[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
AN UPDATE ON THE SMALL BUSINESS HEALTH OPTIONS PROGRAM: IS IT WORKING
FOR SMALL BUSINESSES?
=======================================================================
HEARING
before the
SUBCOMMITTEE ON HEALTH AND TECHNOLOGY
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
SEPTEMBER 18, 2014
__________
[GRAPHIC] [TIFF OMITTED]
Small Business Committee Document Number 113-084
Available via the GPO Website: www.fdsys.gov
______
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89-780 PDF WASHINGTON : 2015
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
BLAINE LUETKEMEYER, Missouri
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JAIME HERRERA BEUTLER, Washington
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
DAVID SCHWEIKERT, Arizona
KERRY BENTIVOLIO, Michigan
CHRIS COLLINS, New York
TOM RICE, South Carolina
NYDIA VELAAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
YVETTE CLARKE, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRAD SCHNEIDER, Illinois
RON BARBER, Arizona
ANN McLANE KUSTER, New Hampshire
PATRICK MURPHY, Florida
Lori Salley, Staff Director
Paul Sass Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Chris Collins............................................... 1
Hon. Janice Hahn................................................. 2
WITNESSES
Ms. Mayra Alvarez, Director, State Exchange Group, Center for
Consumer Information and Insurance Oversight, Centers for
Medicare and Medicaid Services, Washington, DC................. 4
Dr. Roger Stark, Healthcare Policy Analyst, Washington Policy
Center, Seattle, WA............................................ 6
Mr. Adam Beck, Assistant Professor of Health Insurance, The
American College of Financial Services, Bryn Mawr, PA.......... 8
Mr. Jon Gabel, Senior Fellow, National Opinion Research Center,
University of Chicago, Bethesda, MD............................ 10
APPENDIX
Prepared Statements:
Ms. Mayra Alvarez, Director, State Exchange Group, Center for
Consumer Information and Insurance Oversight, Centers for
Medicare and Medicaid Services, Washington, DC............. 26
Dr. Roger Stark, Healthcare Policy Analyst, Washington Policy
Center, Seattle, WA........................................ 33
Mr. Adam Beck, Assistant Professor of Health Insurance, The
American College of Financial Services, Bryn Mawr, PA...... 37
Mr. Jon Gabel, Senior Fellow, National Opinion Research
Center, University of Chicago, Bethesda, MD................ 45
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
Heath Affairs................................................ 57
Letter from Lauren Aronson, Director, Office of Legislation,
Centers for Medicare & Medicaid Services to Hon. Chris
Collins, Chairman, Subcommittee on Health and Technology,
Committee on Small Business................................ 77
AN UPDATE ON THE SMALL BUSINESS HEALTH OPTIONS PROGRAM: IS IT WORKING
FOR SMALL BUSINESSES?
----------
THURSDAY, SEPTEMBER 18, 2014
House of Representatives,
Committee on Small Business,
Subcommittee on Health and Technology,
Washington, DC.
The Subcommittee met, pursuant to call, at 1:00 p.m., in
Room 2360, Rayburn House Office Building. Hon. Chris Collins
[chairman of the subcommittee] presiding.
Present: Representatives Collins, Luetkemeyer, Herrera
Beutler, Hahn, and Schneider.
Chairman COLLINS. I call this hearing to order.
I would like to thank our witnesses for appearing today on
our Committee's second hearing regarding the implementation of
the health care Small Business Health Options Program, which we
all know as the SHOP program.
The SHOPs are marketplaces established by President Obama's
health care law and are intended to assist certain small
businesses in shopping for, comparing, and enrolling in health
insurance plans for their employees. The Administration
promised that the SHOP Exchanges would simplify the process of
obtaining insurance, expand health insurance coverage options
for small businesses, increase small business purchasing power
to lower costs, and put consumers in charge of their health
care.
Unfortunately, the reality of the program is far less than
promised. Despite spending vast amounts of time and taxpayer
dollars regarding the SHOPs, the program continues to be beset
by operational delays and other problems that have undermined
their utility as a tool for small businesses. These problems
include the inability to utilize web-based portals, limited
choice of plans, and a lack of insurance carrier participation
in the SHOPs.
The Committee has sent multiple letters to then-Health and
Human Services Secretary Kathleen Sebelius and Administrator of
the Centers for Medicare and Medicaid Services Marilyn
Tavenner to express our ongoing concerns about the
seemingly endless problems besetting this program and to get
answers about small business participation rates.
Unfortunately, the answers have not been provided.
Specifically, in January of this year, Chairman Graves sent a
letter to the Department requesting enrollment figures for the
SHOPs exchanges. This inquiry was followed by another letter in
June. To date, the responses the Department has provided have
not included information on the data on SHOPs enrollment.
In addition, last year, the Committee commissioned the
Government Accountability Office to undertake an examination of
the Department's implementation of the SHOP Exchanges. This
report found a number of challenges the Department would need
to overcome in order to make the SHOPS operational by the
Department's original October 1, 2013 deadline. It appears
these warnings were not heeded and the predictions of problems
accurate.
For small businesses, the lack of operational SHOP
Exchanges is one in a long list of disappointments and
challenges they face in the wake of the health care law's
implementation. Small businesses also face cancelled health
insurance plans, higher premiums, higher deductibles, smaller
provider networks, more paperwork, and onerous reporting
requirements--all the result of this misguided health care law.
Today, I hope we will hear some answers about what small
businesses can expect of the SHOPs and when the health care law
will start working for them.
Ms. Hahn is not here so we will let her make her opening
statement when she arrives, but we will roll into the testimony
of our witnesses.
First of all, to explain the lights, the lights will be
green as you are speaking. You have five minutes to deliver
your testimony. You will see them turn yellow and then red. We
will not adhere completely to that, but that is how the lights
work.
So now that Ms. Hahn is here, we will delay your testimony
just a moment and let her set up and have her deliver her
opening statement. Sorry that we went without you but with the
tight time schedule we----
Ms. HAHN. I heard you went without me without consent.
Chairman COLLINS. Oh, everyone that was here gave consent.
Ms. HAHN. Okay.
Where is my opening statement?
I am ready.
Chairman COLLINS. Okay.
Ms. HAHN. Thank you.
Chairman COLLINS. I now turn it over to Ms. Hahn for her
opening statement.
Ms. HAHN. Thank you, Mr. Chair. It is great to be here.
My opening statement is in 2010, Congress made history with
the passage of the Affordable Care Act. And while this law is
not perfect, it has benefitted families across the country.
Families no longer find themselves at the mercy of insurance
companies. People with preexisting conditions can no longer be
denied coverage. And this year, millions of Americans signed up
for health coverage through the healthcare.gov website. And the
uninsured rate has dipped to the lowest level in over a decade.
But the Affordable Care Act has not just helped families;
it has helped small businesses also. And while 96 percent of
small businesses are not required under the ACA to purchase
coverage, those that choose to are seeing more options and more
savings. For years, small businesses in every sector have
struggled with the rising cost of health care. In fact, in a
study by the National Federation of Independent Business, small
business owners cited health insurance costs as the number one
problem facing their business in 2012.
Because of the Affordable Care Act, we are beginning to
make some progress. In the period since the enactment of the
health care law, we have seen the slowest health care price
growth in almost 50 years. Employer premiums are now growing at
less than half the rate of the previous decade.
Small businesses in particular are seeing benefits. Before
the Affordable Care Act, small businesses paid 18 percent more
in premiums than their larger competitors for the same
benefits. They could see their premiums increase dramatically
if an employee had an accident or was diagnosed with a serious
illness. Small businesses could be charged more for employing
women or people with preexisting conditions, or for operating
in blue collar industries like construction or roofing. Now,
for the first time, small businesses have an opportunity to
leverage their buying power with other small businesses in the
SHOP Marketplace. The businesses enrolled in the new
marketplaces are finding quality, affordable coverage and many
qualify for a tax credit that can cut their premiums by as much
as 50 percent. Three hundred sixty thousand small businesses
have already used the Small Business Health Care Tax Credit
available through the SHOP Exchanges to help them afford health
insurance for two million American workers.
Take Lorenzo Harris, for example. Lorenzo Harris is the CEO
of Janico Building Services, a full-service janitorial company
with 40 employees in California. This year he transferred
Janico's full-time employees from their existing health plan to
California's SHOP Exchange and saw his premium costs go down by
30 percent. He also qualified for a health care tax credit of
more than $1,000. This is great news, and I expect we are going
to hear even more success stories like this, particularly from
California, as the shops enter their second year in business.
Now, I know the Affordable Care Act is not perfect, and I
expect today that we are going to hear both about some of the
successes of ACA, as well as some of the criticism of the
health care law's implementation. This should prompt us in
Congress to fix the areas that need improvement. Medicare was
passed nearly 50 years ago, and we are still making
improvements and refinements to that law. That does not mean
Medicare was a bad law; it means the job of Congress is to
preserve what works and fix what does not.
I am looking forward to hearing the testimony of our
witnesses today and the opportunity to learn more about how we
can work together to ensure that our small businesses have
access to quality, affordable health care options.
And I yield back.
Chairman COLLINS. Thank you, Ms. Hahn.
I would now like to introduce our first witness, Mayra
Alvarez, who serves as the Director of the State Exchange Group
at the Center for Consumer Information and Oversight at the
Centers for Medicare and Medicaid Services. Prior to assuming
her current position, Ms. Alvarez also served as associate
director of the Office of Minority Health at the Department of
Health and Human Services. She has served on the staffs of
Senator Richard Durbin, former Congresswoman Hilda Solis, and
then Senator Barack Obama.
Ms. Alvarez, thank you for appearing today, and you may now
deliver your testimony.
STATEMENTS OF MAYRA ALVAREZ, DIRECTOR, STATE EXCHANGE GROUP,
CENTER FOR CONSUMER INFORMATION AND INSURANCE OVERSIGHT; ROGER
STARK, HEALTH CARE POLICY ANALYST, WASHINGTON POLICY CENTER;
ADAM BECK, ASSISTANT PROFESSOR OF HEALTH INSURANCE, THE
AMERICAN COLLEGE OF FINANCIAL SERVICES; JON GABEL, SENIOR
FELLOW, NORC, UNIVERSITY OF CHICAGO
STATEMENT OF MAYRA ALVAREZ
Ms. ALVAREZ. Good afternoon, Chairman Collins, Ranking
Member Hahn, and members of the Subcommittee. Thank you for the
opportunity to discuss the benefits of the Small Business
Health Options Program (SHOP) for small businesses and their
employees.
Since last fall, SHOP has been working to provide small
employers a new way to shop for health insurance coverage, and
we look forward to offering even more with the addition of
online functionality this fall. In the past, although many
small employers have wanted to offer health benefits to their
employees, they have faced many challenges. Historically, small
businesses have been charged 10 to 18 percent more than large
employers for the same benefits. Small businesses employing
women or workers with high cost illnesses have faced higher
premiums. Because small firms have fewer employers to pool than
larger firms, premiums often vary dramatically from year to
year due to changes in just one or two workers' health status
or because of small changes in the ratio of male to female
employees.
Because the law limits the factors insurers can use in
determining the cost of premiums, small businesses can now
count on more predictable rates, and many qualified small
employers purchasing coverage through SHOP can receive further
help keeping costs down through the availability of the Small
Business Health Care Tax Credit. The SHOP provides a
streamlined way for small businesses to offer health coverage
to their employees. Similar to the individual marketplaces, the
SHOP allows small businesses to easily compare and select plans
that best meet the needs of their employees.
In 2014, the SHOP opened to small employers with 50 or
fewer employees. In 2016, the program will be open to
businesses with up to 100 employees. Unlike the individual
marketplace, eligible employers can begin participating in the
SHOP at any time and may purchase coverage for their employees
at any time during the year. They are not limited to a single
open-enrollment period.
This past year, small employers offered coverage to their
employees through the SHOP Marketplace by enrolling in coverage
through an agent, broker, or issuer. During this year, HHS has
worked to create a seamless, online experience for enrollment
through SHOP, and we have added key new features for the SHOP
Marketplace for the 2015 plan year. New features include
offering many employees a choice of health plans; enabling
employers to write just one check regardless of the number of
plans that employees choose, a feature that is generally
referred to as premium aggregation; and a dedicated online
system for agents and brokers to assist their SHOP small
business clients. Starting this fall, the online, federally-
facilitated SHOP Marketplace will offer new health coverage
options to small employers and make it easier for them to shop
for, select, and offer employees high-quality health plans. And
employees will be able to enroll in their employer plan online,
helping reduce an administrative burden for their employers.
As we move to make online functionality for the SHOP
available this November, CMS is committed to acting on lessons
learned and continuously improving the user experience. One way
that we are doing this is to give small employers, as well as
agents and brokers in five states, the opportunity to
experience key features of the new online SHOP Marketplace in
advance of the full launch nationwide. During SHOP Early
Access, small employers in these states will be able to
establish a marketplace account, assign an agent and broker to
their account, fill out an application, obtain an eligibility
determination, upload their employee roster, and then when
available in early November, browse available plans and pricing
and complete the enrollment process. Early Access will also
allow for targeted consumer testing before the SHOP functions
are made available online in all federally-facilitated SHOP
Marketplace states. This consumer testing will add to the
rigorous performance and security testing completed prior to
going live.
Beyond the opportunity for online enrollment, we are also
making important progress in offering small business employees
additional choices for their health coverage. In the past, most
small employers were only able to offer a single health and
dental plan for all of their employees. Now, through the
Employee Choice option, small businesses in most states will
have the option to allow employees to choose any health plan
available at the coverage level selected by the employer. This
provides significant benefits to both employers and employees,
including lessening the administrative burden on employers,
while allowing employees to select the plan that best fits
their needs.
In addition to choice, we know how important affordability
is to small businesses. The law created the tax credit to help
small employers of lower wage workers afford a significant
contribution towards workers' premiums. Qualified small
employers can receive a tax credit worth up to 50 percent of
their contribution towards employees' premium costs, and since
the tax credit first became available in 2010, it has provided
hundreds of thousands of small businesses more than $1.5
billion in tax credits. For too long, small business owners
have struggled to keep up with the ever-rising costs of
providing health insurance for their employees. The SHOP,
combined with new insurance reforms and tax credits, enables
more employers to provide their employees with high quality,
affordable health coverage.
I look forward to continuing to work with you to improve
the health care options for America's small businesses,
families, and communities, and I am happy to answer your
questions.
Chairman COLLINS. Thank you, Director Alvarez.
At this point, I would like to yield to my colleague,
Congresswoman Herrera Beutler so she may introduce our next
witness.
Ms. HERRERA BEUTLER. Thank you, Chairman and Ranking Member
Hahn. I would like to thank you for the work the Subcommittee
is doing.
I am excited to highlight what is happening with the SHOP
and to see whether or not we are meeting the needs of small
businesses and to see what we can do about that.
It is my pleasure to introduce a retired physician and
accomplished health care policy analyst from Washington State,
Dr. Roger Stark. Dr. Stark practiced thoracic surgery in
Washington State for 20 years and was one of the cofounders of
the Open Heart Surgery Program at Overlake Hospital in
Bellevue, Washington. He graduated from the University of
Nebraska, College of Medicine, and completed his general
surgery residency in Seattle and his cardiothoracic residency
at the University of Utah. Currently, Dr. Stark is a health
care policy analyst for the Washington Policy Center. He is the
author of two books and numerous in-depth studies on health
care policy. We are lucky to have Dr. Stark here as a valuable
resource, who understands the intricacies of the medical system
as a physician, as well as the intricacies of the Affordable
Care Act as an analyst, specifically the workings of SHOP in
Washington State and the exchanges intended for small business
owners.
