What “Repeal and Replace” Could Mean for Small Employers – Part 2

With some Republican House leaders still seeking to “repeal and replace” the Affordable Care Act (ACA), many forward-thinking small business employers are exploring traditional methods of providing group health coverage to their employees as well as some newer, emerging models.

Last month, PacFed discussed the Self-Insured Plan model, which large corporations and government entities across the nation have used for decades.  This discussion focuses on providing health coverage to employees through the Covered California™ Small Business Health Options Program (SHOP) model.

The Covered California™ Small Business Health Options Program (SHOP) Model

Covered California™ is the state agency responsible for implementing the federal ACA, including the SHOP. Under this program, small businesses with 50 or fewer employees and an average annual wage of less than $50,000 are eligible to receive up to 50 percent in federal small business tax credits for coverage purchased through the SHOP marketplace.

The American Health Care Act (AHCA), which has been approved by the House and is awaiting action in the Senate, could impact small business owners who provide health insurance to their employees under a SHOP health plan.  As it now stands, the AHCA proposes eliminating the small business tax credit in 2020, which was the ACA’s inducement for entrepreneurs to participate in the SHOP. By eliminating the tax advantage, small business owners may bypass purchasing health plans on SHOP altogether and seek coverage from private insurers, or not offer insurance at all, industry experts say. 

Alternatively, small employers may consider using their collective purchasing power to obtain health coverage for their employees under what are known as Private Health Insurance Purchasing Exchanges (or Private Exchanges).   Private Exchanges typically provide more services than available through a traditional health insurance product, and are often provided for a fee that is much less than the overall administrative and compensation fee typically charged to individual employers.

Expenses are further reduced by the lower administrative “load” charged by health insurance carriers to Private Exchanges as a percentage of premiums, which are around 3-6 percent lower than the load charged to individual employers.  Private Exchanges have greater premium stability because claims experience is spread across the large pool of employers, resulting in less volatility for the group.  They also normally offer a choice of several health and wellness plans and different HMO and PPO options.

In addition, Private Exchanges bill all health coverage and provider services on one invoice, providing ease of administration.  Most have dedicated staff to handle employee telephone calls regarding coverage, enrollment or claims assistance.  Many Private Exchanges also have field service staff for on-site enrollment, employee education and addressing employer issues.

For small businesses, understanding the Private Exchange model can be difficult. Employers should consult a licensed and reputable third-party administrator regarding Private Exchanges and the specific benefits and services available to them.