“SHOP” Exchanges: Not Quite Open for Business

The health insurance exchanges that will be established by either the federal government or state governments based on the PPACA may be extremely helpful for lower income individuals. These exchanges will provide subsidies to individuals who earn up to 400% of the federal poverty line. Despite the likelihood that the exchanges meant for individuals will be advantageous for many individuals, questions remain about whether the counterpart small business exchanges will benefit small businesses.

The PPACA calls for the establishment of small business health plan exchanges that, in theory, allow small businesses to increase their buying power and purchase health insurance coverage for their employees at a more favorable rate. These exchanges are known as the Small Business Health Option Program (“SHOP”). SHOP exchanges will be accessible by small businesses with 50 or less employees. States will have the option to make these exchanges available to small businesses with 100 or less employees, but after January 1, 2016, all eligible employers with 100 or less employees should have access to the exchanges.

SHOP exchanges are meant to provide small businesses with a range of options. Once the SHOP exchanges are fully implemented, small businesses will be able to pick a health plan from the exchange for their employees, or small businesses will be able to agree to a fixed contribution towards their employees’ health coverage. The employer’s fixed contribution would then be put toward whatever health insurance option an employee chooses from the exchange. The latter option is viewed favorably by many small business owners. The employee choice option would allow small business owners the opportunity to provide their employees with a range of options while also making it possible for small business owners to provide health coverage without going through the trouble of selecting a specific one-sizes-fits-all plan. Further, the exchange would simplify the process for small business owners by collecting the small businesses payment for health coverage then distributing that payment to the individual employees’ insurance providers.

Unfortunately for small businesses, the federal government has announced that until 2015 the employee choice option will not be available for the 33 state exchanges that will be run by the federal government, and states that are running their own SHOP exchange will be free to choose not to offer the option until 2015. This delay provides evidence that the federal government is focusing its efforts on implementing the individual exchanges rather than the SHOP exchanges.

Although it is true the announcement only puts the employee choice option on hold until 2015, this delay is disappointing for small business owners operating in states with federally managed exchanges or in states that will not implement the employee choice option until 2015. The employee choice option is one of the primary benefits offered to small businesses by the PPACA. It is true that the SHOP exchanges will provide small business with the opportunity to pool their resources and buying power through the SHOP exchanges, which should reduce the cost of health coverage; however, it remains unclear whether the cost savings achieved through SHOP exchanges will be able to offset the expected increase in health insurance premiums paid by small businesses due to the new community rating rules under the PPACA. This blog will discuss the expected effects of community rating in its next post.

About Jim Hamilton

I am an employee benefits partner with Bose McKinney & Evans LLP. My broad-based practice covers health and welfare arrangements, insurance, executive compensation and federal and state taxation. Among other areas, I have specific experience with PPACA, HIPAA, COBRA, ERISA and numerous other state and federal laws affecting employee benefit plans.
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