The Commonwealth Fund, among the first private foundations started by a woman philanthropist—Anna M. Harkness—was established in 1918 with the broad charge to enhance the common good. The mission of The Commonwealth Fund is to promote a high performing health care system that achieves better access, improved quality, and greater efficiency, particularly for society’s most vulnerable, including low-income people, the uninsured, minority Americans, young children, and elderly adults. The Fund carries out this mandate by supporting independent research on health care issues and making grants to improve health care practice and policy. An international program in health policy is designed to stimulate innovative policies and practices in the United States and other industrialized countries. The COMMONWEALTH FUND Lessons from the Small Business Health Options Program: The SHOP Experience in California and Colorado Leif Wellington Haase, David Chase, and Tim Gaudette AUGUST 2015 ABSTRACT The Small Business Health Options Program (SHOP) got off to a slow start, with lower-than-expected enrollment and a public perception problem. This report examines California and Colorado’s small-business marketplaces, which opened on schedule in October 2013. For business owners, employee choice was the most important reason cited for consider- ing SHOP, with ease of administration a distant second. Several owners see SHOP as a viable alternative to the private exchanges now taking root among large and midsize employers. Interviews also revealed that business owners consider insurance brokers to be an important source of enrollment assistance. Those in the insurance and policy communities per- ceived small-business owners to be poorly informed about available tax credits; business owners disagreed, saying the credits were simply not key to their decision to elect SHOP. Potential growth areas for SHOP include developing alternative benefit designs, contracting with Medicaid plans, and offering ancillary products, such as wellness programs. Support for this research was provided by The Commonwealth Fund. The views presented here are those of the authors and not necessarily those of The Commonwealth Fund or its directors, officers, or staff. To learn more about new publications when they become available, visit the Fund’s website and register to receive email alerts. Commonwealth Fund pub. 1833. CONTENTS About the Authors 6 Executive Summary 7 Background 9 Health Care Reform and the SHOP Marketplace in California and Colorado 10 How Brokers and Agents Have Responded 12 SHOP’s Value Proposition 13 Looking Toward the Future 15 Notes 16 ABOUT THE AUTHORS Leif Wellington Haase is president of LWH Consulting and a leading author and researcher on the U.S. health system, focusing on health care reform, insurance coverage, and health care costs. His publications include A New Deal for Health: How to Cover Everyone and Get Medical Costs Under Control, National Health Insurance: Lessons from Abroad, and Lessons from California’s Health Reform Efforts for the National Debate. He has served as executive director for the California Task Force on Affordable Care and was director of the New America Foundation’s California Program, which sponsored research on issues of critical importance to California, including health care, education, energy, and tax and budget policy. Before joining New America, Haase served as senior program officer at The Century Foundation, leading its health policy program. He holds degrees from Yale University and Princeton University. David Chase is health care policy director and California director for the Small Business Majority, a national small-business advocacy organization focused on solving the biggest problems facing small businesses today. In these roles, he presents the small-business perspective on health care and other policy issues to elected officials and the media. Chase currently serves on Covered California’s Small Business Health Options Program Advisory Group and is a member of the Insure the Uninsured Project leadership council. Previously, he served in the office of California Governor Arnold Schwarzenegger, where he was part of the team responsible for building the coalition behind the governor’s 2007 bipartisan health care reform proposal. Tim Gaudette directs Small Business Majority’s outreach and development efforts in Colorado, Nevada, and other western states. He works to build and maintain relationships with small-business owners, organizations, and foundations. Before joining Small Business Majority, Gaudette worked at a small firm in Denver, and his background includes significant finance and investment-related work in the regulatory, research, and sales areas in Denver, Washington, D.C., and Baltimore. He also served as chairman and board member for the all-volunteer board of the Denver Gay and Lesbian Chamber of Commerce. Gaudette is a member of the Denver Metro Chamber of Commerce Foundation’s Leadership Denver Class of 2009. He has degrees from the College of William and Mary and the University of Exeter. Editorial support was provided by Deborah Lorber and Chris Hollander. 