So Dr. Stark, welcome. Thank you for being here. Thank you
for making the very long trip across the country. We appreciate
it.
STATEMENT OF ROGER STARK
Dr. STARK. Thank you very much, Chairman Collins, Ranking
Member Hahn. Thank you very much, Representative Herrera
Beutler.
Officials in Washington State chose to establish a state-
run health insurance exchange, including a SHOP Marketplace.
Coverage began in 2014. Only one carrier, Kaiser Permanente
offered plans, and only offered those five plans in two
counties in southwest Washington. Although 4,300 small
businesses created online accounts, only 11 companies with a
total of 40 people actually purchased insurance on the SHOP
Exchange this year.
A second insurance company, Moda, has applied to offer 14
plans statewide starting in 2015.
The director of the Washington State SHOP Marketplace,
Catherine Bailey, stated that many of the carriers were not
interested in expending additional resources to be in the Small
Business Exchange right away.
The Government Accountability Office has speculated that
the use of tax credits and the SHOP enrollment are so low
nationally for several reasons. The first reason is the
complexity of doing all the paperwork.
The second reason that GAO reports is the tax credit is not
a large enough incentive for many small employers.
And third, the majority of small businesses have never
offered health benefits to employees.
In addition, insurance companies are seeing a drop off in
employer-sponsored health insurance for small businesses. The
CEO of Well Point, Joseph Swedish, is on record earlier this
month stating that small employers are shifting employees to
the individual exchange or are dropping coverage completely.
From a policy standpoint, although the employer mandate is
a critical part of the ACA, the SHOP Marketplace for small
businesses seems to be almost an afterthought in the law. There
is no clear evidence of interest on the part of small companies
to provide health insurance through a marketplace with tax
credits. Small businesses are typically startup or low margin
companies where the added costs of employee health insurance
can mean the difference between success and failure. The
paperwork and regulatory burden in the SHOP Exchange are
definite hurdles for small business employers.
There is no real free market in the individual exchanges or
in SHOP. Proponents will claim that competition exists.
Yet, all insurance plans offered in the exchanges must
contain the 10 government-mandated essential benefits.
Insurance premium prices must be approved by the government.
Consequently, individuals and employers only have government-
approved plans and not meaningful choices or real competition.
Narrow provider networks further limit choices.
The incentive of tax credits has not been significant
enough to encourage employers to use SHOP. Obtaining the credit
is so complicated that small businesses are unwilling or unable
to spend the time and effort to complete the necessary forms.
The SHOP Marketplace duplicates the private insurance
marketplace with an added burden to taxpayers. Private
association health plans, for example, have flourished for
years without government financial support. Since employer
interest and utilization of the tax credit is so small, the
benefits of the SHOP Marketplace are unclear.
So where to go from here? Designing an insurance exchange,
whether it is private or government run, offers each state,
like Washington State, the opportunity to reform health care
delivery by starting with a clean slate and moving toward a
patient-oriented consumer-driven system. The exchange can be a
transparent, information-based market where individuals and
small businesses can select the plan most appropriate to their
needs. Done right, the exchange should be easy to use and
should promote decreased health care costs. Insurance rates and
benefit levels should be set by the insurance market and not by
government regulations.
Washington State has 57 benefit and provider mandates that
overlap the federal benefits. Ideally, an exchange should be
able to offer an array of mandate-free or mandate-light
insurance plans that satisfy market needs. Exchanges should not
replace existing programs that work, such as association health
plans.
Any subsidies in the exchange should flow to and be
controlled by the patient. Tax credits or premium supports to
purchase health insurance could also be offered in an exchange.
Each state should be able to function as a laboratory to
design the most efficient, cost-effective exchange for small
businesses and individuals with real choices and competition.
Thank you very much. I look forward to your questions.
Chairman COLLINS. Thank you, Dr. Stark.
Our next witness is Adam Beck. Mr. Beck serves as assistant
professor of Health Insurance at the American College of
Financial Services. Prior to his current position, he practiced
law in Philadelphia, Pennsylvania.
Mr. Beck, thank you for appearing today, and you may now
deliver your testimony.
STATEMENT OF ADAM BECK
Mr. BECK. Thank you, Mr. Chairman, Ranking Member Hahn,
Members of the Subcommittee, for the opportunity to appear
before the Subcommittee today.
Small businesses and the people who work for them, they
combine together to constitute the backbone of the American
economy. Health insurance is a tremendously valuable and often
lifesaving financial product, which our tax code affords
special status. And therefore, it is an important and essential
goal to allow small business owners the opportunity to offer
quality, affordable health insurance coverage to their
employees.
The Small Business Health Options Program, or SHOP
Marketplace, was designed by the 111th Congress to lower costs
for small business, increase competition, and therefore, choice
for business owners, and simplify the process of offering
health coverage. These are laudable goals. However, it is my
opinion that the SHOP Marketplace as it is currently structured
and presented, falls short of these goals.
I believe that the SHOP Marketplace will remain inadequate
and continue to enroll relatively few companies so long as
three factors remain--the existing tax incentives, the lack of
engagement of agents and brokers, and shortcomings in
information technology infrastructure.
First, the tax incentives are too small, or indeed for most
small employers, nonexistent. Without substantial and long-term
tax credits, the cost of plans through the SHOP Exchange has
been for most employers similar to the cost outside of SHOP and
prior to the implementation of the Affordable Care Act. While
most small employers have the desire to offer health coverage,
the costs, both direct and opportunity, have been prohibitive
for many. The Small Business Health Care Tax Credit created by
the ACA does nothing to alleviate the cost burden for most
employers. It is a complicated tax credit that is available
only to a select number of very small businesses with few
qualifying for the full 50 percent credit, and even then, they
are only able to claim it for two years.
The Government Accountability Office estimates that up to
four million small businesses could qualify for the credit, but
this requires that the small business know about the credit and
go through the difficult process of determining eligibility.
Further, even by the GAO's own admission, advocacy groups
identify that four million figure as the likely high point of
potentially eligible businesses, with some estimating that as
few as 1.4 million employers would qualify.
Data from the first year of the tax credit in 2010 indicate
that the overwhelming majority of employees who are eligible
for any credit were not eligible for the full credit. Only 17
percent, in fact, were eligible for that full credit. The
greatest obstacle, according to the GAO analysis, was the
annual wage requirement. In the first year, 68 percent of
businesses who received less than the full credit would have
qualified for the maximum percentage based on the number of
full-time equivalent employees but failed to qualify based on
their wages.
Second, the SHOP Marketplace has not sufficiently engaged
or compensated the agents or brokers who are so often the
conduit to the small business community. Many brokers have
encouraged their small group clients to consider purchasing
plans off the SHOP Exchange because it requires about half the
time of the broker and the compensation structure is the same
whether the plan is on or off shop. States have required
training of brokers to be SHOP certified, that many brokers
have reported to be unhelpful and inaccurate. Overall, the SHOP
Exchange has been very poorly marketed to both businesses and
brokers alike.
Third, and hopefully most obviously, the delay by the
administration of the federal-facilitated SHOP Marketplace and
the accompanying website limited the ability of small
businesses and the 32 states relying on the federal
marketplace, but it also created confusion for business owners,
brokers, and navigators in the states that had functioning
shops. Additionally, states that were operating their own SHOP
Exchange in 2014 experienced IT problems of their own that
hindered enrollment.
I would compare the existing SHOP Marketplace to a new
restaurant that despite offering some very good entrees, is
struggling because of a poor location, minimal advertising, and
prices that for many are simply too high. It has much potential
but it needs much to change in order for that potential to be
realized.
Small businesses want to offer health coverage. It simply
needs to be more affordable, simpler, and facilitated by an
experienced insurance broker. The Small Business Health Options
Program has the potential to offer just that, but marketing,
tax credits, information technology, and the agent-broker
involvement need to be dramatically increased in order for the
program to achieve wider popularity and demonstrate markers of
success.
I thank you for the opportunity to testify, and I look
forward to your questions.
Chairman COLLINS. Thank you, Mr. Beck.
I will now yield to Ranking Member Hahn so she can
introduce our next witness.
Ms. HAHN. Thank you, Mr. Chairman.
It is my pleasure to introduce Jon Gable, the Senior Fellow
at the National Opinion Research Center at the University of
Chicago. He has more than 35 years of experience and is a
nationally-recognized expert on the private health insurance
and has authored more than 135 articles in scholarly journals.
He is also an adjunct professor at the George Washington
University in the Health Policy Department. He received an M.A.
in Economics from Arizona State University and an A.B. in
Economics from the College of William and Mary.
Welcome, Mr. Gabel.
STATEMENT OF JON GABEL
Mr. GABEL. Thank you. Thank you, Chairman Graves, Ranking
Member Hahn, Members of the Committee. Thank you for the
opportunity to discuss the promise and challenges of Small
Business Health Options Program or SHOP. I am John Gabel,
senior fellow at NORC at the University of Chicago.
NORC is an independent, nonprofit, nonpartisan research
organization, whose mission is to conduct objective research in
the public interests. The views I express are mine and not
those of NORC.
Today, I will discuss factors promoting and inhibiting the
success of SHOPs. Now, let me, given the time, I want to start
off going through some graphics. So first, if you can turn to
page four. What I want to point out--this is data from the
Kaiser Family Foundation--that we are going through a period of
price stability according to the Kaiser Foundation Survey. In
fact, last year there was actually a decline in premiums.
Just a brief history of SHOPs and purchasing pools.
Exchanges are not a new idea. Over the last 25 years, states
attempted to build what was termed ``health insurance
purchasing co-ops'' (HIPCs), but none enjoyed widespread
success. Among the states to build HIPCs were California,
Connecticut, Washington, Florida, Kansas, Colorado, and
Kentucky. Connecticut got an 8 percent market share and that
was considered successful. Massachusetts invested more than a
million dollars in research and marketing in 2012-2013 and
enrollment is less than 10,000.
I am going to allude later to the lessons learned of these
earlier HIPCs, but just note that the authors of the ACA
addressed many of these earlier shortcomings of the HIPCs.
Now, if you will turn now to number four, which is on page
nine, this is a study we did for CCIIO. Here we compare the
price of plans sold on the SHOP compared to those sold off the
SHOP by the same metal tier. And what you see is the plans on
the SHOP are lower cost than those off the SHOP. This may be
due to narrow networks. This could be due to more nonessential
benefits. But in any case, the costs are lower on the SHOP.
If SHOPs are to succeed where HIPCs fail, they must
demonstrate added value over the traditional market. Shops can
offer lower prices, tax credits not available off the SHOPs,
wider employee choice, and a defined contribution that reduces
the risk of future price increases. The authors of the ACA
wrote into legislation provisions that would address major
problems of earlier HIPCs.
Specifically, they made inside and outside the market
played by the same underwriting rules. Administratively, CCIIO
has tied large carriers to participate in the SHOPs. The
promise of SHOPs is they operate under fair market rules.
Prices on the SHOPs are lower than off the SHOPs. Lower prices
are attributed to maybe narrow networks, but for employers
seeking lower premiums, SHOPs are the place to shop.
Multiple carriers are participating in the SHOPs in all but
one state. With the Employee Choice Model, employees can choose
from multiple carriers and in some multiple tiers. Carriers on
the competitive fringe of the small employer market, as well as
nonprofit, vertical, integrated organizations such as Kaiser
Permanente see SHOPs as a way to build their market share.
If SHOPs and fully ensured plans are to survive, they must
stand off threats by other insurance systems, such as self-
insurance. To paraphrase Lincoln, a house divided cannot stand.
Two insurance systems, one risk rated and the other not, will
lead to a system with disproportionate share of bad risk and
one with favorable risk. Such a system will live to the demise
of the non-risk rated system.
I want to close with an observation from nearly 40 years of
research. Many times I have written why are we making--may I
proceed?
Many times I have written, why are we making such a big
deal out of HMOs, PBOs, HRAs, and HSAs? They have only X
percent enrollment. Why are we giving them so much attention?
All in due time became prominent insurance products, but it
required many years of growth. So to paraphrase John Lennon,
give SHOPs a chance.
I would be delighted to answer your questions.
Chairman COLLINS. Thank you very much.
Here is what we are going to do because our first vote
series really does not end in nine minutes like that says. We
have an extra 10, and I would like, in deference to
Congresswoman Herrera Beutler, allow her to ask her questions,
at which point we will adjourn for about 20 minutes. It is only
two votes. And then Ms. Hahn and I will come back and continue.
So, I yield to Ms. Herrera Beutler.
Ms. HERRERA BEUTLER. Thank you, Mr. Chairman.
I have a few different questions and thoughts.
I understand, Mr. Gabel, what you were talking about in
terms of giving things a chance. I think some of the challenges
that we are seeing in Washington State may allude to a bigger
problem.
A little bit of background for folks. Washington State has
called successful its implementation of ACA based on the number
of individuals it has added to the Medicaid state roles. And
regardless of whether or not you believe shifting from the
private market to the Medicaid market is success or not, that
is a separate issue.
On the SHOP-specific exchange, I am gravely concerned
because we do have association health plans. We do have some
other options for the small businesses who want to offer
insurance, but those are being--I think the screws are being
tightened on those in favor of the shops; yet, there is only
one insurance provider in Washington State that partakes of the
SHOP. And actually, it is only in two of the 39 counties. Next
year, there will be one for all of the counties, and then those
two counties may have a second option, but still that is a
major, major challenge because, as you noted, premiums
increasing, these small business owners do not have a lot of
options except for push people into the individual market.
So I guess my first question I would like Dr. Stark to
speak to, as you mentioned, the SHOP Exchanges were supposed to
provide these business owners with choice and that was going to
push down the prices. In my view, this has failed. The SHOP has
failed. But what are you hearing from small businesses? Are you
hearing hopefulness? Am I being too critical? You are working
with a lot of these folks.
Dr. STARK. Yeah, I do not believe you are being too
critical, Congresswoman. Our two big business associations in
the state of Washington are the Association of Washington
Businesses (AWB) and the NFIB chapter there in Washington. And
both of those organizations are in a watch-and-wait mode. I
think the individual employers are looking to see will SHOP
expand? Will there be choices? Will there be competition in the
SHOP in the state of Washington? As it is now, as you alluded
to, the association health plans are very popular in the state
of Washington. The screws are being tightened on those. The
qualifications are being tightened and a lot of business owners
are very fearful that those are going to go away and they will
be left with either putting their employees in SHOP or in the
individual market. So there is a lot of concern on the part of
small employers in the state.
Ms. HERRERA BEUTLER. What do you think if the association
plans are on their way out and even for next year we do not
really have much choice for the small businesses, what do you
think is going to start to happen? What have you seen numbers-
wise in terms of whether they are offering coverage, not
offering coverage, or just closing down? Where are they
supposed to go?
Dr. STARK. Well, we have three major employers in the
individual market, or three major carriers in the individual
market in the state of Washington, and so far none of those
three have opted or elected to participate in SHOP, and we do
not see them participating. Certainly, in 2015, it is doubtful;
2016 and 2017, they are going to have a product available for
SHOP. So I think employers are going to be looking at either
doing away with coverage and putting individuals--their
employees in the individual exchange or the individual market,
and I think that is probably the biggest option that they are
going to--or getting out of the health insurance business
completely.
