On November 27, 2013, just as the nation headed out for the holiday, the Department of Health and Human Services announced that online enrollment in the federal SHOP exchange for small businesses would not be available until the 2015 open enrollment period in November of 2014. It also released a set of questions and answers as to how the federal SHOP would function in the interim. It is important to understand that this is not a delay of the federal SHOP exchange itself, but rather of one SHOP exchange functionality, albeit an important one.
States that operate their own exchanges (including Utah which only operates a SHOP exchange) will be able to offer online enrollment, but in some of them the SHOP exchange is not yet functional or does not offer coverage through the entire state.
The idea of the SHOP exchange actually predates the ACA, originating in bipartisan legislation proposed by moderate Republicans and Democrats at least as early as 2008. As the idea was finalized in the Affordable Care Act, the SHOP exchange was intended to allow “qualified employers,” that is small employers with between 1 and 100 employees (or, at a state’s option, 1 to 50 employees), to purchase qualified health plans for their employees.
One of the goals of the SHOP provisions was to allow employee choice — that is, to allow an employer to pick a tier of coverage (bronze, silver, gold, or platinum) for which the employer would contribute, but permitting the employee to pick a particular plan within that tier. The SHOP would also aggregate bills presented by the insurers whose plans were chosen by employees, providing employers with a single bill. Although employee choice is an important exchange feature, the ACA also suggests that a SHOP exchange could permit an employer to pick a single plan in which its employees could enroll.
Another function of the exchange was to offer access to the small employer tax credit, which after January 1, 2014 is only available to employers whose employees enroll in a qualified health plan offered by the employer “through an exchange.”
Previous delays in SHOP exchange features. In March, HHS announced that the federal SHOP would not be offering employees a choice of plans or offering employers premium aggregation during 2014. Employers would only be able to offer their employees a single plan through the SHOP for the first year. All of the states that are operating their own exchanges do still offer some level of employee choice, but the federal exchange does not. Once the federal exchange decided to delay this function, the advantages offered by the exchange over the outside market were considerably diminished.
The attractiveness of the federal exchange was further reduced when HHS, also in March 2013, reversed its earlier decision that all health plans that participated in the individual exchange would have to participate in the SHOP exchange, only imposing the requirement on participating insurers with at least 20 percent small-group market share. The primary remaining advantages of the SHOP in the wake of these decisions were the ability of the small employer to have a convenient location to shop comparatively for health plans and to access the small employer tax credit — which in fact is primarily an advantage for very small employers with predominantly low-wage employees.
It was clear from the launch of the federal exchange on October 1, 2013, that the federal SHOP exchange was struggling. Online enrollment was not initially available. Instead, employers were encouraged to submit paper applications, with the promise that online enrollment would be available later in the fall. It was obvious, however, that HHS was prioritizing the individual exchange, and properly so. Small-group coverage is readily available through agents, brokers, and insurers outside the exchange. Many individuals who will apply through the exchange would have a harder time finding and affording coverage in the outside market.
Premium tax credits and cost-sharing reduction payments for individuals are only available through the exchange and are paid directly to insurers on a monthly basis to ensure coverage. Small group tax credits are available much later, at tax filing in the year following the benefit year, and are thus a less urgent priority. Finally, individuals must enroll during the open enrollment period, which only lasts through March 31, 2015, but enrollment in the SHOP is continuously available on a rolling basis.
What happens now? The HHS announcement delays online federal SHOP enrollment. Instead of enrolling online, small employers will enroll in qualified health plan coverage through an agent or broker, or directly with an insurer. The agent or broker will also help the employer fill out a paper application for SHOP coverage which will be sent to the federal exchange. Alternatively, employers may fill out the application form themselves or call a special SHOP exchange call center. The federal SHOP will provide an eligibility notification within 3 to 5 days of receiving the application by phone or email, or by mail if requested. Employers who have applied already should receive a notification in December.
Employers do not have to wait for an eligibility notification to enroll in coverage, however, which can happen immediately. If an employer is determined ineligible (which will rarely happen since the only eligibility criteria is number of employees), the employer will not lose coverage; only eligibility for the tax credit. Indeed the primary remaining purpose of the eligibility process is to establish eligibility for the small employer tax credit program. This tax credit covers up to 50 percent of an employer’s premium contributions as of 2014 (35 percent for nonprofits). But an employer cannot receive this tax credit for 2014 and later years unless the employer receives a SHOP exchange eligibility determination. An employer does not need to apply for an eligibility determination immediately upon enrolling in coverage as long as the determination is made before tax filing time.
The SHOP exchange will also offer another important feature. Although employers cannot purchase coverage online, they can go online to compare available qualified health plans. As of December, employers will be able to enter the ages of their employees and get “more precise” premium information, as well as compare plan features. Thus an employer can effectively shop for coverage even before contacting an agent or broker.
The delay of full federal exchange functionality is another disappointment. In reality, however, the most important delays took place in March when employee choice and premium aggregation were put off. Employers should not experience any real adverse effects from this additional delay, since they can still obtain small employer tax credits and compare plans online. The only real change is the inconvenience of finding an insurance agent, which should rarely be a problem. Moreover, the federal government will have time to learn from state experience with employee choice and aggregation as it builds these functions for 2015.
Finally, I do not see that this delay raises legal issues, as the ACA does not require the exchanges to enroll employers online.