How SHOP Exchanges Could Be So Much Better This Year

Participation by small employers in the Small Business Health Options Program (SHOP) has gotten off to a slow start, but a recently-released report from the Urban Institute provides ideas for improvement in the program that could boost enrollment numbers. The reasons for its sluggish performance are consistent across the states, the report says, and lend themselves to some across-the-board improvements.

According to the Urban Institute, the biggest barrier to enrollment in this past year, the first for the SHOP, was the fact that many states focused most of their Marketplace resources and volunteer time on coverage for individuals. SHOP enrollment came up second in many of the outreach programs. Other factors that created a barrier to enrollment for many small businesses included the fact that, in March 2013, the federal government delayed the SHOP marketplaces, so that small employers were not provided the opportunity in many states to give their employees the ability to choose any health plan at the “metal” tier that the employer chose, such as bronze, silver, gold, or platinum. Many states with federally-facilitated SHOPs will have employee choice available to small businesses in 2015, which was the original timeline, but at least 18 other states requested a waiver from the implementation of the employee choice program until 2016.

Other factors discouraging enrollment for small businesses, according to the Urban Institute, included the limited reach of tax credits, the low number of brokers and agents steering their clients to SHOP plans, and technological problems. It couldn’t have helped that on Nov. 27, 2013, the HHS announced that small businesses in the 33 states with federally-facilitated exchanges would not have online enrollment for 2014. Online enrollment will supposedly be available this fall, however, for 2015. States that operated their own exchanges were allowed to operate their own online exchanges, but the results were mixed.

The Urban Institute survey was based on case study interview in Colorado, Illinois, Maryland, Minnesota, New Mexico, New York, Oregon, and Rhode Island. The study noted that most of the states had not made the SHOP a priority, and that explicit SHOP-targeting marketing was only evident in Rhode Island and New Mexico.

The study also showed a surprising lack of awareness of even the most basic features of the SHOP in the small-employer community, and the Urban Institute recommended the introduction of a greater marketing effort explaining the value SHOP could bring to the small business community.

Weak tax credit. With regard to the small business tax credit, which would presumably be the most obvious advantage of the SHOP, the Urban Institute pointed out that its merits are so narrowly targeted (none for employers of 25 or more full-time equivalent employees and with an average annual wage of $50,000 or more per year) as to be virtually useless for many small employers. The Urban Institute was informed by an Illinois source, for example, that almost no small employers desiring to offer health insurance qualified for the tax credit.

The tax credit’s complexity also convinced many employers that they would need an accountant to compute it, the cost of which could outweigh the advantage of the credit itself.

Insurers and brokers. Various insurers and brokers were apparently also responsible for the dismal SHOP enrollment in some states. To retain a larger share of the existing market, some insurers were encouraging 2013 customers to renew early, and a lot of small employers did so, as they were leery of being on the front lines for changes in sources of coverage.
Brokers also were reported to have encouraged small employers to purchase off-SHOP plans, and employers may have complied, partly out of a sense of familiarity with those plans, and partly out of an attraction to their relative simplicity.
In the brokers’ defense, it should be pointed out that their compensation structure for SHOP sales was the same as what they would receive for selling directly through a carrier, even though much more time was necessary to enroll a small business group through the SHOP’s information technology system. This, plus some reportedly insufficient training on the SHOP system, led many brokers to quickly lose interest in the recommending SHOP plans.

There were other motivations for off-SHOP coverage purchases by small employers. The Urban Institute was told by a source in New Mexico, for instance, that such coverage options often had more attractive benefit designs, along with more flexible PPO plans, as compared to the mostly HMO designs within the SHOP.

Bad technology. The Urban Institute also found that software problems for 2014 enrollment were often so bad they virtually prohibited enrollment. This, combined with the fact that no online enrollment was available in many states, made the SHOP particularly unappealing to many small employers.

What can be done. The Urban Institute is recommending that a more well thought out marketing effort that provides a concise understanding of the value of the SHOP could greatly contribute to its success in the near future. Both state-based and federally-facilitated SHOPs could benefit from administrative simplification and increased employee choice of plans, as well as better training programs and materials for brokers, but the Urban Institute also recommends the addition of more product lines, such as COBRA management and disability insurance, as a way to address strong competition from the growing presence of private exchanges.

Of course, better technology and a smoother and shorter application experience couldn’t hurt either, and would make SHOP even more attractive for small businesses, the report concludes.

For more information, visit http://www.rwjf.org/content/dam/farm/reports/issue_briefs/2014/rwjf414995.

The EEOC filed its lawsuit in the Eastern District of Wisconsin, Green Bay Division; the case number is 1:14-cv-01019.
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