6 Lessons from SHOP in California and Colorado that customers will use the SHOP websites to bypass EXECUTIVE SUMMARY their services, or that business will be driven through counselors and navigators. Despite these misgivings, The Small Business Health Options Program (SHOP) however, brokers have signed up in droves to become was established by the Affordable Care Act to pro- certified to sell through the individual and SHOP vide small firms in each state with greater access to a exchanges. range of affordable health plans through new insurance Colorado paid more attention to the broker dis- exchanges, or marketplaces, and tax credits. The pro- tribution channel from the start, setting up a call center gram is designed to allow businesses to pool their buy- with lines dedicated specifically to brokers. California ing power and shed burdensome administrative tasks, chose instead to publicize the possibility that businesses while enabling owners and workers alike to easily com- could self-enroll in SHOP and, at least at the outset, pare coverage options. The program, however, got off kept brokers and agents at arm’s length. In California to a slow start, and it has been plagued by lower-than- and Colorado, agents are now prominently featured expected enrollment and a public perception problem. as trusted sources both on the SHOP websites and in Based on findings from interviews and surveys statewide radio and television advertisements. with business owners, policymakers, and other industry For business owners, employee choice was by insiders, this report takes a close look at California and far the most important reason for electing SHOP or Colorado’s SHOP exchanges, which both opened on considering doing so. Ease of administration was a dis- schedule in October 2013. tant second. Several owners interviewed saw SHOP as a viable alternative to the private exchanges that are now Key Findings taking root among large and midsize employers. In both states, the SHOP exchange took a back seat According to those in the insurer and policy to the individual insurance marketplace in terms of communities, small-business owners were not well staff time and resources. Colorado devoted more time informed about available tax credits, although our sur- and money than California did to outreach activities, veys of owners show nearly all were aware of the credits. both through its SHOP website and through com- Nevertheless, most business owners reported the tax munity meetings, and for the most part its website for credits were not key to their decision to elect SHOP. enrolling small groups functioned adequately from Our research indicates that a future growth area day one. California’s SHOP portal, on the other hand, for SHOP may be experimentation with alternative proved difficult to use and, in February 2014, was shut benefit designs and the inclusion of ancillary products down after numerous agents and businesses com- with coverage. For instance, wellness programs and plained they were unable to complete their applica- explicit human-resources assistance could conceivably tions. Responsibility for the SHOP enrollment process be bundled with SHOP plans. In addition, SHOP in California was ultimately turned over to a third- could provide greater value for lower-income workers party administrator that was already handling sales by contracting with Medicaid health plans, which oth- operations. erwise are not available in the commercial market. Virtually everyone we interviewed agreed In the end, most insurers and agents are willing that SHOP’s operational problems must be addressed to take a wait-and-see approach toward SHOP’s poten- to make the enrollment process more comparable to tial. Carriers, meanwhile, appear to be in it for the long that for purchasing health plans outside the SHOP haul: most of the same insurers renewed for the second exchange. For their part, brokers and agents are wary year in both California and Colorado. www.commonwealthfund.org7 These decisions depressed enrollment and LESSONS FROM THE contributed to the public perception that SHOP was SMALL BUSINESS HEALTH on life support. Both the trade and popular press ran OPTIONS PROGRAM: stories with headlines such as “SHOP Flop” and “Are THE SHOP EXPERIENCE IN Obamacare’s SHOP Exchanges Doomed?”3 One senior CALIFORNIA AND COLORADO staff member with Colorado’s marketplace, Connect for Health Colorado, remarked that “negative national sto- ries set the context for the exchange rollout and espe- BACKGROUND cially for SHOP.” The Small Business Health Options Program (SHOP) While falling far short of the initially optimistic got off to a slow and problem-filled start. SHOP mar- projections for enrollment, the SHOP marketplaces in ketplaces, which every state was required to establish California and Colorado have enrolled thousands of under the Affordable Care Act (ACA), promised a small businesses and workers.4 As of February 2015, wider choice of health insurance plans for employees SHOP in California had 2,311 participating businesses than offered in existing small-group markets, as well and 15,671 employees enrolled. In Colorado, 1,860 as fewer administrative hassles and more competitive employees from 220 small firms signed up by March premiums. But even before the rocky launch of the 2014; by October 2014, 2,521 employees were enrolled. HealthCare.gov website, several decisions took the In this report, we examine these two states to wind out of SHOP’s sails. In summer 2013, the Obama gain an early view of the implementation of the SHOP administration announced that small businesses could program. We interviewed more than 50 SHOP small- keep their non-ACA-compliant plans for an additional business owners, insurance executives, insurance brokers, year. In spring 2014, the administration offered states consumer advocates, and policymakers and surveyed the option to continue this transitional policy through dozens of business owners in both states. October 2016. Most health insurance brokers urged firms to WHY SHOP IS PART OF THE AFFORDABLE CARE ACT take early renewal—that is, they encouraged them to renew coverage on existing terms before the typical Small businesses are less likely to offer health care coverage than larger firms. Those that do offer cover- 12-month expiration period—to avoid