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Small Business Employee Benefits and HR Blog

Few Small Businesses Using SHOP Exchange to Cover Employees

There's been a lot of buzz about enrollment in the Affordable Care Act's individual health insurance exchanges. But what about the Small Business Health Options Program (SHOP) exchange

While the federal SHOP enrollment figures have yet to be released, some states are reporting just a handful of small businesses are using the SHOP exchange to cover employees.SHOP

Few Small Businesses Using SHOP to Cover Employees

Although the small business SHOP exchange may seem attractive on the surface, it is still a group health insurance plan and it doesn't address the core problem that group health insurance is broken.

Additionally, as the SHOP exchange rolled out, there have been multiple implementation delays, technical glitches, and inflexible rules.

Small businesses hoped the SHOP exchanges would help them offer affordable health benefits that employees value. But instead:

  • Competition is low in the SHOP exchanges (i.e. in most states there is still little choice for employees, and little competition to drive costs down).

  • Premiums cost more in the SHOP exchange policies (i.e. the premiums are still cost prohibitive for most small businesses). Few businesses are taking advantage of the small business health care tax credit.

  • Premium tax credits are only available in the individual exchanges (i.e. providing further cost incentive to send employees to the individual market). 

Read more here about why small businesses are passing up the SHOP for individual exchanges and defined contribution. 

Sneak Peek at SHOP Enrollment Numbers

CMS has yet to release federal SHOP enrollment figures, however many of the state-run exchanges have released preliminary enrollment numbers. These numbers report that just a handful of employers are using the SHOP to cover employees. Here's a sneak peek at the numbers in California and Colorado, two state-run SHOP exchanges.

In California, as of January 31st, 571 small businesses had enrolled in plans through the SHOP, representing nearly 4,500 enrollees. According to the press release, they were processing an additional 200 group applications, representing 1,200 enrollees. By contrast, over 1.2 million customers had enrolled in coverage on Covered California’s individual exchange as of March 31st.

The Connect for Colorado exchange reports that 220 small businesses completed group enrollments by March 31st, with 1,860 small business employees and their dependents enrolled (as of April 14, 2014). By contrast, over 122,000 individuals had enrolled as of April 14th.

Small Businesses Sending Employees to the Individual Exchanges

Because of the core issues with group health insurance, and the opportunities on the individual health insurance market, many small businesses are passing up the SHOP exchange and sending employees to the individual exchanges. And many are helping with the cost by setting up a pure defined contribution health plan. With a defined contribution health plan, employees receive a set monthly healthcare allowance to spend on their choice of qualified health insurance.

Offering a defined contribution health plan does not disqualify employees from the premium tax credits because a "pure" defined contribution health plan is not considered a qualified health plan under the health reform law. Small businesses are especially attracted to this solution because it provides a formal benefit to employees, while also giving the employer more fiscal control and predictability with health benefits.

Even if employees are not eligible for the premium tax credits because of household income, access to employer coverage under a spouse's health insurance plan, or coverage under a government program, they can still use the defined contribution allowance for their health insurance premium expenses purchased through the exchange, or through the private market.

How does defined contribution compare to the SHOP? See this article.

Are you seeing small businesses skip over the SHOP exchange in favor of sending employees to the individual exchange and/or in favor of defined contribution? Leave a comment below.