Small business options are limited.
By Jerome Connolly, PT, CAE
September 9, 2014
In a final rule1 on health insurance market standards issued May 16, the Centers for Medicare and Medicaid Services (CMS) adopted a wide range of provisions affecting insurance coverage under the Affordable Care Act (ACA), including small business plans, standards for navigators who help consumers find coverage under the ACA, drug coverage determinations, insurer quality rating information, and efforts to stabilize premiums. The rule took effect in July and will be in place when the second round of ACA open enrollment commences November 15.
According to a CMS fact sheet2, the rule standardizes notices health insurers are required to provide to consumers when they make coverage changes when policies are renewed or discontinued. In the area of drug coverage, the rule also requires health plans to make coverage determinations within 24 hours on medications that are not covered for enrollees with conditions that jeopardize their life, health, or ability to regain maximum function, or when enrollees undergo treatment with drugs not covered by the plan.
CMS said the rule aligns the start of annual employer election periods in federally facilitated Small Business Health Options Program (SHOP) Marketplaces for plan years beginning in 2015, with the start of open enrollment in the individual market exchange for the 2015 benefit year. The rule also lists the conditions under which a SHOP would be permitted to not implement “employee choice” in plans, if their state’s insurance commissioner believes it is in the best interest of consumers in that state. Employee choice provides the choice of multiple insurers in a small business marketplace.
Insurance commissioners in 18 states (Alabama, Alaska, Arizona, Delaware, Illinois, Kansas, Louisiana, Maine, Michigan, Montana, New Hampshire, New Jersey, North Carolina, Oklahoma, Pennsylvania, South Carolina, South Dakota, and West Virginia) have made that determination, claiming that the number of people in the small group market opting for coverage through the ACA is so small that allowing employees to choose from a variety of plans will lead to rate spikes because risk will be too uneven.3
The National Federation of Independent Business (NFIB), which opposed the ACA, criticized the delay of the “employee choice” option in the law. “The SHOPs should offer even more arrangements than employee choice and basic employer choice (the only option currently available), including defined contribution health plans,” says NFIB.4
Even the Small Business Majority which supports the law, expressed disappointment in that provision saying, “The finalization of a rule today that would allow states to potentially delay a critical requirement that the small business health insurance marketplaces allow employees to choose among multiple insurance carriers is incredibly disappointing for small business owners and their workers.”
NFIB also urged CMS to publish actual 2015 rates as early as possible prior to open enrollment so small business owners can plan for the upcoming year.
The final rule also specifies a list of state requirements that would conflict with federal standards for navigators and assisters who help people get enrolled under the ACA. It also requires insurers to submit data to calculate quality ratings, which marketplaces must display starting in 2016.
The regulation includes provisions beneficial to insurance plans, such as changes to the risk corridors program intended to mitigate uncertainty associated with enrollee risk profile, and adjustments to the medical loss ratio (MLR) calculation for policy issuers that provided “transitional” continuation of plans that do not comply with the ACA. Under the MLR requirement in the statute, insurers must spend at least 80 percent of premiums on claims or quality improvements, or refund the difference to consumers. The change will generally result in a reduction in rebate payments for those issuers who would have owed rebates in the absence of the adjustment. (Total consumer benefits from the first two years of the MLR provision amounted to more than $3 billion, according to a Commonwealth Fund report released May 12.5)
A spokesperson for America’s Health Insurance Plans (AHIP) applauded the rule, saying these temporary risk mitigation programs will help ensure market stability and affordability for consumers.6 In its comments on the proposed rule earlier in the year, AHIP had asked for more relief than was included in the final rule.
In addition to the final rule, the CMS also posted answers to Frequently Asked Questions7 May 16 regarding a range of other ACA requirements, including “essential health benefits” that insurers must cover, the actuarial value of plans, mental health parity, guaranteed availability, minimum essential coverage, and transitional policy extensions of plans that do not comply with the ACA for employers with 51–100 employees and for individuals.
This FAQ document emphasizes that health plans must provide coverage of the essential health benefit package, and it is a violation of the law if the plan’s benefit design—or the implementation of its benefit design—discriminates based on an individual’s age, expected length of life, present or predicted disability, degree of medical dependency, quality of life, or other health condition.
Moreover, insurers may not impose benefit-specific waiting periods, except in covering pediatric orthodontia, in which case any waiting periods must be reasonable. This clarification refers to a waiting period that is applied uniformly to a specific benefit within the plan design and not reasonable medical management.8
The FAQ also states that insurers may file plans that they only market through the Exchange to qualified individuals or the SHOP Marketplace, provided the marketing does not violate applicable discrimination standards, and otherwise complies with applicable federal and state laws and regulations. However, such plans would be considered to be offered in the individual or group market, respectively, in the state. If, despite the fact that the policy issuer has not advertised the plan other than through the Marketplace, an individual or employer (as applicable) seeks to enroll in the plan directly with the insurer, the health plan may instruct the individual or employer to complete enrollment through the Marketplace. But if the individual or employer wishes to enroll directly with the plan, the insurer must accept every individual or employer in the state that applies for such coverage.
