SHOP: Can it Boost Health Coverage for Small Business Employees?

Dec 14, 2015, 6:04 PM, Posted by Katherine Hempstead

A new report shows that small business owners care about the health insurance coverage they offer their employees, yet the Small Business Health Option Program (SHOP) remains an untapped resource with the potential to help employers find affordable plans.

In 1942, Ken Wilson’s grandfather started Bonnie Brae Conoco, a full-service gas station and neighborhood garage in Denver. Today, Ken is the third generation to manage the business. They’ve offered their employees health insurance since 1970, paying 100 percent of the costs for those who work full-time. Although it’s their largest expense, the Wilsons believe offering coverage is essential. They want to take care of their employees and attract and retain the best people.  

Small businesses, like all businesses, have struggled to keep up with the rising cost of health insurance. But unlike larger companies that can leverage their purchasing power to negotiate lower premiums and more comprehensive benefits, small businesses often have a choice of costlier plans with skimpier benefits. A recent study found small firms are far less likely than larger firms to offer health coverage. In 2012 and 2013, the percentage of small employers offering health insurance was 35 percent, while the percentage of large employers offering insurance was 95.8 percent.  

The Affordable Care Act (ACA) has several implications for small businesses. Under the ACA, small business health plans are subject to the marketplace regulations similar to those in the individual market. Depending on the state in which the business is located and the characteristics of the work force, these changes could make premiums change a lot or a little. Many small businesses are still offering pre-ACA plans, and many of them will need to transition to ACA-compliant coverage in 2017.

One new opportunity is the Small Business Health Options Program or SHOP, which is an online marketplace where small business owners with 50 or fewer full-time employees can purchase health insurance for their workers. Features of SHOP attempt to provide flexibility for both employers and employees. Business owners can set their contribution and their employees can choose the plan and benefits they want. Small business owners with 25 or fewer full-time employees can also qualify for a tax credit to put toward the cost of coverage.

SHOP isn’t actually a new idea. Before the ACA, states like Utah had created a way for small business owners to control health insurance costs while giving their employees a choice in plans. Models like Utah’s Avenue H informed the creation of SHOP and today 17 states and the District of Columbia have developed a SHOP marketplace, while HealthCare.gov operates SHOP in the other 33 states.

Despite broad participation, enrollment in SHOP has been slow. As of May 2015, only about 10,500 small businesses participated in SHOP, providing coverage to about 85,000 individuals.

Some have argued that delayed implementation and limited promotion explain much of SHOP’s slow start. But other questions remain: Does the tax credit sufficiently incentivize small businesses to provide
coverage? Is there enough competition among plans to keep costs affordable? Is there demand among employees for employers to take action? RWJF recently completed a study with small business owners to better understand their views about health insurance in general and SHOP in particular.

There were some important findings:  

  1. Employers value coverage for themselves and their workers. Our study also showed that 8 in 10 employers were willing to help their uninsured employees find coverage, and of this group, 96 percent would encourage uninsured employees to go to HealthCare.gov or their state marketplace to find coverage.
  2. When employers learned more about SHOP, their reaction was favorable. Many employers were not very aware of SHOP, but after learning more, 82 percent said they would look into the marketplace for insurance.

This study tells us there is a clear appetite to learn more about SHOP and to connect employees with coverage. Small business owners care about coverage, and the more they learn about SHOP’s features, the more they seem to like it. Next year will be a critical one for the small group market, as many small businesses will transition out of pre-ACA health insurance plans. Many of these employers could potentially benefit from SHOP, but there are competing non-ACA compliant opportunities such as self-insurance or group plans through employer associations. Time will tell whether SHOP will become a sustainable model for providing affordable coverage options to small employers and their employees.

Staff portrait of Kathy Hempstead

Katherine Hempstead, PhD, is a Director at the Robert Wood Johnson Foundation with a focus on expanding health insurance coverage and price transparency. Read her full bio.