Ms. HERRERA BEUTLER. Do you think that this is going to
make it--so one of the things I heard I think from Mr. Gabel
and from Ranking Member Hahn--I cannot remember everybody's
titles--is that marketing could be a piece of this. It is my
understanding that for the SHOP Exchange that the state has had
about $1.4 million to market, and I think your numbers were 11
employers with 40 employees?
Dr. STARK. Yes.
Ms. HERRERA BEUTLER. How much would it take?
Dr. STARK. Yeah, I do not know. I am not a marketing
person, so I really do not understand. I know our state
exchange has been marketed fairly heavily, especially in the
Medicaid population. We have been very successful at signing up
Medicaid patients, but I am not aware of any big organized
campaign on the shop aspect of the exchange.
Ms. HERRERA BEUTLER. So I wonder if that means that part of
the goal is just to get folks--and my time is up--to get them
out of group markets all together. But that is just for
thought.
With that I will yield back. Thank you.
Chairman COLLINS. Thank you very much.
What we are going to do is adjourn for about 15-ish
minutes, maybe 20. We will go and cast this vote and then when
the second vote comes up, Ms. Hahn and I could quickly vote and
be back up here. I apologize for that but it happens more than
not and it is outside of our control.
So with that we will adjourn for about 15 or 20 minutes and
then we will be back.
[Recess]
Chairman COLLINS. I call the hearing back to order.
So we will kind of jump into questions and I will ask some
and then leave it to Ms. Hahn to ask a few, and then I may have
some follow up, and she may have some follow up. So since this
is a crazy day, I think we will take it from there.
So I guess, let me start with you, Director Alvarez. We
have been trying very hard to get the hard data numbers from
your group on how many businesses have signed up for the SHOP.
Maybe the state exchanges and the federal, and how many--and we
have not been successful. Is that data available yet? Do you
have those numbers? And if not, when might we see it?
Ms. ALVAREZ. So just to provide some context, in 2014,
small businesses had the opportunity to apply for coverage
through the SHOP program, the paper application utilizing an
agent and broker or directly through issuers. As a result of
that, we are not the source of information as far as SHOP
enrollment. CMS is not. We are working with issuers to get that
information so that we can better understand the number of
small businesses that enrolled in coverage through SHOP. And as
soon as we get that information we will share it with you, as
well as with the American public.
Chairman COLLINS. Is the same true of the state exchanges?
Were they all paper-based or do we have data from the--what is
it, is it 18 states that are providing their own? Do we have
data from them?
Ms. ALVAREZ. It really does vary depending on the state.
Some of them are working directly with issuers because they had
a more manual process, while others are able to send numbers.
As soon as we have a more accurate picture of what the
enrollment in SHOP looks like, we will definitely give you that
information.
Chairman COLLINS. There is a sign in my office. People
actually take pictures of it, ``In God we trust. All others
bring data.'' It is the data that will tell the story. So to
some extent now we are all supposing in doing that there is
always a bias. The data takes the bias out of it, so I would
encourage, certainly as you now move into the electronic piece
and you are going to be rolling out your, across, what is it,
five states, kind of an early enrollment piece?
Ms. ALVAREZ. Yes.
Chairman COLLINS. My concern has been, and I own a number
of small businesses, is I sometimes think of the SHOP Exchange
as a solution looking for a problem because the Chambers of
Commerce across the United States did a marvelous job providing
small businesses with health insurance--sole proprietorships
and others. In fact, some would argue half the memberships at
Chambers of Commerce signed up for the health insurance. And
now that they are no longer in that, Ms. Alvarez, what would
you say to those like me who would say we had an opportunity
through the Chambers of Commerce. It was working well and now
we are into the SHOP Exchanges. Any comments there?
Ms. ALVAREZ. Definitely. It is important to consider that
when we speak to small business owners, when I have talked to
folks across the country, they want to provide coverage to
their employees. They want the opportunity to give this as a
benefit. And what we know is that we want to provide that
opportunity through the SHOP program.
And when we talk about previous plans that were available
to small businesses, we have to really talk about the quality
of the coverage that the small businesses had access to and the
risky environment that they were operating in. If one person
got sick, premiums would go up. Sometimes if they needed
hospitalization or treatment, it was not covered because it was
not part of the defined package of services. What the
Affordable Care Act is doing is providing access to health
insurance coverage that is high quality, that provides a
package of essential health benefits, that is going to be there
when you need insurance the most. That is the reasoning behind
ensuring that small businesses have access to these types of
plans so that they know that their coverage will be there when
they need it the most. Services like preventive care,
hospitalization, emergency room care, cancer treatment.
Services that we want and expect insurance to cover.
Chairman COLLINS. Sure. So what do you say to the patient
who had a policy where their drug treatment for cancer was
provided and now they have signed on to an exchange and it is
not covered anymore and their formulary took it out? Or how
about the person who was going to this hospital and all of a
sudden under the restrictions of the insurance and the
exchange, that hospital, they cannot go there anymore. Or their
doctor is not in there. So I am just curious. Because I think
you would agree there are cases where cancer coverage has been
dropped from the formularies, hospitals have been dropped, and
doctors have been dropped. Is that not an accurate statement?
Ms. ALVAREZ. I do not know the specifics of what cases you
are referring to, Chairman, but what I can tell you is that
what the marketplace has intended to offer is options for
people.
Chairman COLLINS. Intended.
Ms. ALVAREZ. It does offer.
Chairman COLLINS. Okay. But you stated that they get all
this coverage and I am saying that is just not so. I have had
people call up and say, ``I had my cancer drugs covered but now
under Obamacare they have to provide prescription drugs but
subject to their formulary.'' Am I wrong? I mean, does
Obamacare require that every drug be covered under all the
formularies?
Ms. ALVAREZ. Not every drug.
Chairman COLLINS. Right. So they dropped the most expensive
ones.
Does Obamacare require that people can go to any hospital?
Ms. ALVAREZ. No, the networks vary.
Chairman COLLINS. Yeah. Sometimes so restrictive.
How about if you had your doctor you can keep it. Are all
doctors in these plans?
Ms. ALVAREZ. The networks vary.
Chairman COLLINS. Yeah. In other words, it is, in many
cases, a very bad day at the office when somebody comes home
and says to their spouse, ``We lost our hospital, we lost our
doctor, and by the way, I just lost my cancer coverage.''
So I think it is, again, the facts mean a lot, and I know
you are sugar-coating it, but these have been very painful
times for a lot of folks. As was pointed out, small businesses
that had insurance, and you are right in saying in many cases
without prescription drug coverage. What I have seen is prior
to Obamacare, a lot of small companies with younger employees
were able to provide that Affordable Health Care, and they did
not offer prescription drug coverage. But in the younger
populations, if most of your employees are under age 40, to a
large extent that insurance was very affordable. Now all of a
sudden, they have to provide prescription drug coverage so they
lost all their insurance. So I would beg to differ with you
when you again put this happy face on it.
If I am 35 years old with a young family and I have health
insurance and now because the new policy I have to have has
prescription drug coverage, which my family does not need
because antibiotics are generic, a lot of pharmacies give them
away for free. Most high blood pressure is generic now. Lipitor
equivalents are generic now. That was not a good day for folks
to come home and say I now have no insurance.
I guess maybe, Dr. Stark, I would ask you to comment on
my--that is my bias but I have had it come firsthand--if you
have heard similar things.
Dr. STARK. In the state of Washington, for example, we know
at least 290,000 people lost the insurance plan they were on.
We have no idea how many of those people then went into the
individual exchange or how many people signed up on the
individual market or went without insurance. So no, it is a
significant issue, at least in the state of Washington;
certainly nationally as well.
Chairman COLLINS. The other thing I have seen is higher
deductibles. I have seen deductibles go up. So I guess,
Director, when you talked earlier about small businesses now
are comfortable now that they are not going to be penalized for
having more women than men, they are not going to be penalized
for having an older workforce, is that really true? Are you
telling me that any company anywhere with a bunch of 65-year-
old employees is going to pay the same insurance as somebody
with 22-year-olds?
Ms. ALVAREZ. So premiums may vary, but they may vary only
on a set number of factors. Age is one of them, but it is
limited to three to one. Prior to the Affordable Care Act,
older adults could pay 10 times more than a younger adult, so
now we are limiting what that difference can be, as well as
geographic area, and tobacco.
Chairman COLLINS. So men-women is not part of that anymore?
Ms. ALVAREZ. That is correct.
Chairman COLLINS. All right. But I know I have seen and
heard where three to one is fine until they increase the
individual, the younger. They increase the younger so that they
are still getting the same on the older as opposed to keeping
the younger the same. I mean, have you heard or seen of folks
where the young are being penalized now? Their premiums are
going up more than ever?
Ms. ALVAREZ. I think it is important to consider what the
health insurance market looked like before the Affordable Care
Act. You saw health insurance premiums going up by double-digit
increases, and no one had an understanding of why. What the
Affordable Care Act does now is yes, insurance premiums can go
up, but they are going up at a slower rate. In some states they
are going down.
Chairman COLLINS. So is 20 percent a low rate?
Ms. ALVAREZ. It varies. Congressman, it varies.
Chairman COLLINS. There are 20 percent increases being
announced all over because--well, let me again, what you know
or may not know, is it not true that a lot of small businesses
last year renewed their policies in October to lock in premiums
last October where they were not subject to many of the
mandates but now this October, as in a couple of weeks, they
are getting their renewals and their renewals now compared to
what they had are up 20 percent, 28 percent?
Ms. ALVAREZ. And the opportunity exists to have additional
options in the marketplace. That is what the marketplace has
intended to do, provide small businesses a choice. We have some
preliminary information on 2015 rates for small businesses, and
what we are finding is that there is going to be a decrease or
only a modest increase in those premiums.
Chairman COLLINS. That is not so. That is just not so.
Ms. ALVAREZ. That is based on the preliminary information
that we have, so we are happy to share that once it is
available.
Chairman COLLINS. Once it is available.
Again, I mean, you are providing this without any data to
support it. The data that we have supported is in New York
State. Now, New York State is running its own exchange. All
over the place, there is 18, 22, 24 percent increase for these
companies all over the place. That is hard data. That is
published data.
So again, I am just pointing out in my opinion, and we can
agree to disagree, this whole SHOP experience is a solution
looking for a problem. Small businesses that wanted to provide
coverage, we are providing it. And granted, in many cases,
perhaps not with prescription drug coverage, but that made it
affordable. Now the easy thing for a lot of small businesses is
just push people out, cancel it, and to some extent say, you
know, go into the individual exchange.
Mr. Beck, I just wonder what experience--I am sharing some
of mine. I am just wondering if you have any similar----
Mr. BECK. Well, the experience that I have seen speaking
with independent agents and brokers from across the country is
that a lot of them are concerned that they will lose their
small group clients. I think from a policy perspective, the
question then becomes is that such a bad thing for the
marketplace or for the employees if they had previously had
small group coverage and now are encouraged or even
incentivized through their payroll to then go on to the
individual exchange where they can--statistically they would
have a likelihood of qualifying for tax credits. But I do
definitely hear from agents and brokers that small group
clients are nervous. I think a lot of the early renewals had to
do with uncertainty as much as they had to do with concerns
about having to cover the 10 essential health benefits, but
whether it is because of the SHOP Exchange or simply despite
the SHOP Exchange, I think the nature of the small group market
is going to change, and that probably has more to do with the
availability of the individual marketplace with the tax
incentives than it does anything else.
Chairman COLLINS. Thank you. I think I will reserve
additional questions so we can hear from Ms. Hahn. And also, I
think I saw Mr. Luetkemeyer get here, so Ms. Hahn.
Ms. HAHN. Thank you, Mr. Chairman.
Again, I think it is important to remember what our health
care system was like before Congress passed the Affordable Care
Act. It was a broken system. And fortunately, many of those
folk were offering insurance plans that were bad plans. They
did not cover what was needed. Many times you think you are
young and you do not need certain prescription drugs or certain
coverage, and you do not know what is going to happen. That is
why it is an insurance plan. I do not think any of us can
foretell what is going to happen to us, but we know a lot of
people were wiped out financially in this country, many small
businesses, because of a couple of catastrophic illnesses, bad
accidents, unforeseen health challenges, and that is what
Congress was attempting to fix with the Affordable Care Act.
And we know that now a lot of individuals, even who work for
small businesses, have the choice to get insurance. Your
insurance does not matter who your employer is.
I was one of those whose insurance was tied to my employer
and when I was laid off by a financial investment banking
company, my only option was COBRA. And you want to talk about
high premiums. I was a single mother at the time with three
kids. It was impossible for me to pay that. So, and being a
woman was a preexisting condition. And I know the communities I
represent, you know, children have a higher instance of asthma
because we live near big polluters in southern California, and
many of those families could not get insurance because their
kids already had a preexisting condition. So let us try to
remember how bad our health care system was in this country. It
was very much broken. And the Affordable Care Act is an attempt
to remedy that.
Now, if there are places where we can do better, we should
work together, you know, we should work together and try to do
that. But certainly, wiping it away and going back to what we
had is really not an option. And many people who have plans now
that do not cover certain things, you know, those are plans
that they chose. So these are plans people actually make the
choice for, and you can look at all your options. You can line
them all up, see what is available, see what the cost is going
to be, and know. You never knew that before with insurance
plans. You did not really know until you needed it whether or
not it was going to be there for you.
So one of the things, Ms. Alvarez, I was going to ask, it
was disturbing, Dr. Stark, to hear, you know, that a lot of
insurance companies are not participating in the SHOP, and that
is not good for consumers. We know that competition does drive
down cost, and we know that is better. So I was going to ask
you, what are you doing to ensure that insurance carriers do
participate? How can we do a better job? Is there something we
can do here in Congress to encourage insurance companies to
participate in the various SHOPs and exchanges?
Ms. ALVAREZ. We completely agree. We think competition does
drive down cost for small businesses and individuals alike. And
we are encouraged by some of the preliminary information we are
seeing and participation in the SHOPs for 2015. Based on this
preliminary information, we do anticipate that every state will
have coverage in their SHOP market. And I do think it is a
continual improvement process. The first year had some issues.
The second year we are working on those issues and improving
them, such as adding online functionality come November 15th,
and that is the process of setting up this program, ensuring
that we are learning from the lessons that we experience and
improving for the next year. So 2015 is going to have online
functionality come November 15th. We will learn valuable
lessons this year and we will make it even better in 2016 and
2017. But yes, I agree that we are looking at better
competition for small businesses across the country with
greater participation by issuers.
Ms. HAHN. And just to follow up on that, do you think that
is a long enough period to launch in October in five states and
then in November a full launch? Is that enough time for us to
look at this pilot launch and learn and make enough changes if
need be? Is that a long enough time?
Ms. ALVAREZ. So just to clarify, we have done all of the
necessary security testing and end-to-end testing in order to
have a nationwide launch come November 15th for online
functionality of the SHOP program. What we are doing at the end
of October is providing early access to five states and, based
on their market, based on on-the-ground agent and broker
participation and a network of small businesses to give us
their feedback of what the SHOP online marketplace looks like.
They will be able to upload their employee roster, fill out an
application, get an eligibility determination, and be able to
access that website and identify any glitches or issues that we
can then turn around and address for November 15th.
And, coupled with that, we are reaching out to agents and
brokers to ensure that they have the opportunity to access a
new portal that is established for agents and brokers to,
again, be able to fill out their information so small
businesses can assign themselves to this agent and broker, and
be able to monitor activity once open enrollment begins. It is
intended to identify any last minute glitches or issues so that
we can be ready when we launch nationwide on November 15th.
Ms. HAHN. Right. Because we cannot afford another bad
rollout of this.
