Last week, the Department of Health and Human Services (HHS) announced that it would propose rulemaking to effectively end the Small Business Health Options Program (SHOP) as we know it. The SHOP marketplaces were created under the Affordable Care Act (ACA) to make it easier for small business owners and their employees to shop for and compare plan options online. The marketplaces offered those with 50 or fewer full-time equivalent employees an opportunity to comparison shop in a standardized environment, in addition to providing access to federal tax credits to make coverage more affordable. However, the original intent of SHOP never came to pass, and while some states remain committed to their programs, changes to the federal program largely acknowledge its failure to launch.
The Promise of SHOP
In 2014, 17 states and the District of Columbia developed their own SHOP marketplaces, with the remaining 33 states relying on the federally facilitated SHOP (FF-SHOP). Beyond providing a consumer-friendly portal for selecting coverage, SHOP was intended to pool the purchasing power of small employers in order to improve the availability of plan options, encourage insurer competition, and ultimately, make coverage more affordable—something small businesses had long struggled to achieve.
The Reality of Implementation
But in reality, the SHOP marketplaces struggled to get off the ground and have never reached their full potential. By mid-2014, the state-run SHOPs had enrolled fewer than 12,000 employers, falling far short of expectations. Many states, including the FF-SHOP, delayed online enrollment for the first year, and those that launched were plagued with technical issues. By 2016, five state-run SHOPs were still offering only direct enrollment through agents and brokers.
After a disappointing start, experts identified a number of key challenges facing SHOP, including lack of awareness within the business community, limitations surrounding the tax credit, and the continuation of older, non-compliant policies that diminished the potential pool of enrollees. Though some state-run SHOPs worked to improve their platforms, most attention at the federal level was focused on stabilizing the individual market, and SHOP puttered along with little fanfare. Until this week, federal officials had never even released state-specific enrollment data, making it difficult to assess the program’s progress.
Then last fall, HHS finalized a rule largely snuffing any hope the program still had. The rule did away with the so-called “tying” requirement for the FF-SHOP, which said that any insurer with 20 percent or more of the small group market in a state could only participate in the individual marketplace if it also participated in SHOP. HHS eliminated the requirement out of concern that it was discouraging individual market participation; however, by doing so, it gave insurers even less of an incentive to offer policies through SHOP.
The “Future” of the FF-SHOP
Now, three years following initial implementation, HHS is acknowledging that perhaps some policies are better in theory than in practice. Citing lower than expected enrollment and failed expectations, the agency intends to shift how small businesses and their employees enroll in coverage, while still providing access to federal tax credits. Beginning January 1, 2018, the agency proposes that employers complete their eligibility determination on HealthCare.gov, and then enroll directly through insurance companies or registered agents and brokers, rather than comparing and selecting coverage on the federal platform. State-run SHOPs can opt to continue their online enrollment systems or transition to the federal path of direct enrollment.
While the agency hopes the change will create a more efficient process and reduce some of the burdens and resources currently required, the move essentially marks the end of the FF-SHOP. Access to federal tax credit will continue, but the ability to comparison shop will soon disappear, including the ability for employees to choose among multiple plan options.
What about the State-Run SHOPs?
Though the FF-SHOP is likely to wither on the vine, some state-run SHOPs have experienced mild success and remain invested in their programs. Last year, our research found that 13 of the state-run SHOPs offered coverage from three insurers or more, a high percentage of employers were opting to provide employee choice, and the programs were attracting the smallest of small employers—a group traditionally underserved by brokers. During this last enrollment cycle, Colorado’s small business enrollment increased by 46 percent, and DC Health Link and the Massachusetts Health Connector announced a first-in-the-nation collaboration to improve small business offerings, while reducing long-term costs.
Only time will tell whether these investments provide any returns. Though some state-run SHOPs may transition to the federal pathway, others remain committed to making it work and see a future in taking the local approach.
For more background on SHOP’s history, see the resources below:
- Testimony Before the House Committee on Small Business Regarding Enhancements to the ACA, CHIR, February 2017.
- The End of SHOP As We Know It? CHIR, October 2016.
- State-Run SHOPs: An Update Three Years Post ACA Implementation, The Commonwealth Fund, July 2016.
- Testimony Before U.S. Senate Roundtable on Small Business Health Care, CHIR, July 2015.
- Small Business Health Insurance Coverage Under the ACA, National Institute for Health Care Management, June 2015.
- After a Slow Start, Federal Small Business Health Insurance Marketplace Offers New and Improved Functions, The Commonwealth Fund, February 2015.
- Employee Choice in SHOP Marketplaces, Health Affairs, September 2014.
- Implementing the Affordable Care Act: State Action to Establish SHOP Marketplace, The Commonwealth Fund, March 2014.
- Implementation of Small Business Exchanges in Six States, Robert Wood Johnson Foundation and Urban Institute, June 2013.