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89–780 2015

AN UPDATE ON THE SMALL BUSINESS HEALTH 

OPTIONS PROGRAM: IS IT WORKING FOR 

SMALL BUSINESSES? 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH AND TECHNOLOGY 

OF THE

COMMITTEE ON SMALL BUSINESS 

UNITED STATES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

HEARING HELD 

SEPTEMBER 18, 2014 

Small Business Committee Document Number 113–084 

Available via the GPO Website: www.fdsys.gov 

SBREP-219 with DISTILLER


Congress.#13
(II) 

HOUSE COMMITTEE ON SMALL BUSINESS 

SAM GRAVES, Missouri, Chairman 

STEVE CHABOT, Ohio 

STEVE KING, Iowa 

MIKE COFFMAN, Colorado 

BLAINE LUETKEMEYER, Missouri 

MICK MULVANEY, South Carolina 

SCOTT TIPTON, Colorado 

JAIME HERRERA BEUTLER, Washington 

RICHARD HANNA, New York 

TIM HUELSKAMP, Kansas 

DAVID SCHWEIKERT, Arizona 

KERRY BENTIVOLIO, Michigan 

CHRIS COLLINS, New York 

TOM RICE, South Carolina 

NYDIA VELA ́ ZQUEZ, New York, Ranking Member 

KURT SCHRADER, Oregon 

YVETTE CLARKE, New York 

JUDY CHU, California 

JANICE HAHN, California 

DONALD PAYNE, JR., New Jersey 

GRACE MENG, New York 

BRAD SCHNEIDER, Illinois 

RON BARBER, Arizona 

ANN McLANE KUSTER, New Hampshire 

PATRICK MURPHY, Florida 

LORI SALLEY, Staff Director 

PAUL SASS Deputy Staff Director 

BARRY PINELES, Chief Counsel 

MICHAEL DAY, Minority Staff Director 

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(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hon. Chris Collins ................................................................................................... 1 

Hon. Janice Hahn .................................................................................................... 2 

WITNESSES 

Ms. Mayra Alvarez, Director, State Exchange Group, Center for Consumer 

Information and Insurance Oversight, Centers for Medicare and Medicaid 

Services, Washington, DC ................................................................................... 4 

Dr. Roger Stark, Healthcare Policy Analyst, Washington Policy Center, Seattle, WA ............................................................................................................... 6 

Mr. Adam Beck, Assistant Professor of Health Insurance, The American 

College of Financial Services, Bryn Mawr, PA .................................................. 8 

Mr. Jon Gabel, Senior Fellow, National Opinion Research Center, University 

of Chicago, Bethesda, MD ................................................................................... 10 

APPENDIX 

Prepared Statements: 

Ms. Mayra Alvarez, Director, State Exchange Group, Center for Consumer Information and Insurance Oversight, Centers for Medicare and 

Medicaid Services, Washington, DC ............................................................ 26 

Dr. Roger Stark, Healthcare Policy Analyst, Washington Policy Center, 

Seattle, WA .................................................................................................... 33 

Mr. Adam Beck, Assistant Professor of Health Insurance, The American 

College of Financial Services, Bryn Mawr, PA ........................................... 37 

Mr. Jon Gabel, Senior Fellow, National Opinion Research Center, University of Chicago, Bethesda, MD ..................................................................... 45 

Questions for the Record: 

None. 

Answers for the Record: 

None. 

Additional Material for the Record: 

Heath Affairs .................................................................................................... 57 

Letter from Lauren Aronson, Director, Office of Legislation, Centers for 

Medicare & Medicaid Services to Hon. Chris Collins, Chairman, Subcommittee on Health and Technology, Committee on Small Business .... 77 

SBREP-219 with DISTILLER

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(1) 

AN UPDATE ON THE SMALL BUSINESS 

HEALTH OPTIONS PROGRAM: IS IT WORKING FOR SMALL BUSINESSES? 

THURSDAY, SEPTEMBER 18, 2014 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

SUBCOMMITTEE ON HEALTH AND TECHNOLOGY, 

Washington, DC. 

