Enrollment on small-business exchanges runs far behind expectations

Obamacare was supposed to expand and improve health coverage for small-business owners and their employees, as well as individuals and families. But the special insurance exchanges for small businesses with up to 50 full-time employees have faced serious implementation problems, limited employer interest and lack of insurer participation. Their future is in question as they have achieved only a small fraction of their projected enrollment.

Supporters say it likely will take until next year before enrollment picks up significantly. But some experts say many employers are showing greater interest in private insurance exchanges run by employee-benefit companies, which offer greater flexibility for insurers and purchasers.

The Obama administration has not released enrollment totals for the Small Business Health Options Program, or SHOP, exchanges. The CMS said it is working with insurers on how to generate that data accurately and anticipates totals will be available later this year. Of the states running their own exchanges, California and Colorado are two of the leaders. California reports that 571 employers have signed up 4,490 workers for coverage.

In November, federal officials announced they were delaying online enrollments in the federally operated SHOP exchanges, which serve 32 states, until the 2015 open enrollment period. Maryland's state-run exchange, which has been plagued by technical problems, isn't allowing small-business enrollments until April. Even California's exchange, which has been successful in signing up individuals and families, announced earlier this month that it was temporarily halting online enrollment for small businesses until this fall. A spokesman said the move would allow the exchange to concentrate on the individual-market exchange.

“The SHOP portal was not meeting the needs of agents or small employers and needed improvements,” Peter Lee, executive director of Covered California, said in a written statement.

That has left paper applications or direct signups with insurers or through brokers as the only options for most small companies. But signing up outside the SHOP exchange does not qualify companies to receive a tax credit for buying coverage for their workers. Under the Patient Protection and Affordable Care Act, some companies that buy through the SHOP exchanges can qualify for tax credits, offsetting up to half their premium payments.

In states where online SHOP applications are being processed, the enrollment numbers are small. Kentucky has signed up just 29 businesses, with coverage for roughly 200 individuals. In Minnesota, the most recent enrollment figures show 119 small businesses are providing plans to fewer than 600 workers. That's less than 10% of the enrollment projected for 2014 by state officials.

Erik Larson, chief operating officer for Minnesota's exchange, said he's not too concerned about the slow pace of enrollment. That's because online enrollment was initially plagued by technological problems that have eased. But beyond that, he added, more than 2,000 employers have taken initial steps to establish accounts, suggesting pent-up demand.

The SHOP program was established as part of the healthcare reform law to provide a broader choice of affordable plans for small companies and their workers. Initially, SHOP exchanges were made available to businesses with up to 50 employees—which are not required to offer coverage to their workers. In 2016, that is scheduled to expand to companies with up to 100 workers.

The original concept was to have small businesses pay a fixed amount for their workers' coverage and then let the employees pick a plan on the SHOP exchange, giving them a broader choice of plans. But last summer, the Obama administration said it would delay the employee-choice feature until 2015 because of technical difficulties.

Roger Feldman, a healthcare economist at the University of Minnesota, is not surprised by the lackluster performance of the SHOP exchanges. He worries that the small-business marketplaces will attract companies with disproportionately sicker, more expensive workers, which will cause premiums to spike.

Feldman points to a precursor program in Minnesota, the Minnesota Employers Insurance Program, that collapsed in the late 1990s. A significant problem was that the risk pool was too small and therefore prices weren't competitive. He predicted that the SHOP marketplaces are headed for a similar fate.

The SHOP exchanges, however, aren't under the same time pressure as the individual marketplaces. That's because small businesses can sign up anytime throughout the year.

Follow Paul Demko on Twitter: @MHPDemko