The Small Employer Health Options Program, otherwise known as the SHOP Exchange, theoretically went live at the same time as the individual marketplace, but we all know that’s not really true. A few months before the scheduled October 1, 2013 start date, the administration announced that the “employee choice” component was optional for the first year – in other words, states could permit employers to choose one plan from one carrier, the same way they do outside the SHOP. And then, right before the kickoff date, the online component was delayed – first by a month, then by a year.
This fall, the SHOP’s online enrollment feature will be active – at least that’s what we’re told – but the other key feature, the employee choice component, is once again being postponed in a number of states.
The final rules for the SHOP for next year include an option for states to apply for an additional one-year pass on employee choice. 18 states are taking advantage of that option, which means that, once again, the SHOP will look pretty much like the outside market.
That’s not actually a bad thing, because the employee choice feature is not something most employers seem to want. What it would do is allow employees within a single employer group to choose from among several different plans from several different insurance companies – if the carriers choose to participate in the SHOP, that is. A number of insurers have said they won’t play if employee choice is permitted because they don’t want to compete for business within a single small employer group; it can result in adverse selection. There’s no requirement that insurance companies who sell subsidized plans through the individual marketplace also participate in the SHOP.
The reason this option is not popular among employers is because of the difficulty communicating it to employees. In general, employers would make a defined contribution to the cost of employee coverage and employees would then purchase coverage through the various plans offered through the SHOP. Older employees would pay much more than younger employees, and the cost of spousal coverage would also vary based on the spouse’s age.
The other option is for the employer to select a “reference plan” and manually composite rate so that each employee pays the same price for that particular plan but pays the age-rated difference in premium for any other plan he or she selects. This, of course, would be next to impossible to explain to employees, who already don’t understand health insurance.
To keep employers from having to write half a dozen different checks each month to the various insurance companies selected by the employees, the exchange, meaning the government, will combine all the bills together and send the employer one big list bill. The employer will then write a check to the exchange, which will make sure the insurance companies get paid.
This sounds like a nightmare. No wonder small employers who are not required to offer group health insurance were so excited about the defined contribution option for individual plans and so disappointed when the government said that practics would be out of compliance.
The one category of small employers who will sign up through the SHOP exchange – and quite possibly the only small employers who will – are those receiving the small business tax credit. As we all know, that program is far less popular than the government originally anticipated, and because employers who benefit the most from the tax credit in general have low-paid employees who would likely do better in the individual market with a government subsidy, many of the small employers who would qualify for the tax credit either don’t offer coverage currently or are considering dropping their coverage.
When the administration continually delays certain provisions of the legislation, you can tell there are some problems with them. The SHOP exchange is one of those provisions. If you’d like to learn about the options employers who decide to drop their group coverage can offer to their employees, click here.