'Secret' SHOP? Small Biz Health Exchange Still Worth Considering

Small Business Health Options Program suffers from lack of awareness

By Greg Goth Sep 1, 2016
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​Jonathan Gruber

The Affordable Care Act (ACA) included numerous carrots to encourage small employers to provide health insurance to their workers. High among these incentives was the Small Business Health Options Program, or SHOP.

One of the ACA's chief architects, Massachusetts Institute of Technology economics professor Jonathan Gruber, said SHOP wasn't expected to be a blockbuster, but it wasn't supposed to be a total bust, either.

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

What Went Wrong

To understand why SHOP has failed and how it might yet be made workable requires a bit of background.

Employers with 50 or fewer full-time or equivalent employees (FTEs) are not required to provide health coverage under the ACA, but if they do offer coverage, those benefits must meet the ACA's minimum specifications. To help small employers provide ACA-compliant coverage, the statute created SHOP exchanges tailored for each state, available through the federal ACA Marketplace (Healthcare.gov) or state-run exchanges.

SHOP offered employers with 50 or fewer FTEs year-round enrollment in small-group market plans. Employers with 25 or fewer FTEs could get substantial tax credits for offering SHOP insurance coverage. However, to say the program has not proved popular would be an understatement.

"Numbers don't lie," said John Polk, president of Cleveland -based insurance and service consultancy Affinity Group Strategies. "Out of about 11.5 million people who are signed up for coverage, either through Healthcare.gov or their state exchanges, about 85,000 of them are employees of small businesses [enrolled through SHOP], and about 10,000 small businesses are responsible for those people. So SHOP participation represents a 'batting average' of about .008. That is somewhere between abysmal and disgraceful."

The statistics behind the 85,000 enrollees Polk mentioned were released by the federal government in 2015. Subsequent research estimates the true figure to be somewhere between 120,000 and 170,000 on exchange platforms—still infinitesimal numbers in a market of employers with 100 or fewer employees that Polk estimates could include 40 million people.

Gruber believes the savings rate offered by SHOP-based plans was simply not significant enough to disrupt the existing small group market, which suffered, pre-ACA, from languishing in the worst of all worlds. Selling to small groups was not as lucrative as large groups for insurers and agents, while premiums for customers were high.

"What I've learned from my experience in Massachusetts, trying to influence the law here, is that the existing insurers really liked the way things work, and the agents really liked the way things work, and those are pretty entrenched interests that are hard to fight," Gruber said. "You basically have a system that works well for very interested parties. Now, you can break that system if you offer 20 percent savings. But you can't break the system offering 3 percent savings. And the bottom line is, the savings from SHOP were never going to be fundamentally transformative. They were going to be small."

Under the Radar

Studies published by two nonprofits, the Robert Wood Johnson Foundation (RWJF) and the Commonwealth Fund, however, suggest that SHOP may suffer more from lack of awareness and sound comparison data than inherent structural shortcomings. If these issues were addressed, SHOP might yet deliver sufficient incentives to persuade small business owners to use it to provide health coverage for their employees.

The RWJF study, which included results from two focus groups and 821 small businesses nationwide, revealed that among small businesses that did not offer coverage, only 37 percent knew about SHOP. Additionally, the study found that among small employers saying they are unlikely to go to SHOP, the main reasons included believing that:

  • Their employees already have coverage from another source (36 percent of respondents).
  • The plan would not be affordable (30 percent).

SHOP-eligible business owners who have not used it also say they would like to hear from small employers who have used SHOP to learn more about the experience, the costs and the plans available.

The Commonwealth Fund study, conducted by Georgetown University researchers Emily Curran, Sabrina Corlette and Kevin Lucia, discovered federal stewards of SHOP have failed to deliver data to their counterparts at state-based SHOP programs, a shortcoming Curran said has a dampening effect on increasing SHOP enrollment.

"A lot of states did not even know how they stack up to other state-based marketplaces, because there hasn't been enrollment data released in a comprehensive manner," Curran told SHRM Online. "From a policy perspective, that's always a concern. You want to be able to evaluate your program and identify how to modify or enhance it."

Curran said one finding suggested the intent of SHOP was indeed being borne out: The average employer group size in 16 of the state-run SHOPs and Washington, D.C., was consistently below 10 employees.

"This suggests that SHOPs are primarily attracting the smallest of small employers—the 'micro-group' market—which is often underserved by brokers," Curran and her colleagues found. "This group of very small employers was also the least likely to offer health insurance prior to the passage of the ACA."

Wait and See

The ultimate success or failure of SHOP likely hinges on a combination of market and regulatory forces that will not be made clear until after the 2016 election cycle and the sunsetting of some pre-ACA health plans that may compel employers to reconsider using SHOP. Until these issues resolve themselves, some small business owners are opting to let their employees purchase their own policies through the public exchanges rather than provide access to small-group SHOP plans.

Michael Stahl, senior vice president of North Richland Hills, Texas-based HealthMarkets, a nationwide agency serving group and individual markets, cited headwinds working against SHOP, such as significantly larger subsidies for individual policies purchased through the non-SHOP public exchanges and the omission of companies with 26 to 50 FTE's from receiving any tax credits.

"To get the higher end of the SHOP subsidies, you have to have 10 employees or fewer, with an average income of $25,000" per employee, he said. "Certainly, there are those businesses out there, but that's a pretty low average income."

One HealthMarkets customer, Kansas City florist The Fiddly Fig, saved more than $25,000 in premiums by not providing group coverage, through SHOP or otherwise, and instead helping its employees sign-up for individual coverage through the ACA's public exchanges, according to a recent column Stahl wrote for Forbes. To make up for the lack of a group plan, employers can increase employees' taxable pay, deposit money into health savings accounts, or add benefits like dental, vision or supplemental insurance plans.

However, the underlying conditions encouraging migration from group coverage to individual policies could change, Stahl said. Among those variables are double-digit premium increases in the individual market policies, an ongoing exodus of insurance carriers willing to participate in the ACA exchanges, and a narrowing of provider networks among insurers that continue to provide exchange-based coverage.

Georgetown's Curran said she and her colleagues will be monitoring state-based SHOP enrollment through the upcoming open enrollment period. Given the paucity of information and outreach available through the federal government, the state-run SHOPs may tell the program's future.

MIT's Gruber said the direction of the momentum behind SHOP may depend on the outcome of the presidential election. Should Democratic candidate Hillary Clinton win, Gruber said, the intense Republican opposition to the ACA may abate, and SHOP could finally receive the promotion it needs to grow.

Greg Goth is a freelance health and technology writer based in Oakville, Conn.

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