Small Business Insurance Exchanges
States and the federal government have created new marketplaces to help small companies buy coverage more easily and cheaply.
Policy-makers have long been concerned about small businesses’ access to affordable health insurance. The smaller the number of employees, the less likely a firm is to offer health benefits.
Premiums for small-business coverage tend to be more expensive per worker because of the higher costs of marketing and administering a health plan for a small group of people. Adverse selection can also raise costs when a disproportionate number of higher-risk people purchase coverage, potentially driving up costs, and discouraging healthier people to enroll.
Small companies often have difficulty “shopping” for health insurance because health plans can vary greatly in the benefits they cover; the cost sharing that they require; and the providers that are included in a plan’s network, if it has one. Because small companies usually lack expertise in managing health insurance benefits, they often rely on agents and brokers to help them select a plan.
To be successful, SHOP exchanges need to attract sufficient participation among small businesses to establish a broad, stable risk pool.
What’s more, small businesses must often pick only one plan for all of their workers because insurance companies typically impose rules that require a minimum number of workers to participate.
The Affordable Care Act (ACA) requires states to create health insurance exchanges, or Marketplaces, where small businesses can review, compare, and purchase health insurance, and provide their employees with more options, similar to those of larger employers.
The small-business exchanges, created under the law’s Small Business Health Options Program (SHOP), offer group health plans to small companies. The exchanges offer a variety of group health plans; provide comparative information on benefits, costs, and quality; facilitate employee enrollment in a plan of choice; and reduce administrative burdens on employers. Employers with fewer than 25 employees must purchase coverage through a SHOP if they wish to take advantage of the small-business tax credit for health insurance established in the ACA.
This health policy brief focuses on issues that states have had to confront in designing and operating SHOP exchanges, as well as challenges that these exchanges are likely to face in the future.