Small Business Health Options Program

April 10, 2013

pic-healthThe Department of Health and Human Services (HHS) has released a proposed rule that would implement the Small Business Health Options Program (SHOP).  SHOPs are a key component of the health insurance exchanges that are supposed to be up and running starting on Oct. 1 of this year as a central part of the Patient Protection and Affordable Care Act (PPACA).

The PPACA requires that each state exchange operate a SHOP. The SHOP is designed to assist small employers in providing health insurance to their employees. Federal exchanges will have FF-SHOPs (federally facilitated SHOPs).

Starting in 2014, to receive the temporary (two year) small employer tax credit, an employer must purchase its health insurance through the SHOP.  This credit is unavailable to employers with more than 25 employees and is fully available only to employers with 10 or fewer employees.  In addition, employers must pay wages less than an average of $50,000 per employee and pay at least half of their employee’s health insurance costs to receive the credit.

Generally, in a SHOP the employer designates a “metal level” that employees can purchase and the employees may choose any policy available on the SHOP.  The metal levels generally correspond to what percentage of the actuarial value of a designated benchmark plan is covered by the offered plan.  The SHOP serves as an aggregator so the employer must make only one monthly payment to the SHOP.  The SHOP must require insurance companies to make any change to rates at a uniform time that is either quarterly, monthly, or annually and prohibit them from varying rates for a qualified employer during the employer’s plan year.  Participation in SHOPs is limited to small employers, which is defined as a firm with 100 or fewer employees.  For 2014 and 2015, states may elect to limit SHOP participation to firms with 50 or fewer employees.

The new HHS rules propose a transition policy for SHOPS. For 2014, a SHOP will not be required to permit qualified employers to offer their qualified employees a choice of health plans at a single level of coverage but would have the option of doing so. Federally-facilitated SHOPs (FF–SHOPs) will not exercise this option, but will instead assist employers in choosing a single QHP to offer their employees.  In other words, SHOPs will be allowed to continue the current practice of employers buying one plan for employees during 2014.  This transitional policy is, according to HHS, “intended to provide additional time to prepare for an employee choice model and to increase the stability of the small group market while providing small groups with the benefits of SHOP in 2014 (such as a choice among competing QHPs and access for qualifying small employers to the small business health insurance tax credit).”

To read the proposed rule, click here.