Mr. Gabel, I was just was going to--it looked like you
wanted to respond earlier, which you are welcome to do. But I
know you sort of talked about some of the features, like
getting one bill, writing one monthly insurance check,
comparing plans that were positive benefits. Did not know if
you could give us some more of your findings that you are
hearing that are positive benefits from SHOP Exchanges.
Mr. GABEL. Okay. Just for the record----
Ms. HAHN. Is your mic on?
Mr. GABEL. Just for the record, we studied 26 states.
Washington is the only state with one carrier. Some states,
like Maryland, have 10 carriers. There are too many--it is in
my testimony--too many have two carriers, but Washington is not
typical.
And also, for the record, about 45 percent of small
employers do not offer coverage, but that number is not
declining. That number stayed relatively constant over the last
couple of years. So, so far we do not see a movement towards
individual exchanges.
What we can say, we did a survey for the Commonwealth Fund,
and it is in my testimony. We asked small employers what you
are looking for, and what we found was many of the attributes
of SHOPs are what small employers are looking for. For example,
if you will go to page seven, you have about 41 percent say it
is very important to have more plans choices, and 34 percent
say somewhat important. Ability to compare plans, 68 and 23
percent. That is very important. These are firms offering
coverage. Having a third-party payer as a go-to or to answer
questions, that is very important to about 40 percent roughly.
And even for firms that do not offer coverage, the most
important item basically is--well, two items--costs less than
it does today. And as I showed you, the SHOP plans cost less
than the plans off the marketplace. And another one is sick
employee will not increase the cost.
Being a small employer in the pre-ACA days was a risky
business because you never knew if you are offering coverage
now and all of a sudden one of your employees gets cancer and
then the next thing you know nobody wants to ensure your group.
Or they will give you a prohibitively high premium. So I think
those are aspects that will appeal to small employers.
Now, let me just also say the history of--this is not a new
concept. Health insurance purchasing pools were really thought
of as the solution back in the late `80s and the `90s, and a
number of states sponsored them. But nobody had succeeded. But
the way the SHOPs are organized, they have addressed some of
the problems that the previous health insurance exchanges faced
and could not overcome.
Ms. HAHN. Thank you.
Chairman COLLINS. Thank you, Ms. Hahn.
I would like to yield to Mr. Luetkemeyer.
Mr. LUETKEMEYER. Thank you, Mr. Chairman.
I would like to read to you a little statement from the
folks that own and operate an animal hospital close to where I
live. This particular business has nine employees and they say,
``I am skeptical about whether the Affordable Care Act will
help my employees in the long run, but the rollout is such a
mess it may cost me thousands of dollars extra in the first
couple of years. I am required to enroll in the SHOP program,
not just an ACA-compliant program, which I already am enrolled
in. Or I may stand to lose the tax credit. The problem is the
laws change on a weekly basis so even the insurance companies
cannot tell me what to do in advance to ensure I will make the
correct decisions. The worst case scenario is I will lose the
tax credit and my employees will lose their employer-provided
health care. I am spending hours and days trying to figure out
what the best route is to take, but as mentioned above, no one
has the answers to what I need to do to make the best business
decision. At this point, I am planning on sticking with the
plan I recently enrolled in after hours of research by myself
and my financial advisors and let the government tell me later
whether this is the correct plan or not.''
This is the dilemma that many of my small business folk
have. And so the question I have for you, Ms. Alvarez, is will
the temporary or limited tax credit be available to businesses
outside the SHOP Exchanges in a situation like this gentleman
due to the delay online and/or when the administration starts
allowing or continues to allow certain individuals to obtain
the taxpayer subsidies outside the individual exchange?
Ms. ALVAREZ. The tax credit is available for SHOP plans
that are available through the SHOP Marketplace.
Mr. LUETKEMEYER. So if he shops outside it, he does not get
it?
Ms. ALVAREZ. It depends, honestly. For the state of
Washington, in the first year of enrollment in the SHOP
program, we actually worked with Treasury to ensure that small
businesses in the state of Washington still had access to the
tax credit.
But one important point of clarification is that no small
business with less than 50 employees is required to offer
coverage to their employees. The SHOP program is intended to
provide options for small businesses if they want to provide
their employees coverage.
So for this veterinary hospital, while I do not know the
specifics, I would want to clarify to them that they are not
required. But I would expect that, like many small business
owners, they want to offer this coverage and we want to get
them answers to the information that they need. So we have a
dedicated SHOP call center to provide answers. We have many
partners on the ground willing and able to answer those
questions, and we are more than happy to work with you,
Congressman, to get them that information.
Mr. LUETKEMEYER. Okay. Next question, HHS and IRS decided
last year that employees could no longer provide tax-free
contributions to standalone reimbursement arrangements so that
employees could purchase their own individual coverage. There
are a lot of employers that use this that cannot afford to pay
full insurance but they will pay $100, $200, $300 per employee
per month or per week, whatever their pay period is, to be able
to do that. The continuous arrangement will result in $100 per
employee per day penalty, and many folks are not aware of this
strict fine. Do you not think that the SHOP program should be
encouraging innovation like this to be able to make and support
the employers to be able to help their employees afford health
insurance rather than penalize them?
Ms. ALVAREZ. What the SHOP program is doing is giving
options to small businesses to have access to quality,
affordable coverage. What I think you are referencing is the
Department of Treasury rule.
Mr. LUETKEMEYER. Right. HHS and IRS----
Ms. ALVAREZ. Right.
Mr. LUETKEMEYER.--together made the decision.
Ms. ALVAREZ. And the understanding for the SHOP program is
intended to provide those options for small businesses. Before
the Affordable Care Act, whatever available health plan----
Mr. LUETKEMEYER. So with the SHOP program they can pay only
part of the premium?
Ms. ALVAREZ. They have to be willing to pay at least 50
percent of the cost of coverage.
Mr. LUETKEMEYER. Okay. So if they have 10 employees and
they pay the cost per employee is $300 a month and they pay
$150, they are okay is what you are telling me?
Ms. ALVAREZ. I am sorry. Say that one more time.
Mr. LUETKEMEYER. Okay. If the cost of the program is $300
per month per employee, and they then pay $150 towards that,
that is okay? The employee picks up the rest?
Ms. ALVAREZ. If you are using ``program'' as the key word
for health insurance available through the SHOP program, yes.
What we are trying to do is incentivize small businesses who
are offering coverage to their employees, and that is done so
through this tax credit. It is worth up to 50 percent of the
cost of coverage for these employers that are contributing to
employees' coverage. And that is available. It has been
available since 2010 at 35 percent. It is going up to 50
percent, and we will know more information about how many small
businesses took advantage of this opportunity soon.
Mr. LUETKEMEYER. Published reports have got that the
president has waived a lot of different businesses from having
to have business coverage for their employees. Can you tell me
the basis for those waivers?
Ms. ALVAREZ. What we have been able to do is provide
flexibility to employers that may not have been ready to
transition into this market. And that is what we have been
doing based on feedback from businesses. That is what we are
trying to do with implementation, is be able to better
understand and reflect the needs of Americans where possible
with implementation of the law. Through the health insurance
marketplace, it was up and running in 2014, and millions of
people were able to have coverage as a result of it. Today, we
announced that 7.3 million people were enrolled in coverage and
paid their premiums.
Mr. LUETKEMEYER. Can I ask that question again? Because I
am not getting an answer for it.
I asked the question, on what basis were the waivers given
by the president for certain businesses?
Ms. ALVAREZ. It was based on our authority as the assigned
departments to implement the law.
Mr. LUETKEMEYER. Okay. You were able to do it based on the
authority, but what was the basis for the decision on why
certain businesses got the waiver and other businesses do not
get the waiver?
Ms. ALVAREZ. Implementation of this complex law requires a
lot of stakeholder engagement and feedback and that is what we
listened to. And looking at the different provisions, where we
had flexibility, based on our authority, we were able to do so.
Mr. LUETKEMEYER. So the business had to come in to you and
make a case that we cannot afford this? Or it is going to
bankrupt us? Or I cannot compete anymore with my competitor?
What was the basis for the decision?
Ms. ALVAREZ. Sir, the conversations with the secretary and
leadership are not ones that I am privy to.
Mr. LUETKEMEYER. Yeah, but you are administering the
program; right?
Ms. ALVAREZ. I can tell you that the changes that were made
to the program----
Mr. LUETKEMEYER. So what were some of the businesses that
were waived and why did they get those--you do not know why
they were given the waivers?
Ms. ALVAREZ. It was done in order to be flexible with
implementation and to be responsive to the needs of the market.
Mr. LUETKEMEYER. But you do not know the basis of the
waiver?
Maybe she knows the basis of the waiver.
Ms. ALVAREZ. I can definitely get back to you with that
information.
Mr. LUETKEMEYER. Oh, Mr. Chairman, Mr. Chairman, another
day at the capital.
I yield back.
Chairman COLLINS. Thank you, Mr. Luetkemeyer.
We will now yield to Mr. Schneider. Five minutes.
Mr. SCHNEIDER. Thank you. Brad Schneider from Illinois.
I want to thank the witnesses for being here. I appreciate
your input and time.
The Affordable Care Act is often a contentious issue, but I
think many of us on the Committee can at least agree that the
issues small businesses are facing, have been facing in the
marketplace, are difficult. Cost was not the only rising--was
not only rising at unsustainable rates for small businesses and
employees, but it was also proving to be an efficient and
effective coverage that many businesses and individuals working
in those businesses were receiving.
Both of these problems have the effect of ultimately
stifling economic growth and putting businesses and individuals
unnecessarily at undue risk. I know that in the early `90s we
were seeing double-digit increases routinely in my insurance
agency. The SHOPs take steps to address these issues, but
clearly the implementation has not been perfect.
I guess Director Alvarez or Dr. Stark, maybe to one of you,
Dr. Stark, in your testimony you indicated that when the plan
was introduced, when SHOP plans came online, there were upwards
of a million potential businesses, but so far only 170,000
recipients took the tax credit in 2011. Delivery has been
inefficient. With an estimate so much higher, what can we do to
streamline the process to make it more efficient to help these
small businesses take advantage of the SHOP?
Dr. STARK. I think there is a broader answer to your
question, or maybe it should be a broader question, and that is
what should the employer-employee model really look like? Is
the SHOP an effective way really to provide the sort of health
insurance that employees need?
First of all, it is unclear that employers should be in the
health insurance market. Traditionally, they are. They have
been since the mid-1940s. Should that be the model for the
country? And quite frankly, I do not think it should be.
So then the second part to your question is, well, what can
we do with SHOP? Well, again, if you really want to help
employers, then you have to increase the competition and you
have to increase choices that they are going to have in SHOP,
and you have to get away from the 10 essential benefit mandates
that really make every product sold in SHOP exactly the same.
You have to get away from government pricing, which really
limits what insurance carriers can charge, and I think that is
the answer to it. Set up an exchange that is transparent, that
offers people an array of products that they can use.
Mr. SCHNEIDER. Dr. Alvarez? Or Director Alvarez? I am
sorry.
Ms. ALVAREZ. The biggest problem, I think, with that
approach would be adverse selection and the fact that people
that need more services are going to select the plans that have
more services, and it will be more expensive for them. And that
is not leveling the playing field for Americans across the
country. What the Affordable Care Act does, with the essential
health benefits package, is just that. Insurance has to pool
risk. There have to be people who are sick and people that are
healthy coming together in a pool in order to balance it out
and have better access to competition which drives down cost.
But that is the expectation because no one knows what is going
to happen in their life, if there is going to be a car accident
or a serious diagnosis or if we are going to need prescription
drug coverage sometime. We do not know. We do not know what
tomorrow holds for us, and insurance should be there when we
need it the most. That is the premise.
Mr. SCHNEIDER. So, Mr. Gabel, I think you touched on this.
By definition, small businesses do not have the numbers to pool
risk to get the benefit of the law of large numbers. What are
your thoughts?
Mr. GABEL. Most definitely, they do not. And I believe that
you have to have a minimum benefit package because without a
minimum benefit package, let us say all the people who do not
think they have mental health problems will not have mental
health benefits, and they will not cover it. And they will not
cover it. Whereas, those with mental health benefits, people
with mental health benefits will go in. This has happened
historically. This will most definitely occur.
I do want to say this. The average plan before the ACA of a
small employer was a little bit less than .80 or .79, something
like that. So this is not like the individual market. Before
the ACA, the individual market, 50 percent of the plans did not
meet the actuarial .6 threshold.
Mr. SCHNEIDER. Okay.
Mr. GABEL. Most, almost all the small employer plans in the
country had a .6 actuarial value before.
Mr. SCHNEIDER. Great. Well, thank you. I am out of time so
I will yield back.
Chairman COLLINS. Okay. I guess to finalize where we are,
maybe a couple of questions then, I guess.
Dr., or Director Alvarez, I am assuming the government has
provided funding to the states, however many that is, the 18 or
so states that are creating SHOP Exchanges. I am assuming that
is correct. Can you tell us how much has been spent towards the
SHOP Exchanges in those 18 states?
Ms. ALVAREZ. I do not have the specific figures in front of
me, but just one point of clarification, Congressman. What we
have done is give establishment grants to state-based
marketplaces. We have not given specific money for the
establishment of a SHOP Marketplace. It is related to the
establishment of the state-based marketplace. And as one of
their requirements of operating a state-based marketplace, it
is also operating a SHOP.
Chairman COLLINS. So let us go back to the data piece. Now,
today, Administrator Tavenner did say 7.3 million folks,
individuals have enrolled in health plans. Are any of those
SHOP enrollments or are they all on the individual side?
Ms. ALVAREZ. They are all on the individual market.
Chairman COLLINS. So we still do not have any numbers on
the SHOP?
Ms. ALVAREZ. We are working to get that information for
you.
Chairman COLLINS. Well, and so let me just conclude by
encouraging anyone and everyone in your arena to get the data
because I know as a business guy, I cannot even imagine flying
blind the way we are. We would like to answer the question, how
many businesses are taking advantage of it? How many employees
are taking advantage of it? What is the cost? And then once you
have got that benchmark, you can go quarter-to-quarter, month-
to-month, because on the SHOPs they can sign up every month, so
it is not like a snapshot which we may have on the individual,
that anything we could do to have that data will let the
taxpayers understand how their money has been spent. And
without it there is a frustration that I have and others where
we are supposing things. And I think you understand that
frustration. So if you could just let us know, and sooner than
later where we are.
So I was just wrapping up. I did not know if you had
anything else to add or not, Ms. Hahn?
Ms. HAHN. No. Just thank you to all of you for coming and
expressing your concerns. Director Alvarez, I really
appreciated and was impressed by your knowledge of the
situation and your ability to clarify and illuminate for us
what the intended purposes are of the Small Business SHOP
Exchange. And again, I would reiterate my opening comments that
certainly we have already found out things are not perfect, but
I am dedicated to and committed to, and I hope my friends
across the aisle are as well, to fixing what we think needs to
be fixed because ultimately I think this is a good law and a
lot of it I think has helped we already know millions of
Americans. So thank you for being here today.
Chairman COLLINS. I also would like to thank everyone for
appearing and just concur that this health care debate is going
to be continuing for some time to come. And the more data we
have, the better the context can be. We do not have to talk
over each other. The debate should be on the data, which then
will lead us to see where we are going.
