SHOP flop: Obamacare for small businesses

By: Brett Norman

June 10, 2014 11:26 AM EDT - POLITICO

The piece of Obamacare meant to help small businesses provide better health insurance options for their workers failed to launch in Year One, and the Obama administration on Tuesday gave the go ahead for 18 states to put part of it on hold once again.

The Small Business Health Options Program is Obamacare’s neglected stepchild. As one of two new marketplaces set up by the health care law, SHOP was meant to encourage companies with up to 100 employees to cover their workers and give them a menu of insurance options. The delay leaves the exchange for small employers hobbled in large parts of the country until at least 2016 and creates another element of the law that’s inconsistent from state to state.

SHOP has always been in the shadow of the individual exchanges, but unlike HealthCare.gov, which recovered from its fiasco start and signed up 8 million people, the federal SHOP is still nearly moribund. Its website has yet to get off the ground. Without online enrollment — which the Obama administration maintains should be available this fall — the only sign-ups have come through via pen and paper.

The result: The exchange has enrolled next to nobody. The administration hasn’t released national numbers, but state snapshots show enrollment was minimal. California, for example, signed up 1.4 million people for individual coverage, more than any other state by far. But through the end of March, just 1,150 small businesses had bought coverage through its SHOP, covering 4,900 employees and their dependents.

SHOP advocates were dismayed by the second delay of “employee choice,” which allows businesses to offer a variety of health plans to their workers instead of choosing one for them. Beyond giving workers more options, it stokes competition among insurers, which is supposed to restrain prices.

“We’re extremely disappointed,” said John Arensmeyer, CEO of the Small Business Majority, which backs the Affordable Care Act. “Choice is the single biggest competitive advantage for SHOP. It’s the feature of the exchange that’s most likely to draw in new businesses, and now 18 states won’t have it.”

The choice feature was already delayed this year for most of the 32 states that relied on the federal exchange for small businesses, although 17 states and the District of Columbia are operating their own SHOPs, many of which do offer the choice option and online enrollment. Supporters say this new delay of choice in the 18 states could gravely damage the small business exchange’s growth.

Once HHS offered states the opportunity to take a pass on the choice option last month, states petitioned to do so. From the Carolinas and Alabama, to Maine and Alaska, states cited concerns that the feature could drive up premiums among insurers nervous over whether the sign-up technology will work. HHS had until Tuesday to decide whether to approve the requests, and granted every one, Arensmeyer said.

It’s yet another piece of the law, like the Medicaid expansion made optional by the Supreme Court, with uneven implementation throughout the country.

“It’s basically the red states that are not going to have employee choice, and it’s just one more way in which we are kind of diverging into two paths,” said Tim Jost, a law professor at Washington and Lee University and an expert on the health law.

But it’s far from clear that SHOP can gain traction even with employee choice. Even those states that built their own with all the bells and whistles have seen scant interest so far. That’s partly because many small businesses kept their old health plans, even if they didn’t comply with Obamacare standards, once the administration said they didn’t have to be canceled after all.

And insurers were already competing fiercely in the small-business market, estimated at 15 million people in 2013. There wasn’t a big vacuum for SHOP to fill.

“Small businesses weren’t screaming for this,” said Gary Claxton with the Kaiser Family Foundation. “I don’t think the demand was there.”

Yet in the debate over the health care law, Sen. Dick Durbin (D-Ill.) popularized the SHOP concept and used it to persuade moderate Democrats to endorse the bill, recalled John McDonough, then a health adviser to Sen. Ted Kennedy. The idea just never drew particularly strong support in Congress or from the policy community. It was funded with a tiny fraction of the resources dedicated to helping people buy insurance in the individual exchange.

“[T]he small business piece was always more hat than cow — politically attractive and convenient, and not really cognizant of the realities of health insurance markets,” McDonough said.