SHOP falls short

Most politicians like to rhapsodize about small businesses – Main Street as opposed to Wall Street – even if their contributions and voting records betray a preference for the latter.

A leading claim made in support of passage of the Affordable Care Act was it would be good for small businesses.  In his September 2009 speech to a joint session of Congress, President Obama touted the benefits for small businesses buying through an exchange: “As one big group, these customers will have greater leverage to bargain with the insurance companies for better prices and quality coverage. This is how large companies and government employees get affordable insurance.”

{mosads}This sounded very appealing.  Traditionally the small group market was volatile and expensive – a place for insurers to partially-subsidize the individual market.  A September 2011 report prepared for the Small Business Administration (SBA) found fewer than a third of businesses with up to 9 employees offered health insurance, while roughly two-thirds of those with 10-24 employees offered coverage.

With a tax credit available under the ACA for small businesses purchasing health insurance through what were called SHOP (Small Business Health Options Program) exchanges, the report was bullish on the future.  In California, for example, as many as 456,500 small businesses of 25 or fewer employees would be eligible – using 2010 data from the depths of the recession.

So what happened?  As of April 2015, only 2,607 businesses had obtained insurance through the Covered California exchange – representing 17,308 lives altogether in a state of over 38 million.

In Washington, where the 2011 SBA report had found 110,000 small businesses could obtain the tax credit, 115 had by a July 16, 2015 report – representing 600 lives in a state with over 7 million residents.  Only one insurer offers coverage statewide.

National data is elusive, as the federal government hasn’t broken out enrollment for the 33 SHOP exchanges it runs, but the most recent (November 2014) report by the General Accounting Office found only 76,000 lives covered through the 18 (counting the District of Columbia) state-run SHOP exchanges – almost half were in Vermont alone.

Why such a failure?  First, claiming the small business tax credit involves math utterly incomprehensible to the average human.  The credit can only be claimed for two years, meaning coverage predicated upon it will create a balance sheet bow wave.  Congress demonstrated disregard for the credit by making it subject to sequestration, reducing it by 7.3 percent.  Further, for reasons perhaps never to be explained, the ACA initially imposed deductible limits upon small group plans far less than those allowed for the individual market or large employers like Wal-Mart.  Those were raised in April 2014.

Any claim that small businesses would be able to leverage lower prices through SHOP coverage betrayed an outrageous misunderstanding of how insurance actually works.  Most exchanges, including those run by the federal government, are prohibited from “active purchasing” to negotiate rates.  And most insurance regulators are unable, or unwilling, to even adequately review those rates.

Rather than shop in a SHOP, the best option for small businesses would appear to be to continue to work with brokers they trust or try ACA-compliant group-purchasing agreements, such as professional employer organizations or association health plans.  The latter recently won a ruling in Washington state that they are consistent with ACA standards, after a hearing officer rebuked the insurance commissioner he works for.  Unlike SHOP plans, businesses so consolidated (“As one big group,” to quote the president) can actually enjoy economies-of-scale and a volume discount.

There is one poignantly successful SHOP story, however.  Thanks to the “Grassley Amendment,” Congress and congressional staff are compelled to buy insurance through the D.C. Health Link SHOP exchange.  The leading SHOP insurer, CareFirst BlueCross BlueShield, has proposed a 17.7 percent rate increase for 2016 for its cheapest plan, on top of this year’s 10.5 percent increase.  With guaranteed customers, why not?

Williams, a Olympia, Wash. Attorney, is a former deputy insurance commissioner and state representative.


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