A growing number of private insurance exchange operators are targeting the small-employer market, and that could have a negative impact on the public small business exchanges established by the Patient Protection and Affordable Care Act, some experts say.
Benefits experts say that there are advantages and disadvantages for small employers with both the public or private exchange option, and each company will have to decide based on its individual needs. Or, of course, small employers could choose to offer coverage on their own without an exchange, or simply not offer coverage to their employees.
The Small Business Health Options Program (SHOP) exchange in each state will start signing up employees of businesses with up to 100 employees, depending on the state, starting in October and launch coverage in January 2014. Under the ACA, companies with 51 or more full-time employees must offer coverage, or else face a fine of $2,000 per employee. Companies with 50 or fewer workers do not have to offer coverage. But the ACA offers a financial incentive for them to buy coverage through the SHOP exchange. If these smaller firms—ones with fewer than 25 full-time employees—have average salaries of less than $50,000 and pay at least half their employees' premiums, they qualify for tax credits of up to 50% of their premium costs if they buy through the exchange.
However, private exchanges might end up attracting small businesses with mostly young and healthy workers, such as dot-com companies, that would not qualify for the tax credit. If that were to happen, fewer healthier people would end up in the SHOP exchanges, leading to adverse selection and potentially driving up SHOP exchange premiums.
But whether in a private exchange or the SHOP exchange, health plans still will have to abide by ACA market rules covering all insurance plans, such as essential health benefits, limits of premium differences between younger and older enrollees, and a ban on medical underwriting.
The SHOP exchanges were designed to make affordable insurance more available to smaller businesses that generally have access to fewer plan options and pay higher premiums than larger companies. In addition, the SHOP exchanges were intended to relieve small employers of many of the administrative burdens of offering health benefits to their workers. The idea was to let them pay the exchange a lump sum for each employee, allowing the workers to take that amount and pick a plan. Employees of each participating small business were supposed to have a choice of at least several plans. Traditionally, small businesses have offered only one plan option.
However, HHS said that in the 33 states where the federal government will run the SHOP exchanges, there will be no multiple choice of plans until 2015 because of technical challenges. But state-operated SHOP exchanges in California, New York and other states say they will offer employees multiple choices. In those 33 states, small employers in 2014 will pick one plan that will be available to their workers.
Paul Fronstin, a senior research fellow at the non-partisan Employee Benefit Research Institute in Washington, says whether small employers buy through the public or private exchanges will depend on which offers more choices, better premiums and better value. He predicts that particularly in 2015, SHOP exchanges will more likely offer multiple plan choices. “There's a small chance you are going to get a better deal in a private exchange,” he says.
Vincent Ashton, CEO of HealthPass New York, a private exchange serving employers with no more than 50 employees, says that, by itself, the tax credit for buying through the SHOP exchange may not be a big enough incentive to sway small businesses to buy through those exchanges, since the amount of the credit declines with the number of employees and a larger average salary. In addition, private exchanges have the advantage of offering other health benefits, such as dental coverage, which won't be available through SHOP.
While acknowledging that private exchanges with only a single participating insurer may not offer as many plan choices as the SHOP exchanges, Ashton says private exchanges might be able to provide better assistance to employers and employees.
Still, Ashton says he hopes the SHOP and private exchanges both succeed because their fates are intertwined. “I want the New York SHOP exchange to succeed,” he says. “Because if it doesn't, it's going to be a black eye for my exchange, as (many people) will lump private and public exchanges together.”
He says both types of exchanges, while they will be competing, are in the business of giving employers and employees more choice of plans. “You are both trying to drive home the same message to the marketplace that employer-sponsored insurance doesn't necessarily mean no insurance choice,” he says.