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SHOP exchange delay limits small employers’ options

In March 2013 the U.S. Department of Health and Human Services (HHS) announced a one-year delay to a key component of the Small Business Health Options Program (SHOP), set to launch in October. State-specific SHOPs will provide a separate marketplace for small group plans -- which employers with up to 100 employees could make available to their full-time workers -- within each of the public exchanges that are a hallmark of the Patient Protection and Affordable Care Act (PPACA).

The delay means that eligible employers should still be able to purchase a group health plan through a public exchange that meets the PPACA's required four levels of coverage. However, exchange SHOPs will be required to offer only a single plan option, rather than the multiple competitive options expected to be available when SHOPs are completely up and running (as now planned), in 2015.

The announcement threw an unwelcome wrench into the plans of many small businesses that were counting on SHOPs as a way to offer their employees more health benefit options with more competitive pricing and lower administrative costs. “It is a big deal,” said Josie Martinez, senior partner and general counsel at EBS Capstone in Newton, Mass. “Smaller employers had been looking forward to being able to offer our employees some choices in the form of more options with more competitive rates. Now those employers will have to figure out Plan B.”

It is important to note that the full impact of the SHOP delay will vary based on the states in which an employer operates and purchases health coverage. States opting for federally run health insurance exchanges will experience the full effect of the delay (the Kaiser Family Foundation provides an up-to-date list). Companies operating in states that run their own exchanges are likely to have more options. For example, “California and Connecticut have both said they intend to have multiple plans available through their SHOP,” said Frank Morris, a partner at law firm Epstein Becker Green in Washington, D.C.

In addition, “protections with respect to essential health benefits (EHBs) and rates exist both inside and outside the SHOP,” said Sheila Burke, senior public policy advisor at Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, a law firm in Washington, D.C. However, employers in states that run their own exchanges should find out specifically what options will be available through the SHOP and make their own plans accordingly. Also, the small-employer tax credit will still be available only to businesses that purchase coverage through a SHOP starting in 2014, despite the lack of choices in many state SHOPs.

Weighing options

The SHOP delay is a disappointing development for smaller employers that have generally lacked the size and purchasing power necessary to obtain better coverage at a more affordable price. Since the SHOPs are not going to be part of smaller employers’ health benefits planning process for the 2014 plan year, those employers need to consider the other options available to them.

The best option will vary based on each organization’s circumstances. For example, organizations that have never offered health benefits to their employees but are subject to the shared responsibility provision mandating a certain level of employer-provided health coverage could simply pay the shared-responsibility penalty in 2014 and reconsider the benefits question in 2015, when SHOPs are fully operational. “Unless smaller employers can find a product that makes it economically reasonable for them to provide insurance coverage through the exchange, I would expect that they will pay the penalty, as opposed to providing significantly more expensive coverage,” predicted Dana Thrasher, a partner at Constangy, Brooks & Smith, LLP, a law firm in Birmingham, Ala.

For smaller employers that already offer health benefits, the question of whether to continue them is much more complicated. After all, taking away benefits is different from simply delaying the implementation of a new benefits program. As such, not offering health benefits, even for a year, could damage the company’s culture and ability to attract and retain employees, as well as create other problems. Before making that decision, smaller employers should think through the situation and the impact any decision will have on employees and the organization’s reputation.

“The important thing to remember is, smaller employers do have options,” said Martinez. “They need to work through them and determine which is best for them.”

Of course, there is still a chance that smaller companies could find the group health marketplace more amenable than they expect. Burke remains optimistic that smaller employers will be able to upgrade or change their coverage during renewals for 2014. “In today’s market, many issuers offer suites of coverage that allow small businesses to give their employees a plan option,” she said. “I believe this may well continue.” In addition, it is possible that some of the new private exchanges will offer competitive plans for smaller employers.

Keeping employees informed

No matter what they decide, employers need to keep employees informed about new developments with SHOPs and their implications for health benefits. “HR has to be prepared for some level of employee confusion and be prepared to do a very good job educating, explaining and communicating to employees,” said Thrasher. Information about the business reasons for the decision can help employees understand why their employer is taking this action.

Employers also need to stay abreast of new developments with SHOPs. “Communications with employees will be critical and should begin to occur in advance of any enrollment process,” said Burke. “There is still a great deal that is not known, and further guidance from the administration on the rules governing small business, the exchanges and other related provisions will likely be forthcoming.”

Joanne Sammer is a New Jersey-based business and financial writer.

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