And I would like to point out though, I am a small business
owner, and I probably visit in any given week when I am back in
the district, 15 or 20 small businesses. And I can tell you
universally that the biggest problem they bring up is
Obamacare. The mandates on hours and the fact that they are
cutting workers' hours to 28 hours, and I hear this
prescription benefit cost which can be 25-30 percent, the cost
of insurance, and some of these folks with young employees do
not have any need for it. So what we are doing is penalizing
the young and the healthy in order to provide for the old and
the sick, and I understand that balance, but let us face it,
the young and the healthy are not signing up at anywhere near
the percentage that was put out, and partly as a result we are
now seeing some of the costs go up because they have got a year
of data and the young and the healthy were not there for it.
Ms. HAHN. May I just add one thing?
Chairman COLLINS. Sure.
Ms. HAHN. I also visit lots of small businesses in my
district in Los Angeles. I have business roundtables all the
time I make it a point to walk into, and universally, the
biggest concern that my small businesses have are not with
health care but with the economy. They want more customers, and
their access to capital. Many of my small businesses,
particularly my women-owned and minority-owned businesses, want
to find out how they can access small business loans so that
they can grow, expand, and hire people. That is what I hear
universally.
Chairman COLLINS. We could have a whole discussion about
Dodd-Frank and what that has done to the economy, but we will
not be there today.
So again, you have all provided valuable insight and I
appreciate your attendance.
I will ask unanimous consent that members and the public
have five legislative days to submit supporting material into
the record. And hearing no objections, so ordered.
The hearing is now adjourned.
[Whereupon, at 2:51 p.m., the Subcommittee was adjourned.]
A P P E N D I X
[GRAPHIC] [TIFF OMITTED] T9780.001
Statement of Mayra E. Alvarez on
``An Update on the Small Business Health Opti8ons Program: Is It
Working for Small Businesses?''
U.S. House Committee on Small Business Subcommittee on Health and
Technology
September 18, 2014
Chairman Collins, Ranking Member Hahn, thank you for the
opportunity to discuss the many benefits that the Affordable
Care Act is providing for small businesses. The Affordable Care
Act has improved the insurance market for small employers,
making it easier for them to find and purchase employee health
coverage. Qualified small employers can now purchase coverage
for their employees using the Small Business Health Options
Program (SHOP), and small businesses are receiving a more
generous tax credit in 2014 for offering their employees a
qualified health plan through the SHOP in their states. Small
employers will see even greater options this fall when the
online functions of the Federally-facilitated SHOP Marketplace,
and those of many state-based SHOPs, become available on
November 15.
In the past, although many small employers have wanted to
offer health benefits to their employees, they have faced many
challenges. Historically, small businesses have been charged 10
to 18 percent more for the same benefits compared to large
employers.\1\ Small businesses employing women or workers with
chronic or high-cost illnesses, or with pre-existing
conditions, have faced higher insurance rates in most states.
Because small firms have fewer employees to pool than larger
firms, premiums varied dramatically from year to year due to
changes in just one or two workers' health status or because of
small changes in the ratio of male to female employees. The
Affordable Care Act limits the factors insurers can use in
determining what they charge small business and thus helps
provide small businesses more predictable rates. In doing so,
the law helps small employers provide their employees with
high-quality, affordable health care coverage that cannot be
priced so high that it's out of reach for businesses just
because someone gets sick.
---------------------------------------------------------------------------
\1\ http://www.commonwealthfund.org//media/Files/Publications/
In%20the%20Literature/2006/May/
Benefits%20and%20Premiums%20in%20Job%20Based%20Insurance/
Gabel--benefitspremiumsjobbased--925--i
tl%20pdf.pdf
Affordable Care Act Implementation: Building on Progress in
---------------------------------------------------------------------------
Affordability, Access and Quality
A new wave of evidence shows that the Affordable Care Act
is working to make health care more affordable, accessible and
of a higher quality, for families, seniors, businesses, and
taxpayers alike. Thanks to the Affordable Care Act, consumers
today enjoy better access to affordable health coverage,
stronger protections in the case of illness or changes in
employment, and a competitive Marketplace that allows them to
choose from and enroll in insurance coverage that is right for
them. Millions of people--including many of the self-employed--
have obtained private insurance coverage in the Marketplace,
over seven million children, families, and individuals have
gained coverage through Medicaid and CHIP, and more than three
million young adults gained or retained insurance under the
Affordable Care Act by staying on their parents' plan.
Recent years have seen historically low growth in overall
health spending, and a variety of recent data show that very
slow growth in health care costs is continuing.\2\,\3\ In fact,
just last week, the Kaiser Family Foundation and Health
Research and Education Trust reported the premiums for small
businesses rose by just 1.7 percent from 2013 to 2014, the
smallest increase since the organizations' survey began in
1999.\4\ These increases are far below the double-digit
increases small businesses experienced in the decade before the
Affordable Care Act was enacted.
---------------------------------------------------------------------------
\2\ Council of Economic Advisers. 2014. ``Recent Trends in Health
Care Costs, Their Impact on the Economy, and the Role of the Affordable
Care Act.'' Economic Report of the President, http://
www.whitehouse.gov/sites/default/files/docs/
erp--2014--chapter--4.pdf
\3\ Jason Furman. ``Good News on Employer Premiums Is More Evidence
of a Dramatic Change Economic Change for the Better,'' http://
www.huffingtonpost.com/jason-furman/good-news-on-employer-
pre--b--5798244.html
\4\ http://kff.org/report-section/ehbs-2014-section-one-cost-of-
health-insurance/
Several recent reports make clear that the Affordable Care
Act is reducing the uninsured rate. A study published in the
New England Journal of Medicine found that, as compared with
the baseline trend, the non-elderly uninsured rate declined by
5.2 percentage points by the second quarter of 2014, a 26
percent relative decline from the 2012-2013 period,
corresponding to 10.3 million adults gaining coverage.\5\ These
independent surveys point to the same overarching trend--the
success of the Affordable Care Act in lowering the number of
uninsured Americans.
---------------------------------------------------------------------------
\5\ New England Journal of Medicine, Health Reform and Changes in
Health Insurance Coverage in 2014.
The Affordable Care Act benefits Americans broadly, not
simply those who are newly insured. Over the past three years,
Americans have benefitted from insurance reforms that have
already gone into effect, such as allowing adult children up to
age 16 to stay on their parents' insurance, eliminating
lifetime dollar limits on essential health benefits, and
prohibiting rescissions of insurance when someone gets sick.
Preventive benefits, including wellness visits and certain
cancer screenings with no cost sharing, as well as new
incentives to pay doctors and hospitals for improving outcomes,
are aimed at improving the quality of the health care that
Americans receive. Now pre-existing conditions no longer
preclude individuals from gaining health insurance, and
consumers have better access to comprehensive, affordable
coverage. Consumers now have the comfort of knowing that if
their employment changes or they lose their current coverage,
they can purchase affordable coverage through the Marketplace--
regardless of their personal health history--or have access to
Medicaid in many states. Small business owners can be assured
that they will not face wide variations and high volatility in
premiums based on the type of work they do or the health status
---------------------------------------------------------------------------
of their workers.
The Affordable Care Act's reforms are effective because
they have benefits across the health care system. Reductions in
the uninsured rate should mean doctors and hospitals provide
less uncompensated care, a cost that is often passed along to
taxpayers, as well as consumers and employers who pay premiums
for health coverage. And new pools of people buying insurance
means insurers have an opportunity to grow by competing to
provide better access to quality, affordable choices--the same
advantages that consumers are used to in any competitive
marketplace. The creation of a viable health insurance market
benefits all Americans, no matter where they get their health
insurance.
Small Business Health Options Program (SHOP)
The Affordable Care Act established the Small Business
Health Options Program (SHOP) to make it easier for small
businesses to obtain health coverage for their employees. Just
as in the individual Marketplaces, the SHOP allows small
businesses to easily compare and select plans that meet the
needs of their employees. In 2014, the SHOP opened to small
employers with 50 or fewer full-time equivalent employees. In
2016, the program will be open to businesses with 100 or fewer
full-time equivalent employees. It is important to remember
that unlike the individual Marketplace, eligible employers can
begin participating in the SHOP at any time, and are not
limited to a single open enrollment period. Just as they always
have, small employers may purchase coverage for their employees
throughout the year.
This past year, small employers have offered coverage to
their employees through the Federally-facilitated SHOP
Marketplace by receiving an eligibility determination from the
SHOP, and enrolling in coverage through an agent, broker, or
issuer. Some of these employers have also been able to claim
the small business health care tax credit, which can cut their
premiums by as much as 50 percent. Since August 2013, small
employers have been able to contact a dedicated call center
with questions about the Affordable Care Act and Federally-
facilitated SHOP enrollment. HHS also added new small business
online tools to HealthCare.gov earlier this year, including a
consumer-friendly small business health care tax credit
estimator that helps small employers determine if they qualify
for the small business health care tax credit and how much it
could be worth for a small employer.
Consistent with state law, agents and brokers are playing a
vital role in the SHOPs, as they do in the small group market
today. Agents and brokers act as trusted counselors, providing
service at the time of plan selection and enrollment and
customer service throughout the year. For the 2014 plan year,
more than 79,000 agents and brokers trained to assist consumers
in the Federally-facilitated Marketplace--including many who
completed the SHOP-specific course. The SHOP Call Center is
also available to help agents, brokers, Navigators, and other
Marketplace approved assisters specifically working on behalf
of small employers in states participating in the Federally-
facilitated Marketplace.
HHS has worked to create a seamless online experience and
add key new features for the Federally-facilitated SHOP
Marketplace in 2015. New features include offering employees a
choice of health plans, premium aggregation services, and a
dedicated online system for licensed agents and brokers to
assist their SHOP small business clients. Starting November 15,
the online Federally-facilitated SHOP Marketplace on
HealthCare.gov will offer new health coverage options to small
employers with one to 50 employees, and make it easier for them
to shop for, select and offer employees high quality health
plans and dental plans, and allow employees to enroll online.
SHOP Early Access
As we move to expand online functionality for the SHOP this
November, CMS is committed to acting on lessons learned and
continuously improving the user experience. Thus, small
employers, agents and brokers in five states--Delaware,
Illinois, New Jersey, Missouri, and Ohio--will have the
opportunity to experience key features of the new online SHOP
Marketplace on HealthCare.gov, in advance of the full SHOP
Marketplace launch nationwide on November 15. During ``SHOP
Early Access'', small employers in these states will be able to
establish a Marketplace account, assign an agent/broker to
their account, complete an application, obtain an eligibility
determination, upload their employee roster, and--when
available in early November--browse available plans and
pricing. Beginning on November 15th, small employers in these
states and others participating in the Federally-facilitated
SHOP will be able to complete their plan selection and
enrollment and offer coverage to their employees that takes
effect as soon as January 1, 2015.
Early Access will also allow for targeted consumer testing
with small businesses, agents, brokers, and assisters before
the SHOP functions are made available online in all Federally-
facilitated SHOP Marketplace states. This consumer testing will
add to the rigorous performance testing completed on the core
software product and interfaces prior to Early Access and go-
live.
SHOP Employee Choice
We are also making important progress in offering small
business employees additional choices for their health
coverage. In the past, most small employers were only able to
offer a single health and dental plan for all of their
employees. Now, through the ``employee choice'' option, small
businesses in many states will have the option to allow
employees to choose any health plan and dental plan available
at the coverage level selected by the employer. Employee choice
provides significant benefits to both employers and employees.
It can lessen the administrative burden on employers and allow
employees to select the plan that best fits their individual
and family circumstances. Additionally, in 2015, all employers
participating in the Federally-facilitated SHOP Marketplace
will make their monthly premium payments directly to the SHOP
Marketplace, which will disburse payments to all of the
different plans selected by employees when employee choice is
offered, thus further reducing administrative hassle for
employers.
In addition to expanding choices for consumers, employee
choice has the potential to facilitate greater market
competition in states--making it possible for smaller, less
established issuers to break into small group markets and
encourage all small group market issuers to compete based on
price, customer satisfaction, and other quality measures.
HHS is aware that small business markets differ from state-
to-state. To help smooth the transition to employee choice, HHS
has allowed State Insurance Commissioners to request that the
SHOP in their state defer implementation of the employee choice
provision in 2015 if, in the Insurance Commissioner's expert
judgment, doing so would be in the est interests of small
employers and their employees and dependents. HHS is committed
to implementing employee choice in a way that learns from early
experience and ensures success. In total, 14 states with a
Federally-facilitated SHOP Marketplace plus most State-based
SHOPs will make employee choice available to small businesses
in 2015, doubling the number of states offering this option. In
2015, nearly two-thirds of Americans will live in states where
small business employees could be offered the option to choose
a health plan rather than have their employer do it for them.
Small Business Health Care Tax Credit
In addition to choice, we know how important affordability
is. The Affordable Care Act created the Small Business Health
Care Tax Credit to help small employers of lower wage workers
afford a significant contribution towards workers' premiums. An
employer may qualify for a tax credit if it has fewer than 25
full-time-equivalent employees making an average of less than
$50,000 a year (as adjusted for inflation beginning in 2014).
To qualify for the Small Business Health Care Tax Credit, an
employer must also pay at least 50 percent of the premium cost
of employee-only coverage for each of its employees. For tax
years starting in 2014, the tax credit can be worth up to 50
percent of for-profit employer's contribution towards
employees' premium costs and 35 percent for non-profit
employers, and is generally available only when employees are
enrolled in SHOP coverage. The 2014 maximum credit amount for
the Small Business Health Care Tax Credit is a significant
increase over the maximum amount for the credit from 2010-2013,
when it should be worth up to 35 percent of employer-paid
premium costs, or 25 percent for tax-exempt employers. Since
the Small Business Health Care tax credit first became
available in 2010, it has provided hundreds of thousands of
small businesses more than $1.5 billion in tax credits.
Conclusion
In conclusion, for too long, small business owners have
struggled to keep up with the ever-rising cost of health
insurance for their employees. The Affordable Care Act makes it
easier for businesses to find better coverage options and
builds on the current employer-based insurance market. The
SHOP, combined with new insurance reforms and tax credits
provided by the Affordable Care Act, gives employers new
options to provide their employees with high quality,
affordable health care coverage. I look forward to continuing
to work with you to improve the health care options for
America's small businesses, families, and communities, and am
happy to answer any questions you may have.
Testimony of Roger Stark, MD, FACS
House Small Business Subcommittee on Health and Technology
September 18, 2014
The Small Business Health Options Program
Background
The Patient Protection and Affordable Care Act (ACA) became
law in 2010. The law is based on an individual mandate that
requires every adult to own health insurance and an employer
mandate that requires every employer with 50 or more full-time
employees (FTEs) to provide health insurance to their
employees.\1\
---------------------------------------------------------------------------
\1\ U.S. Department of Health and Human Services @ http://
www.hhs.gov/healthcare/rights/law/
Under the ACA, states are allowed to expand their Medicaid
entitlement program for the poor and are required to establish
health insurance exchanges or utilize the federal exchange.
These exchanges function as insurance brokerages where
individuals can access insurance plans and potentially receive
taxpayer subsidies to help them pay the insurance premium. Each
exchange must offer at least four plans which must include t he
ten essential benefits mandated in the ACA. Pricing must be
---------------------------------------------------------------------------
approved by the government.
The ACA also attempts to establish an exchange marketplace
for employers with less than 50 FTEs. The Small Business Health
Options Program (SHOP) is designed to help ``businesses provide
health coverage to their employees.'' \2\
---------------------------------------------------------------------------
\2\ What is the SHOP Marketplace @ https://www.healthcare.gov/what-
is-the-shop-marketplace
Small businesses with less than 25 FTEs may qualify for tax
credits if they pay at least 50 percent of the total health
insurance premium cost for employees and the average wage of
their employees is below $50,000, The tax credit is determined
by the number of employees and by average wages. Basically, the
smaller a business is, the larger the tax credit it could
---------------------------------------------------------------------------
receive.