The Subcommittee met, pursuant to call, at 1:00 p.m., in Room 

2360, Rayburn House Office Building. Hon. Chris Collins [chairman of the subcommittee] presiding. 

Present: Representatives Collins, Luetkemeyer, Herrera Beutler, 

Hahn, and Schneider. 

Chairman COLLINS. I call this hearing to order. 

I would like to thank our witnesses for appearing today on our 

Committee’s second hearing regarding the implementation of the 

health care Small Business Health Options Program, which we all 

know as the SHOP program. 

The SHOPs are marketplaces established by President Obama’s 

health care law and are intended to assist certain small businesses 

in shopping for, comparing, and enrolling in health insurance plans 

for their employees. The Administration promised that the SHOP 

Exchanges would simplify the process of obtaining insurance, expand health insurance coverage options for small businesses, increase small business purchasing power to lower costs, and put 

consumers in charge of their health care. 

Unfortunately, the reality of the program is far less than promised. Despite spending vast amounts of time and taxpayer dollars 

regarding the SHOPs, the program continues to be beset by operational delays and other problems that have undermined their utility as a tool for small businesses. These problems include the inability to utilize web-based portals, limited choice of plans, and a 

lack of insurance carrier participation in the SHOPs. 

The Committee has sent multiple letters to then-Health and 

Human Services Secretary Kathleen Sebelius and Administrator of 

the Centers for Medicare and Medicaid Services Marilyn 

Tavenner to express our ongoing concerns about the seemingly 

endless problems besetting this program and to get answers about 

small business participation rates. 

Unfortunately, the answers have not been provided. Specifically, 

in January of this year, Chairman Graves sent a letter to the Department requesting enrollment figures for the SHOPs exchanges. 

This inquiry was followed by another letter in June. To date, the 

SBREP-219 with DISTILLER

2 

responses the Department has provided have not included information on the data on SHOPs enrollment. 

In addition, last year, the Committee commissioned the Government Accountability Office to undertake an examination of the Department’s implementation of the SHOP Exchanges. This report 

found a number of challenges the Department would need to overcome in order to make the SHOPS operational by the Department’s 

original October 1, 2013 deadline. It appears these warnings were 

not heeded and the predictions of problems accurate. 

For small businesses, the lack of operational SHOP Exchanges is 

one in a long list of disappointments and challenges they face in 

the wake of the health care law’s implementation. Small businesses 

also face cancelled health insurance plans, higher premiums, higher deductibles, smaller provider networks, more paperwork, and onerous reporting requirements—all the result of this misguided 

health care law. 

Today, I hope we will hear some answers about what small businesses can expect of the SHOPs and when the health care law will 

start working for them. 

Ms. Hahn is not here so we will let her make her opening statement when she arrives, but we will roll into the testimony of our 

witnesses. 

First of all, to explain the lights, the lights will be green as you 

are speaking. You have five minutes to deliver your testimony. You 

will see them turn yellow and then red. We will not adhere completely to that, but that is how the lights work. 

So now that Ms. Hahn is here, we will delay your testimony just 

a moment and let her set up and have her deliver her opening 

statement. Sorry that we went without you but with the tight time 

schedule we—— 

Ms. HAHN. I heard you went without me without consent. 

Chairman COLLINS. Oh, everyone that was here gave consent. 

Ms. HAHN. Okay. 

Where is my opening statement? 

I am ready. 

Chairman COLLINS. Okay. 

Ms. HAHN. Thank you. 

Chairman COLLINS. I now turn it over to Ms. Hahn for her 

opening statement. 

Ms. HAHN. Thank you, Mr. Chair. It is great to be here. 

My opening statement is in 2010, Congress made history with 

the passage of the Affordable Care Act. And while this law is not 

perfect, it has benefitted families across the country. Families no 

longer find themselves at the mercy of insurance companies. People 

with preexisting conditions can no longer be denied coverage. And 

this year, millions of Americans signed up for health coverage 

through the healthcare.gov website. And the uninsured rate has 

dipped to the lowest level in over a decade. 

