Small business exchanges off to rocky start

Health insurance marketplaces for small businesses have largely been a bust in their first year of operations.

That's in large part because online enrollment hasn't been available for businesses in the 32 states relying on the federal HealthCare.gov website. In addition, several state-based exchanges, most notably Covered California, also have required businesses to send in paper applications to enroll. That undoubtedly served as a deterrent for companies with fewer than 50 employees that might otherwise have considered shopping for coverage through the Small Business Health Options Program (SHOP).

“It's been a rocky beginning for sure,” said Linda Blumberg, a senior fellow at the Urban Institute. “The attention really in the first year was focused on the non-group portion of the marketplace. As a result, SHOP really got a bit of the short end of the stick.”

Early renewals were also a major factor in limiting the number of SHOP enrollments in 2014. Many health plans encouraged small businesses to renew their coverage just before the market reforms of the Patient Protection and Affordable Care Act went into effect. By some estimates, roughly 70% of small-business groups opted for early renewals, severely depleting the potential market for SHOP exchanges. The Obama administration's decision to allow plans that don't adhere to the coverage requirements of the federal healthcare law to continue for up to three years is expected to further limit the number of businesses initially shopping for coverage through the government-run marketplaces.

“In many, many states, because the number of early renewals was so high, they likely didn't even consider SHOP,” said Kevin Lucia, a research professor at Georgetown University Health Policy Institute's Center on Health Insurance Reforms.

Grant Lahmann, national outreach director for Small Business Majority, a national advocacy group, said businesses often opted for early renewals as their safest option, given the technological problems the federal and state exchanges experienced. “There was a lot of uncertainty and misinformation in the business community, quite frankly, going into 2014,” Lahmann said.

Deciphering exactly how many individuals have obtained coverage through the SHOP exchanges is impossible. The CMS hasn't released any enrollment data for the 32 states utilizing the federal exchange. But some state-based, small-business marketplaces have released their initial figures.

New York has signed up more than 4,000 businesses, covering roughly 10,000 individuals. As of April 1, California had signed up roughly 1,200 businesses, with more than 8,000 covered lives. And as of April 23, Colorado had signed up 220 businesses, covering 1,860 individuals. Unlike the marketplace for individual coverage, enrollment through the SHOP exchanges continues year round.

Kelly Smith, director of New York State of Health's Small Business Marketplace, said her organization is working closely with small-business associations and insurance brokers to spread the word about available coverage options. New York had 10 carriers offer plans through the small-business exchanges in 2014, more than any other state, and Smith anticipates that most will continue to sell products in 2015.

By contrast, Washington state's SHOP exchange had only one health plan selling products in two counties, Clark and Cowlitz, in 2014. Consequently, just eight businesses have signed up for coverage through the marketplace.

Michael Marchand, director of communications for the Washington Health Benefit Exchange, said they hope to offer small-business insurance plans statewide in 2015. But Marchand also anticipates that insurers will find the marketplace more attractive in 2016, when companies with up to 100 employees will be able to use the SHOP exchanges.

Many policy experts see the need for insurance marketplaces for small businesses. That's because historically, such companies faced a turbulent market and often paid higher prices to provide coverage to their employees.

The federal government anticipates that online enrollment will be available for SHOP exchange plans whose coverage takes effect in 2015. The CMS, the U.S. Small Business Administration and Small Business Majority are hosting weekly webinars to provide business owners with information about SHOP-exchange coverage options.

In addition, the HealthCare.gov site will give employers the option of offering their workers more choices for 2015 coverage. That's seen as a significant enticement for small businesses, since historically, they have been able to offer their workers only one coverage option.

“That's a major feature that folks are very, very interested in taking a look at,” Lahmann said.

But the CMS is allowing states to opt out of offering employees a choice in health plans if they are concerned that it could adversely affect the risk pool. Insurance officials in 18 states—including Illinois, North Carolina and Pennsylvania—have indicated that they won't allow employers to offer more than one 2015 coverage plan. That's likely to make the marketplace less attractive to small businesses.

“I think 2015 is still going to be a challenge,” Blumberg said. “I'm hoping that we're going to see some strong success in at least a handful of states that will demonstrate what can be done here.”

Follow Paul Demko on Twitter: @MHPDemko