A big failure of the Affordable Care Act (ACA) was its promise to help small businesses. The small group market traditionally had been as fraught as the individual market through which uninsured individuals purchased insurance.
The ACA subjected small group plans to onerous new rules that, strangely, didn’t apply to large-group plans. That inequity was good for, say, Wal-Mart, but bad for small businesses. And the concept of Small Business Health Option Program (SHOP) exchanges showed little understanding of insurance economics. Carriers, already making considerable money, were under no obligation to participate in SHOP exchanges even if they might gain additional small business customers interested in obtaining — through a cumbersome process, and for just two years — federal tax credits available to them only through those exchanges.
{mosads}Rather than assuming risk by playing in a small business exchange, an insurer could get small businesses’ employees anyway through the individual market — with employees financing their own health care and getting their own tax deductions.
The Obama administration’s promises were oversold, including the regulatory proposition that “SHOP Exchanges will reduce the burden and costs of enrolling employees in small group plans, and give small businesses many of the cost advantages and choices that large businesses already have.” What magic would compel insurers to treat small businesses like large businesses?
With the federal government refusing to reveal its own SHOP enrollment, a U.S. General Accounting Office report issued in November 2014 found just 76,000 Americans were enrolled through state-run SHOP exchanges — compared to a projection that 2 million would be enrolled.
Matters have not improved much.
The state of Washington, in a market long-served by association health plans, had a state-run SHOP exchange that began inauspiciously in 2014 in only two of 39 counties. For 2018, its exchange is abandoning small business coverage altogether.
California’s state-run exchange covered only 35,000 lives as of a September report. Compare that to a Small Business Administration calculation of 6,471,608 Californians employed by small businesses, with one-fifth (or over 1 million) working for businesses of fewer than 20 employees — all eligible for the ACA’s small business tax credit.
President Clinton’s Health Security Act proposal was more pragmatic about the insurance marketplace for small businesses. As his proposal noted, “Today, a major insurance carrier doesn’t have to give any kind of deal to the Mom and Pop store in Peoria. But they will not be able to ignore 5000 Mom and Pop stores brought together in an alliance from Central Illinois.”
Thus President Trump’s executive order on association health plans might appear to make sense. Except that it really doesn’t.
As is typical of this administration, the order goes much further than simply allowing small businesses to purchase insurance through such plans. It would exempt them from state, and seemingly even federal, regulation and reportedly allow individuals to purchase through them. This subverts not only the ACA but complicated federal law that long-predates the ACA.
Allowing individuals to purchase through such plans would lead to plans cherry-picking good risk, in addition to allowing plans to discriminate between employers based upon age and wellness of employees. Such practices would drive up costs for many and roil existing insurance markets where good and bad risk must be spread out. Trump would also allow the sale of perhaps-junky short-term insurance plans that would be a further disincentive to the long-term enrollment that insurance market stability requires.
It is regrettable that the ACA’s failure with respect to small businesses has opened the door to such an overreaching proposal. This “cure” is far worse than the illness, and should have resulted from a thoughtful, bipartisan congressional process designed to fix existing law. Regulatory implementation will reveal its flaws.
Brendan Williams is the president and CEO of the New Hampshire Health Care Association, which represents 90 long-term care facilities. Williams is also an attorney, former Washington state deputy insurance commissioner and former Washington state representative.