But the Affordable Care Act has not just helped families; it has 

helped small businesses also. And while 96 percent of small businesses are not required under the ACA to purchase coverage, those 

that choose to are seeing more options and more savings. For 

years, small businesses in every sector have struggled with the rising cost of health care. In fact, in a study by the National FederaSBREP-219 with DISTILLER

3 

tion of Independent Business, small business owners cited health 

insurance costs as the number one problem facing their business 

in 2012. 

Because of the Affordable Care Act, we are beginning to make 

some progress. In the period since the enactment of the health care 

law, we have seen the slowest health care price growth in almost 

50 years. Employer premiums are now growing at less than half 

the rate of the previous decade. 

Small businesses in particular are seeing benefits. Before the Affordable Care Act, small businesses paid 18 percent more in premiums than their larger competitors for the same benefits. They 

could see their premiums increase dramatically if an employee had 

an accident or was diagnosed with a serious illness. Small businesses could be charged more for employing women or people with 

preexisting conditions, or for operating in blue collar industries like 

construction or roofing. Now, for the first time, small businesses 

have an opportunity to leverage their buying power with other 

small businesses in the SHOP Marketplace. The businesses enrolled in the new marketplaces are finding quality, affordable coverage and many qualify for a tax credit that can cut their premiums by as much as 50 percent. Three hundred sixty thousand 

small businesses have already used the Small Business Health 

Care Tax Credit available through the SHOP Exchanges to help 

them afford health insurance for two million American workers. 

Take Lorenzo Harris, for example. Lorenzo Harris is the CEO of 

Janico Building Services, a full-service janitorial company with 40 

employees in California. This year he transferred Janico’s full-time 

employees from their existing health plan to California’s SHOP Exchange and saw his premium costs go down by 30 percent. He also 

qualified for a health care tax credit of more than $1,000. This is 

great news, and I expect we are going to hear even more success 

stories like this, particularly from California, as the shops enter 

their second year in business. 

Now, I know the Affordable Care Act is not perfect, and I expect 

today that we are going to hear both about some of the successes 

of ACA, as well as some of the criticism of the health care law’s 

implementation. This should prompt us in Congress to fix the areas 

that need improvement. Medicare was passed nearly 50 years ago, 

and we are still making improvements and refinements to that law. 

That does not mean Medicare was a bad law; it means the job of 

Congress is to preserve what works and fix what does not. 

I am looking forward to hearing the testimony of our witnesses 

today and the opportunity to learn more about how we can work 

together to ensure that our small businesses have access to quality, 

affordable health care options. 

And I yield back. 

Chairman COLLINS. Thank you, Ms. Hahn. 

I would now like to introduce our first witness, Mayra Alvarez, 

who serves as the Director of the State Exchange Group at the 

Center for Consumer Information and Oversight at the Centers for 

Medicare and Medicaid Services. Prior to assuming her current position, Ms. Alvarez also served as associate director of the Office of 

Minority Health at the Department of Health and Human Services. 

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4 

She has served on the staffs of Senator Richard Durbin, former 

Congresswoman Hilda Solis, and then Senator Barack Obama. 

Ms. Alvarez, thank you for appearing today, and you may now 

deliver your testimony. 

STATEMENTS OF MAYRA ALVAREZ, DIRECTOR, STATE EXCHANGE GROUP, CENTER FOR CONSUMER INFORMATION 

AND INSURANCE OVERSIGHT; ROGER STARK, HEALTH CARE 

POLICY ANALYST, WASHINGTON POLICY CENTER; ADAM 

BECK, ASSISTANT PROFESSOR OF HEALTH INSURANCE, THE 

AMERICAN COLLEGE OF FINANCIAL SERVICES; JON GABEL, 

SENIOR FELLOW, NORC, UNIVERSITY OF CHICAGO 

STATEMENT OF MAYRA ALVAREZ 

Ms. ALVAREZ. Good afternoon, Chairman Collins, Ranking 

Member Hahn, and members of the Subcommittee. Thank you for 

the opportunity to discuss the benefits of the Small Business 

Health Options Program (SHOP) for small businesses and their 

employees. 