Phase I of the employer tax credit began in 2010. Eligible
employers may qualify for a tax credit of up to 35 percent of
their contribution toward employees' insurance premiums. The
employer must pay at least 50 percent of the employee-premium.
Phase II of the employer tax credit began in 2014. Eligible
employers may receive a credit of up to 50 percent of their
portion of premium costs. However, these employers must
purchase coverage through a SHOP Marketplace, or qualify for an
exception to this requirement, to be eligible for the credit.
The credit is only good for two consecutive tax years.\3\
---------------------------------------------------------------------------
\3\ What You Need to Know About the Small Business Health Care Tax
Credit @ http://www.irs.gov/uac/Small-Business-Health-Care-Tax-Credit-
for-Small-Employers
At least 70 percent of employers must be enrolled in the
SHOP Marketplace for the employer to qualify for tax credits.
Employees who purchase their own health insurance count toward
the 70 percent. Employees who have insurance through their
spouse or who have government insurance, such as Medicare or
Medicaid, do not count toward the total.\4\
---------------------------------------------------------------------------
\4\ It's Still Hard for Small Businesses to Shop Around for Health
Coverage by Meir Rinde @ http://www.njspotlight.com/stories/14/04/29/
it-s-still-hard-for-small-businesses-to-shop-around-for-health-
coverage/
Some state exchanges started accepting enrollees through a
SHOP Marketplace this year. The federal exchange will start
accepting online applications this November for coverage in
---------------------------------------------------------------------------
2015.
Employers with more than 50 FTEs will be able to access
SHOP on November 1, 2015 and employers with more than 100 FTEs
will be able to access the program in 2016.\5\
---------------------------------------------------------------------------
\5\ Obamacare Small Business Facts @ http://obamacarefacts.com/
obamacare-smallbusiness.php
The demand and interest level of employers in an exchange
such as SHOP was never determined. There is speculation and
anecdotal evidence that SHOP was placed in the ACA for
political reasons and convenience, rather than at the
insistence of the law's architects.\6\
---------------------------------------------------------------------------
\6\ SHOP Flop: Obamacare for Small Businesses, by Brett Norman @
http://www.politico.com/story/2014/06/shop-sdmall-business-health-
options-program-delay-107649.html
---------------------------------------------------------------------------
Enrollment in SHOP to Date
When the ACA became law in 2010, estimates showed that 1.4
million to 4 million employers were eligible for tax credits.
Only 170,00, or 4 to 12 percent of employers, filed for credits
that year.\7\
---------------------------------------------------------------------------
\7\ Small Employer Health Tax Credit: Factors Contributing to Low
Use and Complexity @ http://kstp.com/kstplmages/repository/cs/files/
SMALL%20EMPLOYER%20HEALTH%20TAX%20CREDIT.pdf
Individual state exchanges have had varying success at SHOP
enrollment. New York state had nearly 1 million enrollees in
its exchange, but only one percent were in the small employer
market. California had a similar experience with 1.4 million
enrollees overall, but less than 1 percent enrolled in SHOP.\8\
---------------------------------------------------------------------------
\8\ Why We Still Don't Know How Many Small Businesses Signed Up
Through Obamacare by J.D. Harrison @ http://www.washingtonpost.com/
business/on-small-business/why-we-still-dont-know-how-many-small-
businesses-signed-up-through-obamacare/2014/07/10/773d0cb6-0859-11e4-
a0dd-f2b22a257353--story.html
The federal exchange has delayed online enrollment until
November, 2014.\9\
---------------------------------------------------------------------------
\9\ Obamacare's Online SHOP Enrollment Delayed by One Year by Sarah
Kliff @ http://www.washingtonpost.com/blogs/wonkblog/wp/2013/11/27/
obamacares-online-exchange-for-small-businesses-is-delayed-by-one-year/
Officials in Washington state chose to establish a state-
run health insurance exchange, including a SHOP. Coverage began
in 2014, with SHOP having an open enrollment period. Only one
carrier, Kaiser Permanente, offered plans and only offered
those five plans in two counties in Southwest Washington.
Although 4,300 small businesses created online accounts, only
11 companies, with a total of 40 people, actually purchased
insurance on the SHOP exchange this year.\10\
---------------------------------------------------------------------------
\10\ With Statewide Insurance Options, Washington's Business Health
Exchange Readies For Close-up by Gregg Lamm @ http://
www.bizjournals.com/seattle/blog/health-care-inc/2014/09/with-
statewide-insurance-options-washington-s.html
A second insurance company, Moda, has applied to offer 14
---------------------------------------------------------------------------
plans state-wide starting in 2015.
The Director of the Washington State SHOP Marketplace,
Catherine Bailey, stated that ``many of the carriers were not
interested in expending additional resources to be in the small
business exchange right away.'' \11\
---------------------------------------------------------------------------
\11\ Ibid.
The Government Accountability Office (GAO) has speculated
that the use of tax credits and the SHOP enrollment are so low
for several reasons. The first reason is the complexity in
doing all the paperwork.\12\ Conversations the GAO has had with
tax preparers reveal that employers must spend from two to
eight hours or possibly longer collecting employee data and tax
preparers must spend an additional three to five hours
calculating the credit.
---------------------------------------------------------------------------
\12\ See ref 5.
Second, the GAO reports the tax credit is not a large
---------------------------------------------------------------------------
enough incentive for many small employers.
Third, the majority of small businesses have never offered
health benefits to employees. The Medical Expenditure Panel
Survey (MEPS) estimated that 83 percent of small companies did
not offer health insurance in 2010 when the ACA became law.
In addition, insurance companies are seeing a drop-off in
employer-sponsored health insurance for small businesses. The
CEO of Well Point, Joseph Swedish, is on record earlier this
month stating that ``small employers (are) shifting employees
to the individual exchange or (are) dropping coverage
completely.'' He goes on to say small employers are making ``a
very radical, fast shift to walking away from the so-called
moral imperative'' of providing health insurance.\13\
---------------------------------------------------------------------------
\13\ But Small Employers are Walking Away From Coverage by Sarah
Wheaton @ http://www.politico.com/politicopulse/0914/
politicopulse15173.html
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Policy Analysis
Although the employer mandate is a critical part of the
ACA, the SHOP marketplace for small businesses seems to be
almost an afterthought in the law. There is no clear evidence
of interest on the part of small companies to provide health
insurance through a marketplace with tax credits.
Small businesses are typically start-up or low-margin
companies where the added cost of employee health insurance can
mean the difference between success and failure. The paperwork
and regulatory burden in the SHOP exchange are definite hurdles
for a small business employer.
There is no real free market in the individual exchanges or
in SHOP. Proponents will claim that competition exists, yet all
insurance plans offered in the exchanges must contain the ten
government-mandated essential benefits. Insurance premium
prices must be approved by the government. Consequently,
individuals and employers only have government-approved plans
and not meaningful choices or real competition.
The incentive of tax credits has not been significant
enough to encourage employers to use SHOP. Obtaining the credit
is so complicated that small businesses are unwilling or unable
to spend the time and effort to complete the necessary forms.
The SHOP Marketplace duplicates the private insurance
marketplace with an added burden to taxpayers. Private
association health plans, for example, have flourished for
years without government financial support.
Since employer interest and utilization of the tax credit
is so small, the benefits of the SHOP Marketplace are unclear.
Recommendations
Designing an insurance exchange, whether it's private or
government-run, offers each state, like Washington, the
opportunity to reform health care delivery by starting with a
``clean slate'' and moving toward a patient-oriented, consumer-
driven system. The exchange can be a transparent, information-
based market where individuals and small businesses can select
the plan most appropriate to their needs. States can use the
exchange as a mechanism to combine all existing state
government insurance plans, such as Medicaid and Basic Health,
into one administrative program.
Done right, the exchange should be easy to use and should
promote decreased health care costs. Insurance rates and
benefit levels should be set by the insurance market and not by
government regulations. The administration of the exchange
should be done through a nonpolitical, independent board, not
by a politicized bureaucracy.
Under the ACA, all plans must contain the ten essential
benefits that meet federal requirements. Washington state has
57 benefit and provider mandates that overlap the federal
benefits. Ideally, the state exchanges should be able to offer
an array of ``mandate-free'' or ``mandate-light'' insurance
plans that satisfy market needs. Greater use of high deductable
insurance plans coupled with health savings accounts can
control costs and offer more choices for patients and employers
without compromising quality.
Any subsidies in the exchange should flow to and be
controlled by the patient, not by insurance executives or
government officials. Tax credits or premium supports to
purchase health insurance could also be offered in an exchange.
Each state can function as a laboratory to design the most
efficient, cost-effective exchange for small businesses and
individual. Although the ACA includes hundreds of new mandates
and regulations, states should have an opportunity to overhaul
their existing programs, start fresh and establish a meaningful
patient-directed, market-oriented health care system. The
alternative is to submit to more government regulation and
central planning with the attendant bureaucratic inefficiencies
which will not increase competition, improve access, or
decrease costs to patients and employers.
Testimony of Professor Adam Beck to the Subcommittee on Health and
Technology
Committee on Small Business
United States House of Representatives
Washington, D.C.
September 18, 2014
Good morning.
Thank you Mr. Chairman, Ranking Member Hahn and members of
the Subcommittee for the opportunity to appear before you
today. My name is Adam Beck and I am an assistant professor of
health insurance at The American College in Bryn Mawr, PA.
Since the College was founded in 1927, it has grown to become
the nation's leading non-profit provider of higher education
for professionals in the financial services industry. Today,
The American College has the highest level of accreditation
available and offers twelve professional designation and exam
preparation programs, two master's degrees and a PhD in
Financial and Retirement Planning. At The American College, I
lead the Chartered Healthcare Consultant designation and teach
courses focused on Health Care Reform for Employers and
Advisers, Healthcare Consulting, Financing Long-Term Care for
Seniors, and Life Insurance Law. I am the author of a textbook
on the Essentials of Health Care Reform and the co-author of
texts on healthcare consulting and long-team care financing.
Additionally, I am an attorney with active licenses in New
Jersey and Pennsylvania and advise medical and psychotherapy
practices on matters relating to health insurance, Medicare,
HIPAA and compliance with the Affordable Care Act.
Small businesses and the people who work for them comprise
the backbone of the American economy. Health insurance is a
tremendously valuable, often life-saving, financial product,
which our federal tax code affords special status. Therefore,
it is an important and essential goal to allow small business
owners the opportunity to offer quality, affordable health
insurance coverage to their employees. Prior to the
implementation of the Affordable Care Act, half of the
uninsured in this country were part of the small business
community--owners, employees and dependents.\1\ That is not for
a lack of desire on the part of small business owners to offer
health insurance coverage. The Small Business Health Options
Program, or SHOP Marketplace, was designed by the 111th
Congress to lower health costs for small business, increase
competition and therefore choice for business owners, and
simplify the process of offering health coverage. These are
laudable goals, however it is my opinion that the SHOP
Marketplace as it is currently structured and presented falls
short of these goals. I believe the SHOP Marketplace will
remain inadequate and continue to enroll relatively few
companies so long as three factors remain: the existing tax
incentives, the lack of engagement of agents and brokers, and
shortcomings in information technology infrastructure.
---------------------------------------------------------------------------
\1\ Gardiner, Terry and Pereera, Isabel. ``SHOPping Around'' Report
of the Center for American Progress and Small Business Majority. June
2011. http://www.smallbusinessmajority.org/reports/
shop--exchange.pdf
I. The Small Business Health Care Tax Credit is Overly
---------------------------------------------------------------------------
Complicated and Too Small
The Patient Protection and Affordable Care Act created the
Small Business Health Care Tax Credit to be an accompanying
incentive to participate in the Small Business Health Options
Program. Prior to the launch of SHOP marketplace on January 1,
2014, the tax credit was available in a smaller form for most
private market small group health plans enrolled in by
qualifying business organizations during the tax years 2010
through 2013. For the initial four years of the tax credit's
existence, the maximum credit available was 35 percent for for-
profit entities and 25 percent for tax-exempt organizations.
Beginning in 2014, the tax credit increased and became
conditioned upon participation of eligible employers in a SHOP
plan. The maximum available tax credit is today 50 percent for
for-profit entities and 35 percent for tax-exempt
organizations.
While a fifty-percent tax credit may sound like a
substantial incentive--particuarly considering that employers
may still use pre-tax funds to pay for employee health
benefits--the reality is far more nuanced. First, there is the
limited universe of eligible employers. The credit is only
available to business organizations with 25 or fewer full-time
equivalent employees and average annual wages below $50,000.
While this undoubtedly includes a substantial number of small
businesses, it requires employers to engage in tedious and
somewhat complex calculations of how many full-time equivalent
employees they maintain in a given year, continually monitor
compensation and face a perverse incentive for limiting pay,
should increasing pay lead to average annual wages exceeding
$50,000. Second, there is the sliding scale nature of the tax
credit. The maximum credit of 50 or 35 percent is available
only to businesses with 10 or fewer full-time equivalent
employees and average annual wages below $25,000. The credit is
then available in diminishing percentage amounts as the
businesses grow larger or pay more. This again requires a
complex calculation just so employers can estimate the
potential tax incentives they could achieve from purchasing
plans through a SHOP exchange. Third, the credit is time-
limited. Those who qualify may only claim the tax credit for
two consecutive years.
The Government Accountability Office estimates that up to 4
million small businesses could qualify for the credit \2\, but
this requires that small businesses know about the credit and
go through the difficult process of determining eligibility.
Further, even by the GAO's own admission, advocacy groups
identify the 4 million figure as the likely high point of
potentially eligible businesses, with some estimating that as
few as 1.4 million employers would qualify. Linda Blumberg and
Shanna Rifkin of the Urban Institute analyzed this issue in a
report issued last month that was commissioned by the Robert
Wood Johnson Foundation.\3\ They found that qualifying for the
credit was particularly difficult in high cost-of-living areas,
as the $50,000 limit in average annual wages applies uniformly
nationwide. By way of comparison, someone earning $50,000 in
Mason City, Iowa in 2014 would need to earn $73,104 annually to
maintain the same standard of living in Los Angeles,
California.\4\ Data from the first year of the tax credit
(2010) indicate that the overwhelming majority of employers who
were eligible for any credit were not eligible for the full
credit. Only 17 percent were eligible for the full credit.\5\
The greatest obstacle, according to GAO analysis, was the
annual wage requirement. In the first year, 68 percent of
businesses who received less than the full credit would have
qualified for the maximum percentage based on the number of
full-time equivalent employees but failed to qualify based on
wages.\6\ According to the Urban Institute report, many
employers reported that they felt they needed the assistance of
an accountant just to determine eligibility for the credit, a
cost that sometimes exceeded the actual value of the credit.\7\
The GAO report offers a succinct summary of the degree of
complexity involved in calculating the credit \8\:
---------------------------------------------------------------------------
\2\ ``Small Employer Health Tax Credit: Factors contributing to low
use and complexity.'' Report of the U.S. Government Accountability
Office. May 2012. http://gao.gov/assets/600/590832.pdf (page 10)
\3\ Linda Blumberg and Shanna Rifkin. ``Early 2014 Stakeholder
Experiences With Small-Business Marketplaces in Eight States.'' Report
of the Urban Institute. August 2014. http://www.rwjf.org/content/dam/
farm/reports/issue--briefs/2014/rwjf414995
\4\ http://money.cnn.com/calculator/pf/cost-of-living/
\5\ GAO report, supra, at page 10.
