It’s Still Hard for Small Businesses to SHOP Around for Health Coverage
Delay in online enrollment, complicated formula for federal subsidies keep lid on interest so far
The federal Healthcare.gov website is best known for its early stumbles and an eventual recovery that allowed millions of Americans to sign up for individual health insurance over the last few months, including many people who were granted subsidies to lower their costs.
But the site also has another, less well-known function that has yet to demonstrate whether it will make a lasting impact. The Small Business Health Options Program, or SHOP exchange, was created as another way to help more people get insured, particularly low-wage workers.
Employers can go to the website and look up premiums and benefits for small-group plans, in the same way that people can review policies in the individual exchange.
One difference, however, is that business owners can’t actually buy plans online. Last fall, as officials struggled to repair the glitch-filled individual exchange, the Obama administration announced that online enrollment in SHOP would be delayed for a year, until November 2014.
Instead, employers must currently go through a broker or insurance company to determine if they are eligible for the SHOP plans and the accompanying tax credits, and to actually enroll their employees.
The delay in the online purchase option has so far dampened interest in the SHOP exchange. Even when it becomes possible to buy online this fall, tough eligibility rules for the federal tax credit make it unclear how many businesses will sign up for employee insurance through SHOP.
David Oscar, an insurance benefits broker with Altigro in Fairfield, laughed when asked about small-business use of the exchange.
“I'll put it this way. I manage 1,800 small businesses, and I have yet to sell anyone into SHOP,” said Oscar, a board member and past president of the New Jersey Association of Health Underwriters.
The Centers for Medicare and Medicaid Services said in an email that it expects initial SHOP enrollment figures to be “modest” and will release statistics from insurers later this year. As of late February, figures released by state-run exchanges in California, Rhode Island, Minnesota, Colorado and New Mexico showed that only a combined 7,257 people were on SHOP plans in those states, according to a report in Modern Healthcare.
The consulting firm Deloitte hasthat 6 million to 13 million people could enroll through SHOP by 2021, depending on how the Affordable Care Act is implemented and other factors.
Tax-credit rules changing this year
The main attraction of SHOP is that businesses must go through the exchange to receive tax credits for their premium contributions. Under the ACA, small businesses have been able to take the tax credit since 2010, but beginning in 2014 they can only do so if they have their broker buy them a policy through the SHOP exchange.
The tax credit carries a number of eligibility rules, including a requirement that the employer cover at least 50 percent of employee premium costs. Beginning this year, the credit is awarded for up to half the amount the employer spent, depending on employees’ salary levels. For tax-exempt employers the maximum credit is 35 percent of the amount spent.
Those complicated restrictions are keeping away many small business owners, especially when combined with a separate ACA change on age-rating of premiums, Oscar said.
Before, a small business’s insurer would come up with one monthly premium for all the employees who bought a particular plan, regardless of their ages. But now, premiums are set individually, with the result that older workers will tend to see their premiums rise, even though they have the same plan as their younger colleagues.
Oscar said his clients include a dental office whose employees each recently paid $444 a month for their HMO plan. Now the six insured employees are looking at new rates of $402, $414, $542, $576, $669 and $629. He said it is difficult for him to recommend that the owner make the required variety of premium contributions in order to be able to apply for the tax credit.
“At this moment in time I would not advise it,” Oscar said. “Most of the employers I work with are small- to middle-market. They’re very cost-conscious. Are they going to really truly really pay 50 percent of those rates in order to get 25 percent of that back? I'm not sure that's going to happen.”
In addition, not all employers will get even 25 percent back. Thebased on employees’ salaries, and is only awarded when the average salary is less than $50,000. The credit is worth 25 percent of premium contributions when the average salary is $25,000 or less, and decreases as the average salary rises. That means the tax credit will be most useful to employers with low-wage workers.
Number of employees part of equation
Employers must make other calculations to confirm their eligibility, including how many full-time equivalent (FTE) employees they have. Any business with up to 50 FTEs may buy coverage through SHOP, but only those with 25 or fewer FTEs can get the tax credit. Two half-time employees generally count as one FTE.
There is also a requirement for the minimum number of participating employees. New Jersey requires that 75 percent of eligible employees enroll in the business’s SHOP insurance plan. (The state’s requirement is higher than the federal rule of 70 percent.)
However, that rule comes with exceptions. An employee who separately bought individual insurance counts toward the participation rate, and workers who have insurance through their spouse’s job, Medicare, Medicaid or the military are not included in the calculation at all. Additionally, the requirement is waived during the open enrollment period, which runs Nov. 15 to Dec. 15.
Once employers and their brokers crunch all of those numbers and review all of those rules, some find they are not eligible for the tax credit, reducing their interest in the exchange.
“Very few of the employers were really going to be eligible for the subsidy. And the subsidy was really the main reason you would purchase on the SHOP versus purchase through the New Jersey small employer market,” said Linda Schwimmer, vice president of the New Jersey Health Care Quality Institute.
Schwimmer, who previously worked for Horizon Blue Cross Blue Shield and the state Department of Banking and Insurance, noted yet another issue: the limited number of health plans on the SHOP exchange. In New Jersey only three insurers — AmeriHealth, Health Republic and Horizon — sell individual and small-group policies through Healthcare.gov. But off-exchange, three other companies also sell small-group insurance.
On top of that, businesses purchasing insurance through SHOP for 2014 may only offer their employees a single insurance plan, rather than, as some prefer, a variety of high deductible, HMO, PPO and other kinds of plans from the same insurer. Only in 2015 may they begin offering multiple plans, according to CMS.
“That’s a big deal, that lack of flexibility,” Schwimmer said.
Schwimmer said it is unclear how SHOP will fare in New Jersey as online enrollment begins this fall. One possibility is that more small employers will decide to stop buying health insurance for their workers, and instead give them money for health costs through pay raises, Health Reimbursement Accounts or other methods, she said. The employees could then buy insurance themselves on the individual exchange.
Alternately, the tax credit could attract more employers to SHOP, particularly if more insurers decide to start selling policies through Healthcare.gov. Schwimmer pointed to the example of New York, which set up its own insurance exchange and offers a rich variety of innovative plans.
“A lot depends on how many insurers start coming into the marketplace and the offerings they start to provide,” she said. “If there's enough competition, if there's enough insurers participating, particularly ones that are offering plans that the small employers want, there should be value there.”