Makini Howell, owner of Seattle's Plum Bistro and supporter of the Affordable Care Act, started providing health insurance for most of her employees after passage of the 2010 U.S. health-reform law. While her coverage costs are significant, Howell anticipated that lower rates would bring relief in 2014, when competitive, state-based, small-business insurance exchanges, or online marketplaces, formed under the ACA are scheduled to be up and running nationwide.
That plan, however, has hit a snag for Howell and other small business owners in Washington state, which didn't attract enough interest from carriers to launch a statewide small-business health insurance marketplace in 2014. As a result, these businesses face some uncertainty and the likelihood of a one-year delay in that long-awaited premium relief.
"I don't want to drop insurance for our employees, so then that's kind of the question, what are we going to do, and it's putting an undue burden on small businesses for insurance companies to be behaving the way they are," says Howell.
In the rest of the country, however, most states are expected to have competitive small-business exchanges next year that will give employers with 50 or fewer full-time workers access to more affordable, high-quality health plans and, for some businesses, tax credits.
In fact, experts say, all but one or two of the 18 state-operated exchanges will enable small businesses to offer employees a selection of health plans in 2014 – an option long enjoyed by workers at large companies -- even though the federal government has allowed states to wait until 2015 to provide for small-business "employee choice." Federally run SHOP exchanges won't have employee choice until 2015, although businesses themselves should have multiple options.
Competitive Markets Anticipated
The ACA, known informally as Obamacare, calls for state-based, small-business exchanges -- Small Business Health Options Program, or SHOP, marketplaces -- to start enrolling participating employers on Oct. 1 for qualified coverage that starts on Jan. 1, 2014 or later; the same dates apply to similar exchanges for individuals and families, many of whom will qualify for significant tax credits and subsidies. Seventeen states and the District of Columbia will run their own exchanges, while others are letting the federal government operate theirs or are working in partnership with U.S. agencies.
Because of the income-based subsidies for individuals, and because insurers must issue coverage to anyone regardless of health status starting Jan. 1, 2014, millions of people are expected to enter the health insurance market, which may make the individual exchanges more attractive to carriers than the small-business SHOP marketplaces.
Washington state expects a competitive marketplace for individuals next year through its Washington Healthplanfinder exchange, where the approval of 41 plans from four carriers means individuals in most of the state should be able to choose from two dozen plans. However, after initial interest from carriers, only one health insurer applied to sell small-employer plans in Washington's exchange in 2014, and in only two counties, Clark and Cowlitz, where they'll operate as pilot programs.
Small businesses in most of the state, including Seattle, Tacoma and Spokane, won't have access to an exchange marketplace in 2014, although they'll continue to be able to purchase coverage through traditional routes, such as brokers. Proponents do expect Washington to have an active statewide small-business exchange in 2015.
Variations by State, Carriers Skittish
While Washington state is an outlier, development of the small-business health exchanges vary, depending on politics and existing laws and markets in each state.
A June report from the Urban Institute on small-business exchanges in six states found that five -- Maryland, Oregon, Rhode Island, Colorado and New York -- had "aggressively pursued implementation of state-based SHOP exchanges." According to the report, these states planned to move forward with employee choice despite federal guidance providing for a delay, citing benefits such as increased options and streamline administration. That said, while carrier interest in each of the six states appeared high, insurers weren't yet required to make a commitment at the time of the report.
"The overwhelming message we're hearing from the field in states where we're on the ground is excitement about what the new marketplaces will have to offer small businesses," said Joshua Welter, spokesman for the pro-reform Main Street Alliance.
Adds Kevin Lucia, a senior research fellow at Georgetown University's Center on Health Insurance Reforms, "I think generally the indications are that what we're seeing in these states is actually happening in other states," he said.
State and federal governments have tools to encourage participation in the small-business exchanges.
In states with federally facilitated SHOPs, for instance, insurers with more than a 20 percent share of the small-business market will have to participate in the SHOP if they want to offer coverage in the state's individual exchange. In Maryland, carriers with more than a $20 million share of the small-group market must participate in the state exchange.
Expectations of competitive SHOP exchanges don't mean preparations are running smoothly everywhere, or that carriers aren't skittish.
Deutsche Bank managed-care analyst Scott Fidel, in research notes this summer, reported that several major carriers have expressed caution about participating next year in exchanges, where they face new, uncertain operating environments. UnitedHealth Group Inc., one of the largest U.S. health insurers, is expected to participate in only eight of the small-group exchanges next year, he noted.
Wellmark Blue Cross and Blue Shield announced it wouldn't participate in public exchanges in Iowa and South Dakota, where the company dominates the individual and small-group markets, until the 2015 open enrollment period.
SHOP-less In Seattle
Meanwhile, in Seattle, small business owners such as Plum Bistro's Howell face a quandary. Her four-year-old business is receiving a federal tax credit this year under the ACA for offering coverage to most of her 20 employees but she still pays $4,000 a month for workers' health insurance, "which is high for a small business," she says. The restaurant pays 75 percent of employees' premiums for the coverage, which includes medical, dental and vision care.
If Plum Bistro can't join a SHOP exchange next year, it's unclear if the restaurant will be eligible for a health insurance tax credit. From 2010 to 2013, the ACA allowed tax credits of up to 35 percent of premiums paid for certain businesses with fewer than 25 full-time-equivalent workers. In 2014, the maximum credit rises to 50 percent, but businesses will have to buy coverage through the SHOP plans. A Kaiser Family Foundation profile of Washington exchanges said the carriers that initially showed interest withdrew "due to concerns about operational readiness and risk.
Stephanie Marquis, state insurance commissioner spokeswoman, says the office's understanding is that insurers "chose to spend their energy on the individual market. All of the companies had to submit completely new plans and meet new federal requirements – all in a very short timeline. It was an extremely tight timeline with federal guidance coming late in many cases."
The Main Street Alliance's Welter suggested some association health plans in Washington state, which have operated under different rules than traditional small-business plans, may be timing contract renewals to allow another year to comply with new ACA regulations, giving insurers little incentive to enter a small-business exchange.
"This dynamic that we are seeing in a handful of states like Washington, where the insurance industry is slow-walking to a reformed marketplace, is one of the reasons why our organization so strongly advocated for small businesses to have the choice of a public health insurance option during the debate about the Affordable Care Act," Welter says. "A public option in an exchange would have been the very driver of competition among private health plans."