Can the SHOP Help Small Businesses and Brokers? Part 1 of 2

There is a lesser known part of the Affordable Care Act known as the Small business Health Options Program, or SHOP. It is designed to allow small businesses with 50 or fewer full-time equivalents (FTEs) to purchase health insurance online using a unique approach called Employee Choice.

How does Employee Choice work?

First, the employer (or broker acting on behalf of the employer) selects a benchmark plan from one of the metallic tiers – Platinum, Gold, Silver, or Bronze. Then, a contribution percentage is set – for example, 70% of the cost of the plan premium.

Normally, this is where things end. The employer offers the selected plan (or maybe the choice of 2 or 3 plans from a single insurance carrier) to his or her employees and the employees either take what the employer gives them or chooses among the 2 to 3 plans from the single insurance carrier.

Employee Choice is different. Once the benchmark plan is chosen (for example, from the Gold tier) and the contribution percentage is decided (again, 70% of the cost of the plan premium in this example), the employees are then invited to shop. They can choose the benchmark plan that their employer chose OR they can choose from any other plan from any other carrier on the exchange that is offered in that particular metallic tier.

For instance, if there are five insurance carriers on the shelf, each offering two plans in the Gold tier, the employee can choose from the following:

-Plan A (the benchmark plan) from carrier A

-Plan B from carrier A

-Plans A or B from carrier B

-Plans A or B from carrier C

-Plans A or B from carrier D

or

-Plans A or B from carrier E

That’s a total selection of 10 different plans (including the benchmark plan) from 5 different insurance carriers that employees can select.

Thus the name Employee Choice.

The beauty of this product approach can be summed up as follows:

1) Employers get to set a contribution percentage and that allows them to have  “budget” for health insurance.  It’s an approach known generally as defined contribution. Plus the employer sends one complete check to the SHOP exchange and the SHOP exchange handles the rest.

2) Employees get to choose from more options than they traditionally have had, making it easier to find the plan that’s “right” for them. Keep in mind that employers in the 50 or fewer employee space typically offer 1 to 2 plans from one carrier – if they offer insurance at all. With Employee Choice, the individual employee can buy up and pay the difference in premium or buy down and keep the difference in premium.

So the SHOP’s Employee Choice for employers is a pretty neat thing…on the surface. But there is a rather ugly underbelly…

Employers 50 or fewer employees may or may not have a human resources department or manager to handle things like employee benefits. More often than not, it is the president or the office manager who gets involved in decisions surrounding health insurance as employers this small don’t typically have an HR department. If that president or office manager selected one plan from one carrier, it’s a pretty straight forward thing if there are questions about benefits or drug coverage – simply call that one particular insurance carrier about that one particular plan.

With an Employee Choice set up…more choice = more complexity.  And since the person running HR may be the president or office manager – well, it doesn’t take a rocket scientist to figure out that this becomes administratively burdensome in a hurry.  If five employees come to the office manager with questions about their health coverage, each with a different plan from a different carrier, that office manager may as well flush the rest of his or her day down the toilet while chasing down 5 different insurance carriers.

Employee Choice is a challenge for insurance carriers as well.  I ask that you put on your health insurance carrier hat.  A health insurer would typically underwrite an entire group and count on getting the majority of that group’s membership.  For instance, if an employer with 25 employees selects plan A from carrier A, then the insurer will underwrite the 25 employees using the allowable rating factors under the ACA.  Under an Employee Choice model, the insurer underwrites the 25 employees, but may get only 5 of the 25 due to the amount of selection the employees now have.  This makes it a less-than-desirable product for health insurers.

There is also the challenge of the SHOP exchange collecting the enrollment and premium from one employer, then breaking up the enrollment and premium into the correct selections made by each employee.  It’s a more challenging endeavor than one might think – largely because it hasn’t been done on a wide spread basis before, therefore the kinks haven’t been worked out.

One last point – it is my humble opinion that the federal government isn’t doing a great job marketing this.  Let’s say that the administrative challenges are manageable and the carrier objections are overcome.  Do small businesses and brokers know what is available for them at a state or federal exchange? Are they aware of the choice selection through Employee Choice? Have brokers been engaged to help educate their employer clients on this new product offered through the SHOP?

Let’s say that there’s a way to go.

Not all is fire and brimstone, however.  If done thoughtfully and carefully while understanding and respecting each markets’ dynamics related to small businesses, carriers, and brokers, the state and federal SHOPs do stand a strong chance of success.

But that is a blog for another day – Part 2 of 2, to be more specific.  Until then, enjoy SHOPping around!

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