The Affordable Care Act made many great promises. Like all legislation, some promises materialized, such as guaranteed-issue health insurance. Other provisions failed to take hold. One area that held great promise was the Small Business Health Options Plan, also known as “SHOP.” Unfortunately, this has been a disappointment, and small business owners continue to struggle with health insurance coverage. What is the current landscape for small business owners?
The intent of SHOP was to provide a “one-stop shop” for health insurance for small businesses. Instead of using an agent to pick one or two plans to fit all the employees, the SHOP would allow employee access to multiple companies with diverse benefit levels. The employees would choose the plans and the employer would then pay for all the plans through one bill. And if an employer bought insurance through the SHOP exchange, they had the potential for a nice refundable tax credit.
The fiasco that was the rollout of healthcare.gov put the SHOP program in slow motion. Instead of multiple insurance choices, states working through the federal exchange were required to offer only one choice. Instead of a website, an agent had to put the program in place. In addition, the rules of the tax credit made it difficult for many to take advantage of the savings. The end result — very few businesses entered the SHOP exchange in 2014. Areas with state-run exchanges fared little better.
GRANDFATHER CLAUSE
In 2014, most small businesses stayed with their grandfathered plans. Fortunately, the law allowed this option. Plan quotes through the ACA were significantly higher than the grandfathered plans, mainly because the insurers had no idea on how to price the new offerings. When in doubt, charge too much. Of course, facing a significant increase, small businesses didn't bite on the ACA-based plans.
There are many drums beating about what is next. Unfortunately, pricing for 2015 plans is still a month or two away. Some expect ACA plan prices will actually decrease due to the padding of the 2014 plans. We do know that the SHOP will continue to be substandard in most states.
What can advisers do to help their small business clients in 2015? The first step is to make certain your client doesn't qualify for a tax credit. If they don't, get quotes from multiple insurers and pick what is best. If they do qualify for a tax credit, look at plans available through SHOP. The second step is to pay attention to alternatives coming onto the market.
One interesting alternative to SHOP are private exchanges. These provide what SHOP intended — multiple insurers offering multiple policies in which the employee picks the plan and the employer pays the bill.
The private market has profit goals, so it is more likely it will heed the lessons of the SHOP exchange and build an efficient website that makes purchasing insurance easy. These are in their infancy, so stay tuned.
SELF-FUNDED OPTION
Another option is self-funded plans for small businesses. Basically, the business pays the cost of health services up to a predetermined amount and carries stop-loss insurance to cover anything over the cap. One benefit is that self-funded plans do not have to meet benefit requirements of the ACA, such as mental health coverage. However, most people are required to have “credible coverage” or face a fine at tax time. It is unlikely these plans will meet ACA requirements if they do not offer required benefits.
For advisers, 2015 will pretty much stack up the same as 2014 on the health insurance front — wait and see what is next.
Carolyn McClanahan is founder and director of financial planning at Life Planning Partners Inc.
