Insurance premiums for health plans purchased via the Small Business Health Options Program are generally cheaper than for the same plans purchased outside the SHOP exchanges. But simply because the premiums are lower is no guarantee the SHOP marketplace will succeed, researchers say.
These observations were made by researcher Jon Gabel, senior fellow, NORC at the University of Chicago, before the U.S. House Committee on Small Business on Sept. 18.
Gabel led a study of SHOP insurance plans in 26 states, comparing insurance premiums on and off market for the same fictitious small company. For carriers who offered insurance on and off the SHOPs, rates for the bronze-, silver- and gold-tiered plans were compared. The study also looked at premiums for plans offered by carriers who didn't participate in a SHOP.
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What he found specifically: Plans on the marketplace offered premiums that were 7 percent lower than those sold off the marketplace. Further, the study revealed that carriers who weren't participating in the SHOP in their states charged on average 2 percent more for premiums than comparable SHOP coverage.
In his testimony, Gabel offered several possible explanations for the price differences:
- Marketplace plans "are more likely to have narrower networks and thus obtain greater discounts from providers;"
- "The transparent and competitive market structure of Marketplaces leads to carriers offering lower premiums;" and
- The value of SHOP plans is based upon the "essential benefit package" required by the Patient Protection and Affordable Care Act. Off-market plans may tend to offer a larger array of benefits.
Despite the cost advantage, Gabel was less than sanguine about SHOP's future.
"If SHOPs are to succeed …, they must demonstrate added value over the traditional small employer market. SHOPs can offer lower prices, tax credits not available off the SHOP, wider employee choice, and a defined contribution model that reduces the risk of future price increases," he testified.
But against these advantages, SHOPs have substantial hurdles to overcome, he said.
He noted that SHOPs haven't attracted much business yet, adding: "We found all carriers thought initial enrollment would be small, and it turned out to be smaller than they expected. The low set of expectations was largely based on the experience in Massachusetts and Utah. Most tied carriers would not have participated had it not been for the tying requirement, and would have preferred to watch and wait before entering."
Whether they will gain momentum going forward will depend upon SHOP's ability to win over insurance brokers who make many of the insurance purchasing decisions for small business. So far, he said, "brokers do not feel 'plugged in' to the SHOP Marketplace and view SHOPs as competitors." That will need to change for SHOPs to succeed, he opined.
Additionally, health care reform unintentionally created a new competitor to SHOP, he told the committee.
"The ACA eliminates medical underwriting so small firms can move into the fully-insured market if any insured workers or dependents were to experience catastrophic costs. Thus, self-insurance endangers both SHOPs and the traditional fully-insured market," he said. "Two insurance systems, one risk-rated and the other not, will lead to one system with a disproportionate share of bad risks, and one with favorable risks. Such a division could lead to the demise of the non-risk rated system," i.e., the SHOPs.
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Dan Cook
Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.