ACA-related age typically do not offer a choice of plans, nor do changes, like modified community rating, which denies they typically offer the same kind of benefits as do insurers the ability to use health status to set premiums, larger employers. Before the passage of the Affordable Care Act, owners of small businesses had compara- and new standardized health plan benefits. Industry tively low rates of offering insurance coverage and, sources suggest that some 70 percent to 80 percent consequently, their employees had higher rates of be- of small businesses retained these so-called “grand- ing uninsured. Ninety-seven percent of all large com- panies with over 100 employees in the U.S. offered mothered” plans. As a result, most small employers in health insurance benefits to employees in 2011, while a majority of states will not be purchasing plans that just 57 percent of small businesses with 50 or fewer meet ACA standards until 2017. In California and workers did the same.5 In 2012, just over 20 percent of firms with fewer than 50 employees offered two Colorado—the two states that are the focus of this or more health insurance plans, compared with more report—this will happen in late 2015.1 than two-thirds of companies with 50 or more em- To the sharp disappointment of SHOP’s ployees.6 Proponents of SHOP believed that these mar- proponents, the administration also suspended the ketplaces would widen access to a range of affordable employee-choice feature of SHOP, which would have plans, allow small businesses to pool their buying allowed workers to choose among multiple insurers and power, and let owners and workers easily compare op- tions and shed burdensome administrative tasks—fea- insurance policies.2 It allowed 18 states to suspend this tures they believe are widely lacking in many existing requirement again for the 2014–15 plan year. small-group insurance markets. www.commonwealthfund.org9 HEALTH CARE REFORM AND THE relaxed.8 Six insurers participated in the California SHOP MARKETPLACE IN CALIFORNIA SHOP marketplace, compared with 11 on the indi- AND COLORADO vidual exchange. Six insurers participated in Colorado, Prior to the passage of the Affordable Care Act, compared with 10 in the individual market.9 California and Colorado had embarked on comprehen- sive health care reform efforts; both were among the Limited Outreach earliest state adopters of federal health care reform.7 Even for the strongest backers of small-business mar- Each state set up SHOP-specific advisory boards that ketplaces, it was clear that the daunting task of estab- met several times a year and made recommendations to lishing an individual marketplace would make launch- the marketplace staff and trustees. After years of formal ing SHOP a secondary priority.10 Most respondents planning and informal dialogue among exchange and in both states told us this decision regarding priority- agency staff and insurers, hospitals, and business groups, setting was made for understandable though regrettable California and Colorado’s small-business exchanges operational and political reasons. both opened on schedule in October 2013. As the November 2014 individual marketplace Despite showing interest in SHOP, most small deadline neared, there was diminished staff time and businesses in California and Colorado stayed on the resources available for SHOP. It was hard for exchange sidelines. Employers were affected by the negative and state agency staff in either state to focus on the media stories about the ACA and were unsure SHOP individual marketplace and other high priorities, such would offer superior benefits. As a result, most small as integrating Medicaid enrollment with marketplace businesses that already purchase insurance coverage operations.11 A Colorado nonprofit insurance executive stayed with the status quo. said SHOP “grew a reasonable amount given the reality The CEO of one Northern California of the enrollment process”—a reality that included early employer, which has been paying 100 percent of renewals, the balky rollout, and real and imagined con- employee coverage for more than 25 years, summed up cerns about the ACA. the reasons most companies decided on early renewal: “SHOP was the ignored little brother of the There were too many unknowns going into individual exchange,” said one business representative to SHOP. Our renewal came up at a time when California’s SHOP advisory board, echoing the senti- I was aware of SHOP but it was still in flux. ments of many other stakeholders. “Little money was It was so much easier to renew and to wait available for marketing and outreach, compared to tens for the dust to settle and then make a decision in a more stable environment.…What we have of millions of dollars for the individual exchange. When now is about the same as what was offered in we complained, we were told that Covered California SHOP, so why would I change? didn’t have the bandwidth to do these things right now.” Peter Lee, executive director of Covered “ California, the state’s marketplace, strongly endorsed keeping employee choice even when the federally facili- tated SHOP marketplaces dropped it. “ SHOP was the ignored little brother of the individual exchange. Originally, Covered California required all insurers participating in the individual marketplace Colorado appears to have devoted more time to submit bids to participate in SHOP. In July 2013, and money to direct outreach on behalf of SHOP, both Anthem Blue Cross, which held the second-largest through its online portal and in face-to-face meetings share of the California group market as of 2011, with stakeholders. The Colorado exchange put together dropped out of SHOP after this requirement was a small business