Setting up State Health Care Exchanges for Small Businesses: A Roadmap
SOURCE: istockphoto/Sean Locke
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A significant amount of focus on the Affordable Care Act—comprehensive health care legislation that Congress passed last year—revolves around the requirement that each state establish an American Health Benefit Exchange that can help individuals who do not have access to employer-provided health insurance purchase qualified health plans.
Perhaps less attention has been paid to the provision of the Affordable Care Act that also calls for states to establish a Small Business Health Options Program, referred to as a “SHOP exchange.” The fundamental mission of SHOP exchanges is to create a well-functioning health insurance marketplace providing an array of affordable, high-quality health insurance plans for small businesses and their employees.
The Affordable Care Act requires each state to create its exchange by January 1, 2014. If the state fails to set up an exchange by then, the federal government will create one for it.
States can also choose to combine the individual and small business or SHOP exchanges—an option with many proponents, because expanding the pool would create more competition among insurers, which would mean more choice and should result in better pricing for consumers.
SHOP exchanges can help the large number of small businesses and their employees who continue to struggle with escalating health costs. Health insurance premiums for these employers have grown 113 percent over the last decade. But because of their smaller scale and thinner margins, they are less able than other employers to absorb these increasing costs.
These costs lead to high uninsured rates among this population. Nearly 23 million of the 45 million Americans without health insurance in 2007 were small-business owners, employees, or their dependents, according to Employee Benefit Research Institute estimates. In other words, about 50 percent of uninsured Americans are part of the small-business community.
SHOP exchanges can help these businesses find the best care—if they’re set up right. It will be up to the states to implement them, and there are many issues to consider in this process. The exchanges will be competing with insurance offered in the outside market, so they’ll need to offer health plans that are high quality and cost competitive. They’ll also need to be able to maximize participation from the beginning to gain scale, avoid adverse selection (the upward price spiral that occurs when one plan or market disproportionately attracts high-risk employees), and succeed.
This report provides a roadmap for states, policymakers, health reform advocates, and small-business leaders as they begin to create these exchanges. It starts with an overview of the problems small businesses face affording health care and then addresses the details of the SHOP exchange and how it will help.
The report then examines the implementation process, beginning with some basic principles policymakers will need to consider when creating an exchange. These include:
- Knowing the state’s small-business market
- Shooting for maximum participation
- Paying attention to cost concerns
Next, the report focuses on five key decisions states will need to make at the outset that will determine the shape, structure, and character of the exchange. These include:
- Will the exchange be an active purchaser or a passive purchaser?
- What role will brokers play?
- Which structure should the exchange adopt to best serve individuals and employers in the state?
- Should employers or employees pick their plans?
- Should the exchange offer additional services to small employers?
The final section delves into the variety of issues states will face as they set up exchanges. These are in no particular order but are all critical issues states will need to confront:
- Designing exchanges with small employers in mind
- Maximizing small-business participation
- Deciding whether to establish separate individual and small-employer exchanges or merge them
- Determining which services the exchange will provide to attract small employers
- Deciding whether small-business employees should be able to choose their own health plan or if the employer chooses a single plan for all employees and the necessary mechanisms
- Determining the role of, compensation, and services for insurance brokers for exchange health plan marketing and sales
- Providing cost-effective coverage so small employers have high-value, low-cost choices
- Making sure the exchange will be competitive with the outside insurance market and attract enough small businesses to succeed
Throughout the paper we also include numerous examples of public and private exchanges for small employers that are already up and running. These can offer lessons for states as they begin the process.
We cannot stress enough how important it is for policymakers to think about the topics covered in this paper before they start setting up the exchanges. If they fail to take into account such issues as maximizing participation or making the exchange cost competitive, based on the history of small-employer exchanges and pools, they risk low enrollment and potential failure.
We believe the recommendations in this report will help states begin to design exchanges that suit their unique small-business populations and help provide these businesses and their employees with the high-quality, affordable care they need and deserve.
Terry Gardiner directs Small Business Majority’s policy development and works on long-term strategic planning, and Isabel Perera is the Special Assistant for Health Policy at American Progress.
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