respect to essential health benefits (EHBs) and rates exist both inside and outside the SHOP,” said Sheila Burke, senior public policy advisor at Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, a law firm in Washington, D.C. However, employers in states that run their own exchanges should find out specifically what options will be available through the SHOP and make their own plans accordingly.

Also, the small-employer tax credit will still be available to businesses that purchase government-approved coverage from insurers, agents and brokers .

State-Operated Exchanges Have SHOP Flexibility

The federal government will structure SHOP on the exchanges it administers. Exchanges run by the states (and the "partnership" exchanges run jointly by states and the federal government) will decide how their SHOP is structured, and will have flexibility with regard to:

  • Size of small businesses that can participate. States can set the size of the small group market at one to 50 or one to 100 employees until 2016. In 2016, employers with between one and 100 employees can participate in SHOP. Starting in 2017, states have the option to let businesses with more than 100 employees buy large group coverage through SHOP.
  • Structure of choices for small businesses. State operated exchanges can choose to offer employers additional ways to provide coverage through SHOP, including allowing their employees to choose any plan in all levels of coverage or a traditional “employer choice” offer of a single plan.

Weighing Options

The SHOP delay is a disappointing development for smaller employers that have generally lacked the size and purchasing power necessary to obtain better coverage at a more affordable price. Since the SHOPs are not going to be part of smaller employers’ health benefits planning process for the 2014 plan year, those employers need to consider the other options available to them.

The best option will vary based on each organization’s circumstances.

Looking ahead, for plan year 2015, when employers with 50 or more full-time equivalent employees become subject to to the shared responsibility provision mandating a certain level of employer-provided health coverage, the federal SHOP marketplace should be fully operational. However, “unless smaller employers can find a product that makes it economically reasonable for them to provide insurance coverage through the exchange, I would expect that they will pay the penalty, as opposed to providing significantly more expensive coverage,” predicted Dana Thrasher, a partner at Constangy, Brooks & Smith, LLP, a law firm in Birmingham, Ala.

“The important thing to remember is, smaller employers do have options,” said Martinez. “They need to work through them and determine which is best for them.”

Of course, there is still a chance that smaller companies could find the group health marketplace more amenable than they expect. Burke remains optimistic that smaller employers will be able to upgrade or change their coverage during renewals for 2014. “In today’s market, many issuers offer suites of coverage that allow small businesses to give their employees a plan option,” she said. “I believe this may well continue.” In addition, it is possible that some of the new private exchanges will offer competitive plans for smaller employers.

Keeping Employees Informed

No matter what they decide, employers need to keep employees informed about new developments with SHOPs and their implications for health benefits. “HR has to be prepared for some level of employee confusion and be prepared to do a very good job educating, explaining and communicating to employees,” said Thrasher. Information about the business reasons for the decision can help employees understand why their employer is taking this action.

Employers also need to stay abreast of new developments with SHOPs. “Communications with employees will be critical and should begin to occur in advance of any enrollment process,” said Burke. “There is still a great deal that is not known, and further guidance from the administration on the rules governing small business, the exchanges and other related provisions will likely be forthcoming.”

Joanne Sammer is a New Jersey-based business and financial writer.

Related SHRM Articles:

Related External Article:

Changes Coming in 2014 for Small Business Health Care Tax Credit, McGladrey, November 2013

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