development center and reached out 10 Lessons from SHOP in California and Colorado to the ethnic Chambers of Commerce, particularly the and businesses who were unable to use it to complete Hispanic and Asian ones. applications.14 Accenture, which did a workmanlike Colorado prominently featured SHOP on job constructing the web portal for the individual mar- its marketplace website from the outset. Covered ketplace and federal data link known as the California California was much slower to promote SHOP on its Healthcare Eligibility, Enrollment, and Retention site. There was no prominent link to SHOP or to bro- System, or CalHEERS, had little incentive to focus on kers on the site’s front page until early 2014, months building a dedicated online portal devoted to SHOP. Its after the beginning of the individual marketplace’s personnel lacked knowledge of the small-group market open enrollment period. California did not develop a and its particular needs. Far from being easy to navigate SHOP marketing plan until mid-2014, and it was quite and allowing direct enrollment by employers, as some bare-bones.12 agents had feared, the process was time-consuming and practically impossible to complete even by the most Website Woes dedicated and tech-savvy small businesses. Agents and employers alike unanimously described California’s Colorado’s website for enrolling small groups into online SHOP enrollment system as “horrible” and “a SHOP functioned adequately from the beginning of total mess.” open enrollment. As explained by Colorado’s market- One general agent described his firm’s experi- place outreach director, “We relied on a small team ence trying to enroll businesses: actively managing its own vendors. Many difficult deci- sions were made to simplify functionality. We knew The portal relied on CalHEERS, which is a exactly what our system could do and could not do. We system aimed at the individual market. Tweaks were based on the coding for individuals and knew we wouldn’t bring out the Cadillac on October there was apparently no testing ahead of time. 1.” This approach embodied the no-frills approach You couldn’t input a group into the system used in most states that had relatively smooth website cleanly without hours of work with CalHEERS launches.13 directly. As the system came to market there Praise for the Colorado SHOP website, despite was a wholesale failure of online applications, which were scrapped by the end of the first its basic functionality, was far from universal. A trustee quarter. For example, if I added a new employee at Connect for Health Colorado—the state’s health the carrier didn’t recognize me. The system was insurance marketplace—felt that despite the best efforts built on the assumption that everyone shows up of marketplace staff, CGI (the vendor that built the on day one. Colorado website) tended to drive the policies and to In the wake of the website’s failure, Covered raise fees without providing appropriate value in return. California turned over responsibility for the entire Some brokers and insurers felt considerable dissatisfac- SHOP enrollment process to Pinnacle Claims tion with the website and believed it was less than fully Management, a Southern California–based third-party functional. One insurer representative said CGI greatly administrator that already handled sales operations underestimated the problem of producing “834s”—the for SHOP. Pinnacle began enrolling groups in its notifications sent to insurers to indicate a customer is system in March 2014 and by September had shifted enrolled—and was poor at doing manual workarounds. all groups originally hosted in CalHEERS to the He also felt frustrated in his efforts to have useful dia- Pinnacle system. logues about technology problems either with CGI or with the exchange. “ California’s SHOP portal proved extremely difficult to use and was eventually shut down in February 2014 after numerous complaints from agents “ This is a whole sales team that is not doing sales. www.commonwealthfund.org11 Shifting administrative functions to Pinnacle experts in insurance markets told us these kind of mis- has improved relations between most brokers and takes tend to be forgiven. SHOP. However, this change has not yet brought about the fully streamlined enrollment process that was envi- HOW BROKERS AND AGENTS HAVE sioned during the initial rollout. Pinnacle, for instance, RESPONDED still relies on paper forms. No specific date has been Brokers and general agents are a vital part of the small- set for rebuilding a fully operational web portal within group insurance market.15 As much as 80 percent of CalHEERS. Additionally, the sales team at Pinnacle small businesses in California, Colorado, and other has spent its first year scrambling to keep abreast with states use brokers to purchase group coverage.16 these operational hitches rather than promoting new In both states, brokers were wary of the ACA. business. As one agent commented, “This is a whole Attitudes in the broker community ranged from mild sales team that is not doing sales.” interest to outright antagonism.17 Despite the fact that The spokesman for one small firm in California former insurance agents with decades of experience listed dozens of problems he and his employees were being tapped to head up the SHOP marketplaces, encountered while trying to enroll—even while armed brokers felt their expertise was given short shrift. Early with considerable knowledge and a broker’s help. For assertions that customers could use websites to bypass instance, his company found consistent discrepan- agents—like travelers using Expedia—stung in particu- cies between the agent’s quote and the actual amount lar. “Brokers are paranoid, but they have a right