\6\ Id.
\7\ Blumberg and Rifkin at page 3.
\8\ GAO report, supra, at page 13.
On its Web site, I.R.S. tried to reduce the burden on
taxpayers by offering ``3 Simple Steps'' as a screening
tool to help taxpayers determine whether they might be
eligible for the credit. However, to calculate the
actual dollars that can be claimed, the three steps
become 15 calculations, 11 of which are based on seven
worksheets, some of which request multiple columns of
---------------------------------------------------------------------------
information.
Setting aside the studies and statistics, it is very
difficult to find a small business that has actually claimed
the credit. They indeed exist, as we know from tax filings, but
apparently in such small numbers that even a media outlet with
the reach of the New York Tines was unable to find one to
profile.\9\ When I teach my students about the tax credit, I
always ask if any of the students--who are active brokers and
financial advisers--have assisted any clients with this
particular tax credit. No student has yet to answer in the
affirmative.
---------------------------------------------------------------------------
\9\ Robb Mandelbaum. ``Why the Health Care Tax Credit Eludes Many
Small Businesses.'' The New York Times. September 25, 2012. http://
boss.blogs.nytimes.com/2012/09/25/why-the-health-care-tax-credit-
eludes-many-small-businesses/
While the cost of premiums for plans available on many
state SHOP marketplaces have been comparable to--and in many
cases slightly lower than--similar plans prior to the opening
of the SHOP, they generally remain higher than what many small
businesses have determined they can afford to pay. This is
where the tax credit is supposed to mitigate costs and increase
the likelihood that a small business can actually afford to
offer coverage. As expanded, simplified tax credit that is
available for longer than two years would offer a real
financial incentive for companies to either begin or continue
---------------------------------------------------------------------------
offering health benefits.
II. The Inclusion and Empowerment of Brokers has been
Minimal
For many small businesses that offer health insurance
coverage to their employees, a health insurance agent or broker
performs the bulk of the work necessary to facilitate benefit
offerings. Small business owners frequently wear many
(proverbial) hats, including that of human resources director,
marketing director, and controller, among others. Thus, health
agents and brokers play a critical role for small businesses.
Many of these agents or brokers are comprehensive financial
planners and advisers who work with small business clients on
matters relating to life insurance and retirement benefits,
investments and health insurance. The SHOP Marketplace will not
succeed without a substantial buy-in from the agent and broker
community. This much was readily acknowledged by John
Arensmeyer, CEO of the pro-reform Small Business Majority, who
said ``at the end of the day, the success of the small-business
exchanges is going to be very heavily dependent on brokers and
agents.'' \10\
---------------------------------------------------------------------------
\10\ Robb Mandelbaum. ``Small Businesses Showing Little Interest in
State SHOP Exchanges.'' The New York Times. December 23, 2013. http://
boss.blogs.nytimes.com/2013/12/23/small-businesses-showing-litle-
interest-in-state-shop-exchanges/
Health insurance, like any financial product, is
complicated and its purchase often requires the advice and
assistance of a licensed professional, such as an insurance
agent or broker. Particularly for small group policies, where
the health and financial well-being of multiple lives and
families is at stake, there should be substantial involvement
of agents and brokers to ensure that business owners make
decisions that are in the best interest of both their company
---------------------------------------------------------------------------
and their employees.
In its first year, at least in the states with fully or
mostly functioning SHOP marketplaces, the marketing of the
program to brokers, as well as the overall inclusion of brokers
in the program, including empowerment, compensation and
training, has been severely lacking. In short, even for those
brokers who are aware of the SHOP marketplace in their state
and the potential benefits available to clients, they must
undergo state-mandated training and spend twice as much time on
SHOP applications, all for the exact same level of compensation
they would receive to sell a non-SHOP plan.
In the states that operate their own SHOP marketplace,
brokers are required to be certified through a state-specific
training process, which may either be in-person or delivered on
the web. Brokers who went through the training program have
indicated that the materials were ineffective or even factually
inaccurate. This included inaccurate exam questions and
instructors who were required to teach material that was
outdated. Further, many of the training programs covered SHOP
only as part of a larger health care reform training, therefore
requiring small business brokers to become educated upon issues
unique to Medicaid, as opposed to more in depth discussion of
SHOP.
Those issues only apply to the brokers who feel they were
included in the SHOP process. The marketing campaigns for state
SHOP exchanges have often failed to target or reach small
business health brokers, instead focusing on the federally-
funded navigators who primarily support individual exchanges.
Additionally, and perhaps most importantly, the outreach to the
business community about the existence of SHOP and the role
that brokers can play in facilitating enrollment has been
minimal. Many businesses remain unaware that they can turn to a
local broker to discuss potential options under the Small
Business Health Options Program.
The degree and structure of compensation for brokers has
discouraged substantial involvement. A broker will earn the
same commission or fee for selling a plan directly through an
affiliated carrier as he or she would for selling a plan
through the SHOP marketplace.
However, the time involved in enrolling a client in a SHOP
plan is often double that required to enroll in a plan directly
through a carrier. Some, including Lev Ginsburg of the Business
Council of New York, estimate that the SHOP process is even
more laborious, possibly as much as three or four times what it
necessary to enroll in a non-SHOP plan.\11\ The additional time
is due to the complexity of the IT system and application
interface necessary to complete the SHOP process, as well as
the opportunity cost involved with the time that often must be
spent explaining the new employee choice model to client
companies.
---------------------------------------------------------------------------
\11\ Id.
The commissions are not the doing of CMS. In its May 2013
guidance, the Department of Health and Human Services clarified
that broker commissions do not come from SHOPs, but rather from
a negotiated arrangement between carriers and the brokers, but
required that the rates be the same for a plan sold within a
SHOP as it is for a plan outside of SHOP.\12\
---------------------------------------------------------------------------
\12\ Memorandum from the Centers for Medicare and Medicaid
Services. May 1, 2013. https://www.cms.gov/CCIIO/Resources/Regulations-
and-Guidance/Downloads/agent-brokers-5-1-2013.pdf
This is not to say that either CMS or the state-run SHOPs
have excluded agents or brokers. Indeed, they all have provided
resource pages on their websites promoting the value of health
insurance brokers and making materials available for the
brokers themselves. It can be safely assumed that some broker
perceptions are attributable to the focus during 2013 and 2014
on the individual health insurance exchanges, while SHOPs were
delayed or given a lower priority. However, as the SHOP
marketplaces fully launch later this year, CMS and the state
marketplaces will prioritize the inclusion of brokers and the
---------------------------------------------------------------------------
trade organizations that support them.
III. The Website Delay and IT Issues Increased Uncertainty,
Hindering SHOP
Third, and hopefully most obviously, the delay by the
Administration of the Federal Facilitated SHOP Marketplace and
the accompanying website limited the ability of small
businesses in the 32 states relying on the federal marketplace,
but it also created confusion for business owners, brokers and
navigators in the states that had functioning SHOPs.
Additionally, states that were operating their own SHOP
Exchanges in 2014 experienced their own IT problems that
hindered enrollments.
On November 27, 2013, the Obama administration announced
that the online enrollment component of SHOP would be delayed
until November 2014, as opposed to launching in October 2013 as
originally planned.\13\ (An earlier delay, announced September
26, 2013, pushed back the October start to November.) While
consumers were ultimately well aware of the online health
exchanges, accessible through healthcare.gov, as evidenced by
the 9.21 million online enrollments \14\, small business owners
who visited the site in one of the federal-facilitated states
found themselves unable to browse and compare plans online, as
promised. This delay had real effects on the efficacy of SHOP.
Promoters of the law and brokers speaking with small business
clients were unable to say ``go to the website and explore your
options.'' Further, the delays caused confusion among the small
business community, which leads to uncertainty about SHOP as an
effective means of obtaining insurance in the future.
---------------------------------------------------------------------------
\13\ Sarah Kliff. ``Obamacare's online SHOP enrollment delayed by
one year.'' The Washington Post. November 27, 2013. http://
www.washingtonpost.com/blogs/wonkblog/wp/2013/11/27/obamacares-online-
exchange-for-small-businesses-is-delayed-by-one-year/
\14\ Charles Gaba. http://acasignups.net/
The delays at the federal level were coupled with IT issues
and a low prioritization in states that were running their own
marketplaces. A thorough analysis of the impact of the
Affordable Care Act in Pennsylvania was unable to draw
meaningful conclusions about the efficacy of SHOP, as
Pennsylvania did not have a functioning SHOP website.\15\ A
spokeswoman for CoveredCA admitted that the launch of the
individual exchange was the priority, and the California head
of the National Federation of Independent Businesses said that
even in his state ``the SHOP program has kind of taken a
backseat.'' \16\ In states with their own SHOP marketplaces,
the low prioritization was often overshadowed by IT problems.
Maryland and Oregon, for example, had online systems that were
non-functional.
---------------------------------------------------------------------------
\15\ ``Beyond the Website.'' Fels Institute of Government,
University of Pennsylvania. February 2014. https://www.fels.upenn.edu/
sites/www.fels.upenn.edu/files/
aca--final--feb--6.pdf
\16\ Anna Gorman. ``California's Small Business Health Insurance
Exchange Off To Slow Start.'' Kaiser Health News. May 8, 2014. http://
www.kaiserhealthnews.org/Stories/2014/May/08/Californias-Small-
Business-Health-Insurance-Exchange-Off-To-Slow-Start.aspx
For brokers, there were IT issues that left many
uncompensated for their work. Brokers would assist business
clients with enrollment in a SHOP plan and then the online
system would not record the involvement of the broker and the
insurance carrier would not know to pay the broker. These IT
---------------------------------------------------------------------------
issues discouraged both brokers and carriers alike.
The most recent SHOP-related delay by the Administration
will likely further hinder the program in 2015. On May 27, 2014
the Administration issued final rules on the Employee Choice
model in SHOP, which including transition relief allowing
states the option of delaying Employee Choice until 2016.\17\
Eighteen states will delay Employee Choice an additional year.
The Employee Choice model is an essential component of SHOP. In
the past, small employees have been largely unavailable to
provide choice or variety in health plans to their employees.
While large firms overwhelmingly offer more than two plans to
their employees, very few small employers were able to do so.
The Employee Choice model will allow small businesses to offer
employees a variety of plans within the same metallic tier or
below a certain price point, which creates a real incentive for
small employers to at least consider the options available
within SHOP. An effective Employee Choice model, however, also
requires a user-friendly information technology interface,
which many states may not be fully prepared to offer.
---------------------------------------------------------------------------
\17\ http://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-
Insurance-Marketplaces/2015-Transition-to-Employee-Choice-.html
While SHOP was supposed to be fully functional nationwide
in 2014, what happened instead was a patchwork test run. In
short, a key reason SHOP did not succeed in its first year was
because its first year was postponed. A year with fully
functioning structures and engaged players will be essential to
---------------------------------------------------------------------------
truly judge efficacy.
IV. Other Factors Impacting the Fist Year of SHOP
Several other factors negatively affected SHOP during its
initial year and will likely continue in the future. These
include the many early renewals of small group plans in 2013,
competition from private exchanges and the success of the
individual marketplace.
Many insurers actively encouraged small business clients to
renew (or ``early-renew'') their existing small group health
insurance plans prior to December 31, 2013. Any plans renewed
on or after January 1, 2014 were required to comply with a host
of new requirements under the Affordable Care Act, namely to
offer a package of ten essential health benefits and limit
cost-sharing. Thus, businesses with these early-renewed plans
had no need to purchase health insurance plans in 2014, at
least not until later this year. As many as 70 percent of small
businesses may have opted to early renew policies in 2013.\18\
This dramatically limited the number of small businesses who
otherwise may have been prime candidates for exploring plan
options through the SHOP marketplace.
---------------------------------------------------------------------------
\18\ Paul Demko. ``Small Business Exchanges off to rocky start.''
Modern Healthcare. July 14, 2014.
Private exchanges are likely to grow in popularity over the
coming years. Because the ACA requires the pricing of plans to
be the same within a SHOP exchange as it is outside, the free
market can be expected to result in competition from private
actors who feel they can provide a greater variety of plans or
a better customer experience. Private exchanges have been
increasingly popular among larger companies, but the private
---------------------------------------------------------------------------
exchanges are actively seeking to sell to small groups.
Finally, despite the well-publicized disaster that was the
launch of healthcare.gov, the Health Insurance Marketplace
ended up enrolling far more people than nearly anyone had
anticipated and millions of Americans found health insurance at
a lower rate than they had previously paid. If employees of
small businesses have the option of obtaining affordable health
insurance on their own, usually with the assistance of a
federal tax credit, many small businesses who have not offered
coverage in the past will likely simply direct their employees
to the public marketplace, thus rendering an employer-based
plan unnecessary and alleviating a prospective burden from the
employer.
In conclusion, many small businesses want to offer health
coverage. It simply needs to be more affordable, simpler and be
facilitated by an experienced insurance broker. The Small
Business Health Options Program has the potential to offer just
that, but marketing, tax credits, information technology and
broker involvement need to be dramatically increased in order
for the program to achieve its laudable goals.
Statement of
Jon Gabel
Senior Fellow
NORC at the University of Chicago
The Small Business Health Options Program:
Its Promise and Challenges
Before the
U.S. House Committee on
Small Business, Subcommittee on Health and Technology
Statement of Jon Gabel
``The Small Business Health Options Program: Its Promise and Challenges
September 18, 2014
Chairman Collins, Ranking Member Hahn, Members of the
Committee.
Thank you for the opportunity to discuss the promise and
challenges of the Small Business Health Options Program (SHOP).
I am Jon Gabel, a Senior Fellow at NORC at the University of
Chicago. I am a nationally recognized expert on private health
insurance with more than 35 years of experience. NORC is an
independent non-profit, non-partisan research organization
whose mission is to conduct objective research in the public
interest. The views I present are mine, and not those of NORC.
Today I will discuss factors promoting and inhibiting the
success of SHOPs. Some of the analysis will be based on recent
research for CCIIO/CMS.
The authors of the ACA designed SHOPs to bring the
efficiencies of the large group market to small employers.
Historically, the small group market (firms with 50 or fewer
workers) was characterized by higher premiums and
administrative expenses, and greater volatility in premium
increases from year to year. For coverage with identical
financial protection the smallest employers (1-9 workers) paid
premiums 18 percent more than large employers.\1\ Whereas
administrative expenses constituted less than 10 percent of the
premium dollar for the nation's largest firms, administrative
expenses accounted for more than 20 percent of the premium
dollar for small employers. One reason that administrative
costs were higher in the small employer market was that
insurers competed through medical underwriting--a technical
term meaning making sure that an insurer does not sell to small
firms with very sick pe9ple, or alternatively, charging higher
premiums to reflect expected expenses plus risk. Medical
underwriting entailed examining the medical records and past
insurance claims of the prospective new customers. Insurers did
so not because they were ``bad companies,'' but because the
economic of health insurance dictated they do so. Medical
expenses are concentrated among a few sick people. In employer-
based insurance, the sickest 1 percent will account for 27
percent of claims expenses, the sickest five percent over 50
percent of expenses, and the healthiest 50 percent account for
5 percent of expenses. If an individual insurer unilaterally
declined to medically underwrite, that insurer would attract
the worst risks and be forced to price their products at non-
competitive rates. The Affordable Care Act prohibits setting
premiums based on the health status of the insured population.
