On May 15, 2017, the Centers for Medicare and Medicaid Services announced that it was planning to essentially end the Federally Facilitated SHOP exchange, which covers 33 states, as of the end of 2017. Under rules that CMS proposed to take effect as of January 1, 2018, HealthCare.gov would continue to make eligibility decisions for FF-SHOP participation for small employers—essentially determining eligibility for the small employer tax credit–but would no longer handle enrollment for employers or employees, process premium payments, or handle other SHOP functions.
Instead, employers would enroll directly with insurers offering SHOP plans or though agents and brokers registered with the FF-SHOP. State-based SHOP marketplaces could continue to provide online enrollment or could alternatively take the federal approach and direct small employers to insurance companies or to SHOP registered agents and brokers to enroll.
The CMS press release quotes CMS Administrator Seema Verma as stating that the change is intended to reduce ACA burdens on small businesses and to make it easier for them to purchase coverage. The change, CMS states, will “help employers find affordable healthcare coverage for their employees and make their SHOP exchanges function more effectively.”
It is far from obvious, however, why this should be the case. Small employers have always had the option of enrolling directly with insurers or through agents or brokers, and removing enrollment through the FF-SHOP as an additional option does not does not expand their choices. Moreover, ending the FF-SHOP as an enrollment option is very likely to diminish the choices available to employees of small employers. A primary purpose—if not the primary purpose—of the SHOP exchange was to allow employees of small businesses to choose among a broad range of health plan options. With the end of the FF-SHOP, it is more likely that the choices available to employees of small group will be limited to a single plan or to a few plans offered by a single insurer.
The Troubled History Of The SHOP Exchange
The announcement is better understood as an admission that the SHOP exchange has not developed as it was envisioned. As of January 2017, 7,554 employers had active SHOP coverage through the FF-SHOP covering nearly 38,749 employees. State-based SHOPs have been somewhat more successful—as of January 2017, 19,651 employers had active coverage through state-based SHOP exchanges covering 193,949 individuals. But SHOP coverage only extended to a tiny fraction of the 30 million small businesses in the country and the 4.6 million employees that the Congressional Budget Office initially estimated would be covered through the SHOP program. And almost half of SHOP enrollments are in Vermont and the District of Columbia, where small employers must purchase coverage through the SHOP. (Also, the D.C. SHOP covers members of Congress and their personal staff). Vermont already handles enrollment and billing directly through its two small group insurers rather than through a state shop exchange.
The SHOP exchange grew out of federal bipartisan small group insurance reform legislation that antedated the ACA. The idea was that a marketplace would be created in which insurers would compete with each other for small group business, employers and employees could choose among a number of plans and insurers, premiums would be aggregated for employees into a single bill, and tax credits would be offered to encourage small employers to cover their employees.
The SHOP exchange vision never worked out as planned. The Obama administration announced in the fall of 2013 that small group plans in existence as of October 2013 that met certain requirements would be allowed to continue as transitional plans without meeting ACA requirements that were to take effect on January 1, 2014. The transitional plan exception, which has since been extended through 2018, allowed many small groups to opt out of many ACA’s requirements and significantly diminished the market for SHOP coverage. Moreover, CMS did not implement online enrollment in the FF-SHOP or employee choice for 2014, and allowed states to opt out of employee choice for 2015.
The small employer tax credit was targeted at very small employers with low-wage employees and the application process quite burdensome. It never reached more than a small fraction of small employers. Moreover, an employer could only claim the tax credit for two years after 2013. Presumably most employers who found it attractive initially have now exhausted their eligibility.
Legislative developments also undermined the SHOP exchanges. The PACE Act which kept the definition of small employer at 50 employees rather than expanding it to 100 employees in 2016 again diminished the small group market. A 2017 amendment that allowed small employers to offer tax-subsidized HRAs to their employees to purchase coverage in the individual market further reduced the need for a SHOP exchange.
In its 2018 payment rule, CMS eliminated a requirement that it had initially imposed requiring all insurers that had more than a 20 percent market share in the small group market to offer SHOP coverage as a condition of offering coverage in the individual exchange. HHS recognized in the proposed payment rule that the elimination of this requirement would likely further diminish insurer participation in the SHOP exchange. HHS stated in the preamble to the proposed rule that it was considering ending enrollment through the FF-SHOP as the FF-SHOP became ever less viable. In the final 2018 payment rule, HHS stated that it had decided not to pursue this option.
HHS under a new administration has now changed its mind.
An Interesting, But Likely Merely Theoretical, Statutory Question
The ACA requires the establishment by a state or by the federal government of:
a Small Business Health Options Program (in this title referred to as a ‘‘SHOP Exchange’’) that is designed to assist qualified employers in the State who are small employers in facilitating the enrollment of their employees in qualified health plans offered in the small group market in the State.
Whether a SHOP exchange that only makes eligibility decisions and does not provide for enrollment meets this requirement is an interesting question, but probably one that will remain theoretical. The SHOP exchange has suffered many wounds, and this one is likely to prove fatal.