to be,” billed by Covered California. Adding new employees said one Connect for Health Colorado trustee. and those from another rating area was an ordeal, even A general agent put it this way: “SHOP seemed though the ease of such features was supposed to be like a total afterthought. There was a predisposition among SHOP’s selling points. “The hassles we were against the broker community: all business was sup- trying to avoid ended up being multiplied,” he said. posed to be driven through the counselors and naviga- While he and others cautioned that these problems tors and there was little sense of the role that brokers went along with being first adopters and would be play or resources devoted initially to getting brokers up ironed out in time, he felt that they contributed greatly to speed.” The most neglected part of their role, brokers to negative impressions of the small-business exchange. frequently told us, was following up on questions about Virtually everyone with whom we spoke felt how policies worked once they were sold—a service that strongly that the operational problems must be solved. the navigators and certified enrollment counselors cre- Employers surveyed in Colorado were unanimous in ated under the ACA usually do not provide. picking ease of enrollment and better access to informa- Despite their misgivings, brokers signed up in tion as the most important thing to improve as SHOP large numbers to become certified to sell through the entered its second season. Most small-business own- individual and SHOP exchanges. California market- ers are much more receptive toward SHOP when they place staff had expected perhaps 6,000 brokers to sign are able easily to compare specific premium costs and up. In reality, more than 14,000 have sought certifica- benefits with those of off-exchange plans. Enrolling in tion to date. Nearly 700 brokers actively sold SHOP SHOP needs to be straightforward, comparable in dif- policies during roughly the first year of operations.18 ficulty to seeking products outside the exchange. In Colorado, the SHOP director estimated that 1,200 Policymakers, insurers, and agents generally brokers had qualified to participate in SHOP, of which feel that SHOP has a small margin for error, and that it some 300 were active producers. Many of these were must recover from the loss in reputation stemming from property and casualty agents seeking an occasional line the operational foul-ups in the early days. But most of work as well as health care–focused brokers acting defensively. 12 Lessons from SHOP in California and Colorado “ “ We want SHOP to succeed—we really do. But we need a functioning product for us to sell. Colorado paid more attention to the broker One owner of a California footwear company distribution channel from the start. The marketplace testified to the importance of brokers and wished for a set up a dedicated call center with lines specifically for better direct online experience as well: “Going through brokers and enlisted an internal broker team that tar- a broker was tough because they’re all swamped. The geted small-business owners. California, on the other website was not user-friendly and it was very vague. You hand, publicized the possibility that businesses could really had to use a broker. I wanted more information as self-enroll in SHOP and at the outset kept brokers and a small-business owner than I could get online.” agents at arm’s length.19 However, once it soon became It appears that obtaining buy-in from brokers apparent that brokers were a vital distribution chan- and agents is a high priority, as is timely payment. nel in both the individual and small-group markets, Brokers can heavily influence existing small-business there was a belated rapprochement between California owners’ choice of coverage. Although direct enrollment brokers and Covered California. Brokers proved to be by small firms through the marketplace website could one of the most reliable sources for attracting enrollees conceivably be the norm in the future, that is not the to the individual marketplace—some 40 percent of current reality. It might be helpful to increase the num- enrollees used a broker—as well as the principal chan- ber of brokers who sell SHOP products. Alternatively, nel for selling through SHOP.20 Both in California and state officials may wish to focus limited resources on the Colorado, agents are now mentioned prominently as a best-selling brokers—for instance, offering preferential trusted source on the websites and in statewide radio leads to the brokers with the best track record—rather and television advertisements. than shoring up the marginal ones.21 “We want SHOP to succeed, we really do,” one Colorado agent said. “But we need a functioning prod- SHOP’S VALUE PROPOSITION uct for us to sell.” He cited difficulties across the board, Most respondents to our Colorado survey of small including hurdles to adding new employees, adopted employers said employee choice was their principal rea- dependents, or domestic partners to existing plans. son for considering SHOP. Ease of administration was In California the challenges were greater. a distant second. Owners of firms of all sizes want to Brokers reported, for instance, not being paid for their choose from among various options from multiple car- work more than nine months after they had enrolled riers. Some policymakers we spoke with in both states groups. Brokers generally agreed it is considerably more felt that such options are more practical for businesses work for a broker to write a SHOP policy and for the that are near the 50-employee threshold. (In plan years employer to elect it than for a product from outside the starting in 2016, this threshold will be 