Since last fall, SHOP has been working to provide small employers a new way to shop for health insurance coverage, and we look 

forward to offering even more with the addition of online 

functionality this fall. In the past, although many small employers 

have wanted to offer health benefits to their employees, they have 

faced many challenges. Historically, small businesses have been 

charged 10 to 18 percent more than large employers for the same 

benefits. Small businesses employing women or workers with high 

cost illnesses have faced higher premiums. Because small firms 

have fewer employers to pool than larger firms, premiums often 

vary dramatically from year to year due to changes in just one or 

two workers’ health status or because of small changes in the ratio 

of male to female employees. 

Because the law limits the factors insurers can use in determining the cost of premiums, small businesses can now count on 

more predictable rates, and many qualified small employers purchasing coverage through SHOP can receive further help keeping 

costs down through the availability of the Small Business Health 

Care Tax Credit. The SHOP provides a streamlined way for small 

businesses to offer health coverage to their employees. Similar to 

the individual marketplaces, the SHOP allows small businesses to 

easily compare and select plans that best meet the needs of their 

employees. 

In 2014, the SHOP opened to small employers with 50 or fewer 

employees. In 2016, the program will be open to businesses with 

up to 100 employees. Unlike the individual marketplace, eligible 

employers can begin participating in the SHOP at any time and 

may purchase coverage for their employees at any time during the 

year. They are not limited to a single open-enrollment period. 

This past year, small employers offered coverage to their employees through the SHOP Marketplace by enrolling in coverage 

through an agent, broker, or issuer. During this year, HHS has 

worked to create a seamless, online experience for enrollment 

through SHOP, and we have added key new features for the SHOP 

Marketplace for the 2015 plan year. New features include offering 

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5 

many employees a choice of health plans; enabling employers to 

write just one check regardless of the number of plans that employees choose, a feature that is generally referred to as premium aggregation; and a dedicated online system for agents and brokers to 

assist their SHOP small business clients. Starting this fall, the online, federally-facilitated SHOP Marketplace will offer new health 

coverage options to small employers and make it easier for them 

to shop for, select, and offer employees high-quality health plans. 

And employees will be able to enroll in their employer plan online, 

helping reduce an administrative burden for their employers. 

As we move to make online functionality for the SHOP available 

this November, CMS is committed to acting on lessons learned and 

continuously improving the user experience. One way that we are 

doing this is to give small employers, as well as agents and brokers 

in five states, the opportunity to experience key features of the new 

online SHOP Marketplace in advance of the full launch nationwide. 

During SHOP Early Access, small employers in these states will be 

able to establish a marketplace account, assign an agent and 

broker to their account, fill out an application, obtain an eligibility 

determination, upload their employee roster, and then when available in early November, browse available plans and pricing and 

complete the enrollment process. Early Access will also allow for 

targeted consumer testing before the SHOP functions are made 

available online in all federally-facilitated SHOP Marketplace 

states. This consumer testing will add to the rigorous performance 

and security testing completed prior to going live. 

Beyond the opportunity for online enrollment, we are also making important progress in offering small business employees additional choices for their health coverage. In the past, most small employers were only able to offer a single health and dental plan for 

all of their employees. Now, through the Employee Choice option, 

small businesses in most states will have the option to allow employees to choose any health plan available at the coverage level 

selected by the employer. This provides significant benefits to both 

employers and employees, including lessening the administrative 

burden on employers, while allowing employees to select the plan 

that best fits their needs. 

In addition to choice, we know how important affordability is to 

small businesses. The law created the tax credit to help small employers of lower wage workers afford a significant contribution towards workers’ premiums. Qualified small employers can receive a 

tax credit worth up to 50 percent of their contribution towards employees’ premium costs, and since the tax credit first became available in 2010, it has provided hundreds of thousands of small businesses more than $1.5 billion in tax credits. For too long, small 

business owners have struggled to keep up with the ever-rising 

costs of providing health insurance for their employees. The SHOP, 

combined with new insurance reforms and tax credits, enables 

more employers to provide their employees with high quality, affordable health coverage. 

I look forward to continuing to work with you to improve the 

health care options for America’s small businesses, families, and 

communities, and I am happy to answer your questions. 

Chairman COLLINS. Thank you, Director Alvarez. 

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6 

At this point, I would like to yield to my colleague, Congresswoman Herrera Beutler so she may introduce our next witness. 