It does allow insurers to set premiums based on the age of the
population within limits, by geography, and smoking status.
Thus, the ACA transforms the small group market so insurers no
longer compete on their ability to identify and exclude high-
risk individuals and small groups, but now must compete on
price and quality.
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\1\ J. Gabel, R. McDevitt, L. Gandolfo, J. Pickreign, S. Hawkins,
and C. Fahlman, ``Generosity and Adjusted Premiums in Job-Based
Insurance: Hawaii Is up, Montana Is Down,'' Health Affairs, May/June
2006, 25(3): 832-843.
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Recent Trends in the Small Employer Market
SHOPs are aiming to establish itself at a time of relative
price stability in employer-based insurance including the small
employer market. Data from the annual Kaiser Family Foundation/
Health Research and Educational Trust (KFF/HRET) Employer
Health benefits Survey show that in 2013-2014 premiums fell 1.2
percent (Exhibit 1) for employers with 3-50 workers. In 2013
premium increases were 2.3 percent.\2\ For all firms premium
increases in 2013-2014 for family coverage were only three
percent. Small employers, similar to consumers in general,
would be more likely to shop for new plans when premiums are
rising rapidly.
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\2\ Neither of these figures were statistically significant from
the previous year.
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Brief History of SHOPs and Purchasing Pools
Exchanges for small employers are not a new idea. Over the
past 25 years many states attempted to build what was termed
``health insurance purchasing co-operatives'' (HIPCs), but none
enjoyed widespread success. Among the states attempting to
build HIPCs were California, Connecticut, Washington, Florida,
Kansas, Colorado and Kentucky. Connecticut was perhaps the most
successful and attained an eight percent market share in the
late 1990s.\3\ Massachusetts invested more than a million
dollars in research and marketing in 2012-13 to attract small
employers to their ``Connector.'' Enrollment today is less than
10,000 persons.
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\3\ Richard Teske, ``How the Kansas Business Health Partnership Can
Learn from Other Health Purchasing Cooperatives (HPC's)'' Kansas Public
Policy Institute, 2001.
One clear lesson from earlier attempts to build HIPCs is
that underwriting rules must be the same inside and outside the
HIPCs.\4\ Many states prohibited medical underwriting within
the pools but allowed it outside the HIPCs. The inevitable
result was that brokers sent their high risk groups to the
HIPCs, medical claims expenses and premiums rose each year,
risk selection worsened, and the HIPCs went into a death
spiral. Another challenge to HIPCs was that large insurers
often did not want to participate.
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\4\ M. Hall, E. Wicks, and J. Lawler, ``Health arts, HIPCs, MEWAs,
and AHPs: A Guide for the Perplexed,'' Health Affairs, 20:1 (2001):
142-153.
The authors of the ACA addressed many shortcomings of
earlier HIPCs. Underwriting was prohibited on and off the
Marketplace and plans offered on the Marketplace must also be
offered off the Marketplace and are considered one plan. CCIIO
requires carriers with market share of 20 percent or more in
the state small employer market to participate on the SHOP. If
a ``tied'' carrier refused to participate, the carrier was not
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allowed to sell plans on the individual exchange in that state.
Employee Choice and Employer Models
Other witnesses have described the structure and market
rules of SHOPs, as well as operational issues encountered over
recent years. I will not delve into those subjects, but will
review the two SHOP models--the ``employee choice'' and
``employer model.''
With the ``employee choice model,'' the employer
contributes a fixed amount for plan offerings on the SHOP,
regardless of which plan the employee selects. Although there
is variation from state-to-state, in general employees can
select plans from different metal tiers and carriers. If an
employee picks a plan whose premium exceeds the employer's
contribution, the employee pays out-of-pocket the difference
between the contribution and the premium for the selected plan.
Thus the employee model provides a strong incentive for
employees to select lower cost plans, while offering a wide
choice of plans. All state-based SHOPs but Massachusetts use
the employee choice model, whereas states relying on the
Federally-Facilitated Marketplace (FFM) used the employer model
in 2014.\5\ With the employer model, the employer chooses a
single plan, and all employees that opt for coverage enroll in
that plan.
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\5\ States may use different variations of the employee model--
allowing different breadths of plan options to employees, such as
requiring them to choose from plans within a metal tier or offered by a
single carrier--but most supported only limited choice for plan year
2014. These variations could be incorporated into future multivariate
analyses.
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Value-Added Features of SHOPs
If SHOPs are to succeed in enrolling significant numbers of
small employers, they must provide value-added features not
available in the current off-SHOP Marketplace. SHOPs have the
potential to do so. First, plans offered on the SHOP could have
premium expenses lower than those plans only offered off the
SHOP.\6\ Second, employers seeking tax credits must purchase
plans on the SHOP. These tax credits are linked to the size of
the firm and the percentage of the workforce who are low-income
workers. Third, SHOPs can enhance employee choice. When using
the employee choice-model, employers can make a defined
contribution, and employees can then select plans among
multiple carriers, and in some states, multiple metal tiers--
rather than having to choose one plan from one carrier. Fourth,
the employee choice model is a defined contribution model, so
employers reduce their financial risk against future increases
in premiums. Note that two of these four features require the
employee choice model.
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\6\ If an insurer offers a plan on the SHOP, it must offer the same
plan off the SHOP at an identical premium. On the other hand, insurers
can offer a plan off the SHOP only.
A survey of small employers that my colleagues and I
conducted with funding from the Commonwealth Fund and published
in Health Affairs, found may potential ``value-added'' features
are highly attractive to small employers--both firms offering
and not offering health benefits.\7\,\8\ Exhibit 2 shows that
among non-offering firms when considering whether to offer
coverage, 82 percent say it is ``very important'' that
insurance costs less than today; 73 percent indicate that it is
very important that premiums don't go up when there is a sick
employee; 61 percent say ``more plan choice'' is very
important; 64 percent indicate that tax credits are very
important and 59 percent consider the ability to send one
monthly check very important. Similarly, Exhibit 3 displays
that among small firms offering coverage that 41 percent
thought it was ``very important'' to have more plan choice; 68
percent to have the ability to compare plans; 37 percent to
have a third party to handle claims questions and another 37
percent to have a third party to answer questions.
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\7\ J. Gabel, H. Whitmore, J. Pickreign, J. Satorius, and S.
Stromberg, ``Small Employers' Survey: Premiums, SHOP Exchanges, And
Self-Insurance Are Main Concerns With The Affordable Care Act,'' Health
Affairs, Web Special, October 16, 2013 and November, 2013, 32:11, 2032-
2039.
\8\ About 45 percent of firms with fewer than 50 workers do not
offer coverage, according to the Kaiser Family Foundations/Health
Research and Educational Trust.
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Availability of SHOP Plans
As noted previously, earlier HIPCs often encountered
resistance from large plans. Aware of this history, CCIIO
required carriers with 20 percent or more market share in the
small group market to participate in the SHOP. In a study of 26
states, we found on average there were 4.3 carriers selling on
the SHOPs in the 26 states, and 56 plans in total offered per
state.\9\ In these same states there is an average of three
carriers selling to small employers off the Marketplaces only.
But carriers selling on the SHOP also sell off-the-SHOP-only
plans. In all there are about three plans sold off the SHOP
only for every plan sold on the SHOP. Moreover, in many states
only one or two carriers offer plans on the SHOP. Washington
State has but one carrier. Hawaii, Vermont, Alabama, Florida,
Kansas, Maine, and Tennessee have only two.
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\9\ J. Gabel et al., ``Is There a SHOP Risk Premium in Employee
Choice States?'' NORC at the University of Chicago, June 2014, Contract
with the Consumer Information and Insurance Oversight (CCIIO).
Tied carriers represent about 1/3 of the carriers
participating on the Marketplace. In about 2/3 of those states,
non-tied carriers offer more plans per state than tied
carriers. We conducted interviews with nine employers who
purchased coverage on the SHOP. A more common complaint was
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that there was too much choice rather than insufficient choice.
Cost of Plans on the SHOPs
One potential added value feature of SHOPs is to offer
lower premiums than in the traditional small employer market.
In the 26 states we collected data from state insurance
websites and SHOP Exchanges. We used descriptive and
multivariate analysis to compare the cost of coverage for a 40
year old non-smoker (a one employee firm) for plans sold on the
Marketplaces with plans sold only off the Marketplaces i the
same metal tier. In both descriptive and multivariate analysis
we found that premiums were lower for plans on the Marketplaces
(Exhibit 4) for the bronze, silver and gold tiers.
[GRAPHIC] [TIFF OMITTED] T9780.004
In our multivariate analysis, we found, other factors held
statistically constant, plans offered on the Marketplace on
average have seven percent lower premiums that plans sold off
the Marketplace only. Carriers not participating on the
Marketplace have premiums two percentage points higher. One
explanation for the lower premiums is that Marketplace plans
are more likely to have narrower networks and thus obtain
greater discounts from providers. Another possibility is the
transparent and competitive market structure of Marketplaces
leads to carriers offering lower premiums. A third explanation
is the actuarial values used to assign plans to metal tiers are
calculated for the essential benefit package. Non-Shop Plans
may offer more non-essential benefits.
Challenges to SHOP Success -- How Carriers View SHOPs
We conducted nine interviews with carriers--both tied and
non-tied ones.\10\ We found all carriers thought initial
enrollment would be small, and it turned out to be smaller than
they expected. The low set of expectations was largely based on
the experience in Massachusetts and Utah. Most tied carriers
would not have participated had it not been for the tying
requirement, and would have preferred to watch and wait before
entering. We interviewed one tied carrier that did not
participate in the SHOP, and this carrier indicated that it was
not planning to participate on the individual Marketplace, so
the tying penalty was not the main issue.
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\10\ J. Gabel, A. Lischko, Analysis of SHOP Participation
Requirement, NORC at the University of Chicago, Report to CCIIO for
Contract, June 2013.
Tied carriers and non-tied ones generally held divergent
views about SHOPs. Non-tied carriers saw the SHOP as a means of
entry or market share enhancement. The employee choice model
offered an opportunity to enroll employees, whereas the
tradition sale of one employer to one insurer would likely
result in the dominance of traditional carriers. We spoke to
Kaiser Plans and found that they were enthusiastic supporters
of SHOPs. They viewed SHOPs as a useful way to reorganize the
delivery of care and believed with employee choice they would
be able to offer more value than the traditional fee-for-
service insurers. We concluded that if SHOPs are to succeed, it
will be due to the competitive fringe, not the current dominant
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insurers.
Challenges to SHOP Success-The Role of Brokers
Eighty percent of small employers use brokers or agents.
Brokers often perform tasks that benefit managers do in larger
firms. For example, among small firms using brokers, 84 percent
responded that brokers select a health plan, 79 percent enroll
employees, 59 percent provide customer service such as denied
claims, and 31 percent decide employee contributions towards
premiums.\11\ Earlier HIPCs learned that broker buy-in was
necessary for HIPC enrollment. Insurers reported in our
interviews that brokers do not feel ``plugged in'' to the SHOP
Marketplace and view SHOPs as competitors. Carriers stated that
brokers believe they provide a valued service to small
employers and that their role and income will be diminished if
small employers purchase through SHOP. The dilemma for SHOPs is
they need broker co-operation, but that SHOPs aim to reduce
administrative expenses, and a major component of
administrative expenses as brokers' fees that may constitute
five percent of premiums or more.
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\11\ J. Gabel, H. Whitmore, J. Pickreign, J. Satorius, and S.
Stromberg, ``Small Employers' Survey: Premiums, SHOP Exchanges, And
Self-Insurance Are Main Concerns With The Affordable Care Act,'' Health
Affairs, Web Special, October 16, 2013 and November, 2013, 32:11, 2032-
2039.
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Challenges to SHOP Success - Self-Insurance
As unintended consequence of the ACA is it makes self-
insurance more economically attractive for small firms. Before
the passage of the ACA self-insurance already had many
regulatory advantages over full-insurance, ERISA pre-empts
self-insured plans from state premium taxes, consumer
protections, state mandated benefits, reserve requirements, and
other state regulatory requirements. If an employer with a
young and healthy workforce should self-insure, it would likely
face lower premiums than if it were part of a larger pool of
small employers as is the case with SHOPs. The foremost
countervailing force to self-insuring has been the financial
risk entailed with a catastrophic case, and the subsequent
substantial increase in the cost of stop-loss coverage that
would ensue. But the ACA eliminates medical underwriting so
small firms can move into the fully-insured market if any
insured workers or dependents were to experience catastrophic
costs. Thus, self-insurance endangers both SHOPs and the
traditional fully-insured market, and could repeat the
experience of HIPCs. When there are two systems of insurance in
the state, and one is risk-rated and the other is not, the
risk-rated system will attract the better risks, and the non-
rated system will attract the sick, and over time go into a
death cycle. Data from the 2014 KFF/HRET Employer Benefits
Survey does not show this happening yet.
Summary
If SHOPs are to succeed where HIPCs failed, they must
demonstrate added value over the traditional small employer
market. SHOPs can offer lower prices, tax credits not available
off the SHOP, wider employee choice, and a defined contribution
model that reduces the risk of future price increases. The
authors of the ACA wrote into the legislation provisions that
would address major problems of earlier HIPCs. Specifically,
they required SHOPs and the off-the-SHOP market to play by the
same underwriting rules. All plans sold on the SHOP must now be
sold off the SHOP and priced as the same product.
Administratively, CCIIO has tied large carriers to participate
in the SHOPs.
The promise of SHOPs is that they operate under ``fair''
market rules. Prices on the SHOPs are lower than off-the-SHOP
for the same metal tier. Lower prices may be attributable to
narrow networks, a competitive market structure, or fewer non-
essential benefits. But for employers seeking lower premiums,
SHOPs are the place to shop. Multiple carriers are
participating on the SHOPs in all but one state. With the
employee choice model, employees can choose from multiple
carriers and in some states multiple tiers. The defined
contribution model limits the risk of future premiums
increases. Carriers on the competitive fringe of the small
employer market as well as non-profit vertically integrated
organizations such as Kaiser Permanente see SHOPs as a way to
build their market share.
Of course, the immediate and perhaps major challenge for
SHOPs is information technology difficulties that others have
discussed. But beyond IT problems, many challenges remain if
SHOPs are to succeed where HIPCs failed. Dominant insurers have
an economic self-interest to see that SHOPs remain marginal.
Along with established brokers and agents, they have a stake in
maintaining the current delivery system where these groups have
been so successful. The broker community poses a real dilemma.
Health insurance is often too complicated and time consuming
for small employers to master so small firms turn to brokers
who are held in high regard. But SHOPs will perform many of the
functions that brokers currently do. So to achieve broker buy-
in, SHOPs may have to forfeit many potential savings.
If SHOPs and the fully-insured market are to survive, they
must stand off threats by other insurance systems such as self-
insurance. To paraphrase Lincoln, ``A house divided cannot
stand.'' Two insurance systems, one risk-rated and the other
not, will lead to one system with a disproportionate share of
bad risks, and one with favorable risks. Such a division could
lead to the demise of the non-risk rated system.
I want to close with an observation from my nearly 40 years
studying the economics of our health care system. Change does
not come instantaneously. I can recall articles I read or wrote
about HMOs, PPOs, HRAs and HSAs where it was observed, ``What's
the big deal over (fill-in the blank). They only have X percent
enrollment. Why are we giving this so much attention?'' All in
due time became prominent insurance products, but it required
many years of growth. So to paraphrase John Lennon, ``Give
SHOPs a chance.''
I would be delighted to answer your questions.
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