100, because marketplace. the ACA expands the definition of small employers to Insurers and general agents questioned whether include businesses with up to 100 employees.) SHOP helped solve a genuine access-to-coverage prob- One insurance executive commented that the lem. In Colorado, one agent noted that even prior to principal value proposition of SHOP is that it allows SHOP there were four insurers offering small-group multiple carriers to be offered alongside one another in policies in the least competitive areas of the state. a stable environment in which insurers are willing to Likewise in California, several agents and brokers felt quote: “We know there is a market for employers who the presence of California Choice, a private exchange, have trouble with multiple carriers playing together.” In diminished the necessity of SHOP. his opinion, the most promising business opportunity www.commonwealthfund.org13 exists for small groups that approach the 50-person Several business owners interviewed saw threshold, while “micro” groups would be better served SHOP as a viable alternative to the private exchanges by letting employees sign up for insurance coverage in that are now taking root among large and midsize the individual marketplace. Others interviewed dis- employers. They believe SHOP could offer greater agreed, feeling that when factors such as household choice than most private exchanges while helping to income and tax deductions only available to those with ensure year-to-year cost certainty for businesses.27 job-based coverage are considered, employees of very small companies are not always better off in the indi- Tax Credits vidual marketplace. Firms with fewer than 25 full-time employees earning Unlike California, Colorado allowed employ- an average wage of $50,000 a year or less are eligible for ers to offer plans at two adjacent metal tiers (coverage a tax credit of up to 50 percent, available only through levels) in its first year.22 This kind of choice has always SHOP, for a maximum of two years. A smaller tax proven popular on employer surveys.23 For instance, it credit of up to 35 percent was available between the permits management to select more comprehensive cov- launch of the ACA in 2010 and 2013. erage and employees to choose less expensive products, all under the same umbrella. As of late 2014, the multi- “ tier approach was also being offered through Covered California.24 One concern about this approach is split- ting the risk pool and creating adverse selection, but the “ Tax credits are a talking point, not a selling point. existing numbers in SHOP are currently too small to do that.25 Multiple respondents and interviewees in the The option of choosing multiple carriers on insurer and policy communities felt small-business adjacent tiers is available through California Choice, a owners were not well informed about tax credits. Southern California–based private exchange operated However, nearly all owners whom we surveyed said by general agent Word & Brown. It was also part of they were aware of the credits. Most, however, did not the Health Insurance Plan of California/PacAdvantage feel the credits were the key element in their decision small-business exchange, which operated from 1992 to elect SHOP. One director of an insurance co-op in to 2006. California Choice also features Anthem Blue Colorado said, “Tax credits are a talking point, not a Cross plans, among the most recognized and widely selling point.” Others agreed. A trustee of the Colorado sought plan offerings in California, which are not avail- exchange felt it was more viable for individuals in small able through SHOP.26 firms to seek subsidies on the individual exchanges, if Even if it does not enroll large numbers of they were eligible. Some felt the paperwork demands businesses from the outset, SHOP can be a catalyst were too great, while others who used their accountants in changing the small-business insurance markets. In or went through the process themselves found either California, the rollout of SHOP galvanized California that the savings were minimal or that they did not Choice to compete more aggressively and to tout its qualify. multitier and paired choice offerings with consider- One company, however, said the tax credit was able success. Few states have a situation comparable to its sole reason for signing up and considering SHOP. California, in which a well-entrenched private exchange And several agents felt the credit was the principal, if caters to the small-group market. In Colorado, which not the sole advantage, that SHOP possessed in the does not have a similar competitor to SHOP, more small-group marketplace.28 businesses were attracted to SHOP and its unique One experienced California insurance execu- features. tive found that even those companies that might have 14 Lessons from SHOP in California and Colorado qualified for the credit chose not to elect it. In 2010, when the tax credit was first offered, his insurance com- pany expected a bump in so-called “virgin groups”— businesses that had never offered insurance to employ- ees before—but that rise never materialized. Even after the maximum size of the tax credit rose from 35 percent to 50 percent, he doubted it would have a significant impact, given that companies may not know about it, the credit might prove too much trouble to apply for, or the savings might be too low to be useful. Such pes- simism is not unwarranted: previous programs using tax credits to raise health insurance coverage rates have had low take-up rates.29 Growth Opportunities One potential avenue for expanding SHOP’s appeal is experimenting with alternative benefit designs and including ancillary products with coverage. For