To restore functionality to the troubled individual health insurance market, the Patient Protection and Affordable Care Act operates to force sellers and buyers together. On the sell side, it does so by requiring individual health plan issuers to accept all applicants without medical underwriting. On the buy side, it creates incentive for people not covered by employer-sponsored or government plans to sign up for coverage or pay a tax penalty. In addition, advance tax credit premium subsidies are available to those with low and moderate incomes.
The small group health insurance market segment — coverage sold to small employers – lacks this mix of sticks and carrots. The sole incentive is for small employers with 25 or fewer low wage employees, who can receive tax credits if they offer coverage to their employees and pay at least half the premium. The credits are available for 2014-16 and for plans purchased through the Small Business Health Options Program (SHOP) of the state health benefit exchange marketplace.
SHOPs are grounded in the Affordable Care Act’s philosophical underpinnings that recognize most working age Americans obtain health coverage though their employers. Rather than incentives, the idea behind the SHOPs is to strengthen the small group market by pooling the buying power of small employers. The SHOPs are designed to act like a small employer health insurance purchasing cooperative, giving small employers collective negotiating leverage with health plans, thus in theory helping to drive down premiums and making small group coverage more affordable to even the smallest employers.
As The New York Times reports, however, multiple stumbling blocks impede the rollout of the SHOPs that may ultimately make it impossible for them to build critical mass and achieve the pooled purchasing power they were intended to provide:
Experts say it remains an open question whether the program, known as SHOP for Small-Business Health Options Program, will eventually work. “I think it will take a number of years, if it succeeds,” said Jon Gabel, a policy expert at NORC at the University of Chicago. There remains strong opposition from brokers and some insurers, he said, who view it as a threat to their existing business.
That is leading to the classic chicken and egg problem. If too few small employers opt for SHOP coverage, they will have little buying clout with health plan issuers and thus SHOPs won’t be able to help hold down premium rates. That will encourage more small employers to stop offering coverage to their employees on the grounds that it’s not affordable, which in turn reduces the potential market of the SHOPs.
Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email