While individual enrollment in the non-group health insurance exchanges exceeded expectations for the 2014 open enrollment period, enrollment of employers in the small group marketplaces has remained stagnant. Industry stakeholders, including benefit advisers and employers, say a host of challenges is not only to blame, but must be overcome if the Small Business Health Options Program (SHOP) is to enjoy any success.

Specifically, advisers and other stakeholders in eight states told The Urban Institute they felt SHOP had not yet been made a priority either at the state or national level, an impetus for many of the marketplace’s challenges.

With support from the Robert Wood Johnson Foundation, The Urban Institute conducted an analysis of early implementation experiences with the SHOP based on case study interviews in Colorado, Illinois, Maryland, Minnesota, New Mexico, New York, Oregon, and Rhode Island. Interviewers reached out to a broad array of stakeholders in each state, including brokers and agents, small business representatives, insurance carriers, consumer advocates, and application assisters (navigators and in-person assistors).

In six states, sources were not even aware of SHOP-targeted marketing by state agencies, however Rhode Island marketing efforts were described as “robust” and those in New Mexico as “comprehensive.”

The one-year delay in the introduction of the federal online SHOP marketplace also fueled a sense that the program was of secondary importance and led to lackluster public relations efforts with the SHOP program.

Further, sources reported a significant lack of awareness among the small-employer community, and that many of those who are aware of it do not understand its function or role in the market.

Thus, state agencies should enhance their marketing and sales effort to engage employers and describe the SHOP program clearly and concisely as well as the value it brings to the existing small group market.

Unfortunately, developing such a convincing campaign about the added value of SHOP has been challenging due to limitations of the reach of the small business tax credit, early renewals, extensions of non-ACA compliant plans, and other issues.

Small business tax credit.

The first obvious advantage of SHOP coverage, the ACA’s small-employer tax credit provided exclusively through the SHOP, has turned out to be largely irrelevant (with isolated exceptions), the report found. At most, the small-employer credit covers 50% of the employer’s contribution to the workers’ coverage provided through the exchange, but the maximum is only provided to employers of 10 or fewer full-time equivalents and with an average wage of $25,000 per year or less. The larger the employer and the higher the average wage, the credit phases down, disappearing for employers of 25 or more full-time equivalents and with and average wage of $50,000 or more per year. The phase-out is calculated cumulatively, so it can go to zero even before either the size or wage maximum is hit. Even for those eligible for sizable credits, the credit is only provided for two years.

Because of the credit calculations and phase-out schedule, few employers are eligible for sizable credits—especially in high-cost-of-living areas where wages are higher. For example, a stakeholder in Illinois noted that almost no small employers that offer or want to offer insurance qualify for the tax credits, adding that those employers that do qualify have employees who are better off getting subsidized individual exchange coverage.

Others noted that employers felt they needed an accountant’s expertise to explore their eligibility because of the complicated credit computing, the cost of which sometimes exceeded the value of the credit.

Off-SHOP plan options

Many small employers didn’t even investigate or choose to use SHOP due to coverage options available outside of the small group marketplace for 2014. Early renewals of existing policies were widespread even before the Obama administration relaxed the ACA’s rules around the continuation of non-grandfathered non-ACA compliant small group and non-group insurance plans.

Some insurers were already encouraging their 2013 customers to renew existing plans early, before the end of 2013 so that insurers could retain a larger share of their existing market in plans that did not comply with health care reform rules introducing modified community rating, essential health benefit standards, and consumer cost-sharing standards. This strategy also likely helped these carriers retain a larger segment of their small employers with low risk profiles.

In addition to renewals of already held plans, sources indicated that employer groups could find similar or identical plans to those offered on the SHOP in the off-SHOP market at the same (or nearly the same) price as those provided inside. For example, stakeholders in New Mexico reported that off-SHOP small group coverage options had more attractive benefit designs and more flexible PPO plans than the mostly HMO-type plans offered inside the SHOP.

Brokers played a role in encouraging employers to enroll in the familiar and simpler off-SHOP alternatives. Brokers also indicated that no small employer wanted to be the bellwethers on changing their sources of coverage.

While more may participate in the future, employers so far have preferred to provide continuity for their workers, where financially feasible, rather than seek out new SHOP coverage.  

Software glitches

First-year IT problems especially discouraged SHOP use in 2014 and in some serious cases prohibited enrollment entirely. Multiple stakeholders interviewed by The Urban Institute noted that small employers were quicker to abandon an online enrollment process when they encountered issues than individual purchasers were.

Major IT problems created huge obstacles for SHOP enrollment particularly in Maryland and Oregon where no online enrollment was available and SHOP plans could only be obtained via brokers and without employee choice. Some sources in Minnesota feared that the slow start for the SHOP in their state would discourage some of the carriers currently participating from doing so in the future.

Competition from private exchanges has also challenged SHOP enrollment. While private exchanges in some areas focus on large employer groups, some also sell to smaller groups, providing some degree of employee plan choice as well as administrative relief for small employers. These advantages are similar to those offered in SHOP however coverage via private exchanges does not qualify for small employer tax credits.

While private exchanges don’t currently hold substantial market share, they are seen as a threat to the viability of the SHOP in some states, such as Minnesota, New York and Rhode Island. In other states, such as Colorado and New Mexico, stakeholders were unaware of any new private exchanges.

Finally, some sources expressed concern that SHOP price competition could actually decrease if the low rates of small-employer enrollment leads carriers to stop participating, but agree it’s too soon to determine whether or not this will be an issue in 2015, and if so, in what specific geographic areas.

While the SHOP marketplaces clearly have a long road ahead to become fully successful, there are steps that state agencies could take to improve the visibility and usability of the exchange. According to some sources, the reformed non-group market may allow small employers who have traditionally not offered health coverage and had been at a competitive disadvantage, the opportunity to attract more workers.

Administrative simplification and employee plan choice hold substantial promise in this regard, but creating avenues for additional product lines, such as COBRA management and disability insurance, may become vital to developing a competitive position against growing private insurance exchanges, The Urban Institute reports.

In addition, smoothly operating websites, shorter application processing times, and increased business functionality for brokers are fundamentally needed improvements in order to make the SHOP product more attractive for small employers and, perhaps even more importantly, the brokers and advisers upon whom they have traditionally relied to sell them insurance coverage and other business services.

 

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