instance, wellness programs and explicit human resources assis- tance could conceivably be bundled along with SHOP if regulations allowed. Merging SHOP coverage with worker’s compensation coverage in California could greatly reduce administrative demands on firms at the high end of SHOP eligibility, especially when the requirement to expand SHOP to firms with up to 100 employees takes effect in 2016. SHOP could provide greater value for lower-income workers by contracting with Medicaid health plans, which otherwise are not available in the commercial market. LOOKING TOWARD THE FUTURE A full test of SHOP’s appeal will not really take place until the cycle of “grandmothered” early renewal plans ends. Most insurers and agents are willing to take a wait-and-see approach toward SHOP’s potential. Carriers are in it for the long haul, if not indefinitely: most of the same insurers renewed for the second year in both California and Colorado. As one Colorado policymaker put it, “We need enough momentum to overcome the period of inertia and misinformation and to have a viable program once the early renewal period is over.” www.commonwealthfund.org15 NOTES 1 For explanation as to why California and Colorado will make plans ACA-compliant sooner, see K. Lucia, S. Corlette, and A. Williams, “The Extended ‘Fix’ for Canceled Health Insurance Policies: Latest State Action,” The Commonwealth Fund Blog, Nov. 21, 2014. 2 To read a summary of the main problems with the federally facilitated SHOP rollout and efforts to solve them, see K. Lucia, J. Giovannelli, and S. Miskell, “After a Slow Start, Federal Business Health Insurance Marketplace Offers New and Improved Functions,” The Commonwealth Fund Blog, Feb. 19, 2015. For a sum- mary of employee choice, see S. Dash and K. Lucia, “Employee Choice,” Health Affairs, published online Sept. 18, 2014. 3 A. Goldstein, “HealthCare.gov’s Insurance Marketplace for Small Businesses Gets Off to a Slow Start,” Washington Post online, Nov. 30, 2014. 4 Government Accountability Office, Report to the Chairman, Committee on Small Business, U.S. House of Representatives, “Small Business Health Insurance Exchanges: Low Initial Enrollment Likely Due to Multiple, Evolving Factors” (Washington, D.C.: GAO, Nov. 2014). Originally, California SHOP executives expected as many as 90,000 employees to enroll. Despite the small numbers in absolute terms, these enrollments in SHOP were the second- and third-highest among U.S. states following New York. This omits Vermont and the District of Columbia, which combined their individual and small-business marketplaces as allowed under the ACA. 5 T. Gardiner and I. Perera, “SHOPping Around: Setting Up State Health Care Exchange for Small Businesses: A Roadmap” (Washington, D.C.: Center for American Progress and Small Business Majority, July 2011). This is a good guide to the issues around the creation of SHOP and the problems small employers face in purchas- ing coverage. 6 Agency for Healthcare Research and Quality, Center for Financing, Access and Cost Trends. 2012 Medical Expenditure Panel Survey (MEPS)—Insurance Component, Table I.A.2.d (2012). 7 See M. Weinberg and L. W. Haase, State-Based Coverage Solutions: The California Health Benefit Exchange (New York: The Commonwealth Fund, May 2011). In California, Governor Arnold Schwarzenegger presided over three years of debates about universal statewide insurance coverage. This debate resulted in a bill that passed the State Assembly but foundered in the State Senate. In 2006, Colorado Gov. Bill Owens created the so-called “208 Commission.” This commission laid out five blueprints for enacting comprehensive state health insurance reform in Colorado; its findings were reviewed extensively in the state legislature. California was the first state to establish an exchange board after the ACA’s passage, and Colorado followed suit sev- eral months later. Both states chose to set up their marketplaces as stand-alone, independent government agencies whose trustees were appointed both by the governor and by the legislature. Existing laws and state regulations were easily modified to conform to the ACA. Both California and Colorado have mature and stable small-group markets with a relatively high degree of insurer participation and competition. In California the existing small-group marketplace is regulated by comprehensive legislation passed in 1992 and referred to as AB 1672. As part of AB 1672, there is a requirement of 50 percent contribution by an employer to the employee-only premium, and minimum participation requirements, namely that 75 per- cent of the eligible employees are enrolled in the plan offered by the employer. Guaranteed issue was already in place. Colorado has similar rules in place regarding guaranteed issue and employer participation requirements. 8 C. Terhune, “WellPoint Anthem Blue Cross Spurns California Small-Business Exchange,” Los Angeles Times, July 19, 2013. In 2011, Kaiser held 42 percent of the group market, Anthem Blue Cross 17 percent, and Blue Shield 14 percent. In the same year, Anthem accounted for 47 percent of the individual market, Blue Shield 21 percent, and Kaiser 19 percent. California HealthCare Foundation, California Health Care Almanac: California Health Plans and Insurers: A Shifting Landscape (Oakland, Calif.: March 2013), p. 21. 16 Lessons from SHOP in California and Colorado 9 In 2015, SeeChange, one of the six SHOP carriers in Colorado, will leave the marketplace and the state altogether. 10 Nationally, New Mexico and Utah, which decided to build their own SHOP exchanges while defaulting to the federal government for the individual exchanges, are the only potential exceptions. 