While small businesses with fewer than 50 employees are not mandated to buy health insurance in 2015, the SHOP exchange is designed and available for employers with up to 50 employees to offer group health coverage. However, some features of the federal and state SHOPs were delayed late last year as officials shifted focus to the bungled individual marketplace rollout.9
Small employers with generally up to 50 full-time equivalent employees (FTEs) have access to the SHOP Marketplace, which is open for enrollment year-round. It is estimated that small businesses pay on average 18 percent more than larger businesses for health insurance. SHOP is intended to offer small employers increased purchasing power to obtain a better choice of high-quality coverage at a lower cost by pooling their risk. To purchase coverage in SHOP, eligible employers must have at least one common law employee, offer SHOP coverage to all of their full-time employees (FTEs), and meet minimum participation rates.10
A tax credit is available to help small employers afford the cost of providing health care coverage for their employees but it is specifically targeted for those employers with low- and moderate-income workers. Employers with fewer than 25 FTEs, paying average annual wages below $50,000, and that contribute 50 percent or more toward employees’ self-only premiums may qualify for a small-business tax credit of up to 50 percent to help offset the costs of insurance. In 2014, this tax credit became available to qualified small employers that participate in the SHOP Marketplace. The 50 percent tax credit will continue through 2015, after which the program is scheduled to end. On a per-employee basis, the amount must be under $50,000. In fact, if it is under $25,000, the full credit is awarded—but then it phases out until the average reaches $50,000. If the credit exceeds the tax liability for the year, it can be carried back one year or forward for 20 years.11
Beginning this year, the ACA increased the incentives that can be offered to employees, from 20 percent to 30 percent of the total cost of coverage for participation in “health-contingent” wellness programs that require participation in a physical activity, for example, or meeting certain health standards, such as a desired cholesterol or blood sugar level or body mass. To incentivize smoking cessation, smokers can be charged premiums up to 50 percent higher than those for nonsmokers, and federal grants are available to help small businesses start a wellness program.12
A variety of factors, including those described above, has depressed small business enrollment in the first year, and it is likely to remain suppressed for the near term. The Obama administration has allowed small business employers to renew their existing plans through 2016 even if they do not meet ACA coverage standards, and many will do so because of uncertainty with the exchanges. Moreover, as mentioned earlier, the tax credit for businesses with fewer than 25 employees has a limited reach and has been difficult to navigate.
Employee benefits brokers in the 18 states declining to implement the employee choice option will have just one plan to present to employees of small business clients through the ACA’s small business Exchanges, thus leaving in place a distorted, non-uniform system. This will likely extend the time for determining whether the commercial exchanges are making rates more affordable for small businesses.
Once the delays are ended, the renewals run out, and every state is offering employee choice in an online exchange, it is likely enrollment will steadily improve. But without the employee choice feature, there’s little reason at present for a small business to go through the Exchange instead of the brokers whom they have traditionally used.13
Jerome Connolly, PT, CAE, is a registered federal lobbyist whose firm Connolly Strategies & Initiatives has been retained by PPS. A physical therapist by training, he is a former private practitioner who throughout his career has served in leadership roles of PPS and APTA. Connolly also served as APTA’s Senior Vice President for Health Policy from 1995 – 2001.
1. ACA Exchange and Insurance Market Standards for 2015 and Beyond, Final Rule, Centers for Medicare and Medicaid Services, Department of HHS, http://op.bna.com/hl.nsf/id/bbrk-9k6sfm/$File/finalexchMay2014.pdf. Accessed July 2014.
2. Exchange and Insurance Market Standards for 2015 and Beyond, Center for Consumer Information & Insurance Oversight, www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/marketstandards-5-16-2014.html. Accessed July 1, 2014.
3.4. Kardish C, Small Business Participation in Health Exchanges Likely to Remain Weak, Governing. Posted July 1, 2014. Website www.governing.com/topics/health-human-services/gov-small-business-health-exchanges-enrollment.html. Accessed July 2014.
5. The Federal Medical Loss Ratio Rule: Implications for Consumers in Year 2, The Commonwealth Fund, May 12, 2014.
6. Hansard S, CMS Releases Final 2015 Health Insurance Exchange Rule, BNA’s Health Insurance Report, May 21, 2014.
7. Frequently Asked Questions on Health Insurance Market Reforms and Marketplace Standards, Center for Consumer Information & Insurance Oversight, www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/downloads/Final-Master-FAQs-5-16-14.pdf, posted May 16, 2014. Accessed July 2014.
8. Hansard S, CMS Releases Final 2015 Health Insurance Exchange Rule, BNA’s Health Insurance Report, May 21, 2014.
9. Klein K, Answers to More Small Businesses Questions About Obamacare, Bloomberg Businessweek, June 30, 2014.
10. Key Provisions Under the Affordable Care Act for Employers with Fewer Than 25 Employees, Small Business Administration. Website: www.sba.gov/content/employers-with-fewer-25-employees. Accessed July 18, 2014.
11. Taulli T, Small Business Tax Credits For Obamacare?, Forbes, March 8, 2014.
12. Bluestein A, Your Obamacare To Do List: Launch a Wellness Program, Inc. Magazine. Website: www.inc.com/magazine/201312/adam-bluestein/obamacare-to-do-list-create-a-wellness-plan.html. Accessed July 18, 2014.
13. Bronson C, Obamacare Exchanges to Offer Just One Plan for Many Small Employers, Insurance Business America, June 12, 2014.