Small Business Health Insurance Coverage Under the ACA
Small business owners have long struggled to provide health insurance to their workers, facing high and often volatile premiums relative to large businesses, a lack of market power for negotiating premiums, and high administrative costs associated with covering a small number of workers. In addition, minimum participation requirements used to safeguard against adverse selection mean that small employers often can offer only one plan and must cover a hefty portion of employees’ premiums in order to get enough employees to enroll. These pressures have contributed to a steady decline in the number of small businesses offering coverage and left their employees more likely to be uninsured. Furthermore, even small business workers who received insurance have historically had less generous coverage, with much higher deductibles and lower employer contributions for dependent coverage.1
The ACA and the Small Group Market
While much of the focus of the Patient Protection and Affordable Care Act (ACA) was on addressing a dysfunctional health insurance market for individuals, policymakers also wanted to help more small businesses offer adequate and affordable coverage. Key pillars included revised insurance rules and new marketplaces to facilitate shopping.
The ACA established a set of national minimum standards that took aim at the most glaring problems in the small group market. Consistent with the changes effected for the individual market, the small group reforms prohibited health underwriting, required minimum essential health benefits and first-dollar coverage of approved preventive services, ended benefit limits and exclusions based on pre-existing conditions, and capped enrollees’ annual out-of-pocket liability. In addition, insurers offering products in the small group market are now required to set rates using a single risk pool that includes all enrollees across their small group plans in the state. Finally, small employers can avoid having to meet minimum participation thresholds if they obtain coverage during a November-to-December open enrollment period.
To date, only firms with 50 or fewer workers have been affected by these provisions. Although the ACA allowed states to expand the small group market to include firms with 51 to 100 workers for 2014 and 2015, no state elected to do so. This expansion is set to be enacted nationwide in 2016, however, newly subjecting these mid-size firms to the ACA’s rating and benefit reforms at the same time they must also begin complying with the ACA’s employer mandate. Concerns about the potential for premium increases, adverse selection and market destabilization resulting from this expansion have prompted a rare bipartisan effort in Congress to repeal this provision of the ACA and leave the market definition decision to the states.
SHOP Exchanges and Tax Credits
The ACA also created the Small Business Health Options Program (SHOP) exchanges, or marketplaces, where small businesses can shop for health insurance. Responding to small business owners’ concerns about their inability to give employees a choice of plans, SHOPs are designed to provide an “employee choice” option whereby employers can set a contribution level and let each employee select his or her preferred option from a range of plans.
Each state has a SHOP, some run by the state but the majority operated by the federal government. With few exceptions, the SHOPs were slow to get off the ground and enrollment has been low so far. In 2014, only a minority of states offered online enrollment and fewer still prioritized the SHOP in their marketing and outreach campaigns.2 In addition, mandatory nationwide implementation of employee choice was delayed until 2016, resulting in uneven rollout of this option across states. As of 2015, 31 states are providing some form of employee choice (Figure 1).
The ACA also provides premium tax credits to help make insurance more affordable for very small employers with moderate-income workers. The credits are available only to businesses enrolling through the SHOP, and then only for two years. Few small businesses have made use of these credits, likely due to narrow and complex eligibility requirements and relatively low credit amounts.3,4