11 The decision in both states not to integrate Medicaid with the exchange helped improve the functionality of the web portals but led in part to long delays in processing Medicaid applications; these persisted for many months in both states after the end of open enrollment. On the other hand, trying to implement “no wrong door” fully in the application process helped to trip up more ambitious exchanges in Oregon, Massachusetts, and Maryland. 12 Personnel turnover exacerbated California’s problem with SHOP outreach, and to a lesser extent Colorado’s as well. The SHOP director in California, a former insurance executive and agent, left his position in fall 2013 and was never replaced on a permanent basis. A series of consultants took over the day-to-day manage- ment of SHOP. After a year remaining vacant, the position was superseded by a new post of sales director for both individual and small-business insurance products. 13 CGI Federal, the Colorado vendor, was an independent subsidiary of the company that won the contract for federally run exchanges and botched the rollout. 14 J. D. Harrison, “California Takes Down Online Health Insurance Exchange for Small Businesses,” Washington Post, Feb. 14, 2014; E. Bazar, “Small-Business Exchange is Offline, Off Target,” Sacramento Bee, Feb. 25, 2015. 15 General Agents (GAs) are insurance agents that partner with various insurance carriers to market and distrib- ute their products to brokers. They are paid directly by the carrier in a separate payment from the broker commission. Certain GAs work principally with certain carriers. 16 Well-established small businesses are most likely to use brokers. According to a study by Pacific Community Ventures, those firms that offer health insurance coverage already are most comfortable with brokers, while those that don’t are the most skeptical. Insight at Pacific Community Ventures, Health Care + Small Business: Understanding Health Care Decision Making in California (San Francisco: PCV, Oct. 2011. 17 Some of this antagonism was political. Many employers in both states said politics hadn’t affected their own decision but they were certain that it played a role in choices other business owners made. One Central Valley agent told us: “In Bakersfield, where my business is, we are a very conservative town. A lot of people probably are not proponents of the ACA and don’t want anything to do with Covered California. Eighty-five to 90 percent of Kern County is that way. Many people just don’t want to hear about SHOP. Hard to say where they first hear it but it’s likely connected to the Affordable Care Act and so it has a negative connotation.” Several other businesses, by contrast, elected SHOP specifically to underscore their support of the ACA. 18 C. Coleman, “What’s Ahead for Covered California? Medium-Term Policy Considerations,” Insure the Uninsured Project, Sept. 2014. 19 S. Kleffman, “California’s Subsidized Health Insurance ‘Marketplace’ Takes Shape,” Contra Costa Times, July 31, 2012. 20 About 13 percent of Q1 2015 SHOP sales in California were “employer-direct” or conducted without using an agent. 21 In the past several months in California, Pinnacle has instituted promotional programs that provide incentives such as direct mail and lead generation services for agents who meet specific sales and promotion targets. 22 Under the Affordable Care Act, plans are classified on different tiers, referred to as bronze, silver, gold, and platinum. The tiers are distinguished by their actuarial value—namely, the total expected medical costs paid by the plan. For instance, bronze plans, on average, cover 60 percent of the cost of medical care, while the consumer is responsible for 40 percent. www.commonwealthfund.org17 23 See J. R. Gabel, J. Pickreign, H. Whitmore et al., “Small Employer Perspectives on the Affordable Care Act’s Premiums, SHOP Exchanges, and Self-Insurance,” Health Affairs Web First, published online Oct. 16, 2013. 24 “New at SHOP: Dual Tier Choice,” Covered California, Oct. 2014. 25 State Health Reform Assistance Network (Wakely Consulting Group), Design Considerations in Structuring Employee Choice for SHOP Exchange (Princeton, N.J.: Robert Wood Johnson Foundation, Dec. 2012). 26 PacAdvantage captured as much as 10 percent of the small-group market, peaking at around 150,000 enrollees in 1998, but foundered principally as a result of adverse selection against it both from outside the market and by plans inside it. California Exchange Executive Director Peter Lee headed up PacAdvantage and many of the current senior staff at Covered California worked for this purchasing group for small busi- ness. See M. Weinberg and B. Kramer, Building Successful SHOP Exchanges: Lessons from the California Experience (San Francisco: Pacific Business Group on Health, 2012). 27 On private exchanges and SHOP, see “Competition from Private Exchanges, Teeny Tax Credit Keep Businesses from SHOP-ing” Inside Health Insurance Exchanges, April 2015 5(4); and J. Millman, “The Coming Revolution in How Employers Provide Health Insurance,” Washington Post, April 7, 2015. 28 Because the average group size of early enrollees in both California and Colorado was very low—75 percent of the groups enrolling in California had fewer than six employees, while the average size of Colorado’s group was fewer than five—the opportunity for tax credits that are aimed at the smaller end of the small- business-spectrum businesses remains. California SHOP Advisory Group Meeting, August 2014, cited in Coleman, “What’s Ahead for Covered California?” 2014. 29 S. Dorn, J. Varon, and F. Pervez, Limited Take-Up of Health Coverage Tax Credits: A Challenge to Future Tax Credit Design (New York: The Commonwealth Fund, Oct. 2005). 18 Lessons from SHOP in California and Colorado The COMMONWEALTH FUND