Ms. HERRERA BEUTLER. Thank you, Chairman and Ranking 

Member Hahn. I would like to thank you for the work the Subcommittee is doing. 

I am excited to highlight what is happening with the SHOP and 

to see whether or not we are meeting the needs of small businesses 

and to see what we can do about that. 

It is my pleasure to introduce a retired physician and accomplished health care policy analyst from Washington State, Dr. 

Roger Stark. Dr. Stark practiced thoracic surgery in Washington 

State for 20 years and was one of the cofounders of the Open Heart 

Surgery Program at Overlake Hospital in Bellevue, Washington. 

He graduated from the University of Nebraska, College of Medicine, and completed his general surgery residency in Seattle and 

his cardiothoracic residency at the University of Utah. Currently, 

Dr. Stark is a health care policy analyst for the Washington Policy 

Center. He is the author of two books and numerous in-depth studies on health care policy. We are lucky to have Dr. Stark here as 

a valuable resource, who understands the intricacies of the medical 

system as a physician, as well as the intricacies of the Affordable 

Care Act as an analyst, specifically the workings of SHOP in Washington State and the exchanges intended for small business owners. 

So Dr. Stark, welcome. Thank you for being here. Thank you for 

making the very long trip across the country. We appreciate it. 

STATEMENT OF ROGER STARK 

Dr. STARK. Thank you very much, Chairman Collins, Ranking 

Member Hahn. Thank you very much, Representative Herrera 

Beutler. 

Officials in Washington State chose to establish a state-run 

health insurance exchange, including a SHOP Marketplace. Coverage began in 2014. Only one carrier, Kaiser Permanente offered 

plans, and only offered those five plans in two counties in southwest Washington. Although 4,300 small businesses created online 

accounts, only 11 companies with a total of 40 people actually purchased insurance on the SHOP Exchange this year. 

A second insurance company, Moda, has applied to offer 14 plans 

statewide starting in 2015. 

The director of the Washington State SHOP Marketplace, Catherine Bailey, stated that many of the carriers were not interested 

in expending additional resources to be in the Small Business Exchange right away. 

The Government Accountability Office has speculated that the 

use of tax credits and the SHOP enrollment are so low nationally 

for several reasons. The first reason is the complexity of doing all 

the paperwork. 

The second reason that GAO reports is the tax credit is not a 

large enough incentive for many small employers. 

And third, the majority of small businesses have never offered 

health benefits to employees. 

In addition, insurance companies are seeing a drop off in employer-sponsored health insurance for small businesses. The CEO 

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of Well Point, Joseph Swedish, is on record earlier this month stating that small employers are shifting employees to the individual 

exchange or are dropping coverage completely. 

From a policy standpoint, although the employer mandate is a 

critical part of the ACA, the SHOP Marketplace for small businesses seems to be almost an afterthought in the law. There is no 

clear evidence of interest on the part of small companies to provide 

health insurance through a marketplace with tax credits. Small 

businesses are typically startup or low margin companies where 

the added costs of employee health insurance can mean the difference between success and failure. The paperwork and regulatory 

burden in the SHOP Exchange are definite hurdles for small business employers. 

There is no real free market in the individual exchanges or in 

SHOP. Proponents will claim that competition exists. 

Yet, all insurance plans offered in the exchanges must contain 

the 10 government-mandated essential benefits. Insurance premium prices must be approved by the government. Consequently, 

individuals and employers only have government-approved plans 

and not meaningful choices or real competition. Narrow provider 

networks further limit choices. 

The incentive of tax credits has not been significant enough to 

encourage employers to use SHOP. Obtaining the credit is so complicated that small businesses are unwilling or unable to spend the 

time and effort to complete the necessary forms. 

The SHOP Marketplace duplicates the private insurance marketplace with an added burden to taxpayers. Private association 

health plans, for example, have flourished for years without government financial support. Since employer interest and utilization 

of the tax credit is so small, the benefits of the SHOP Marketplace 

are unclear. 

So where to go from here? Designing an insurance exchange, 

whether it is private or government run, offers each state, like 

Washington State, the opportunity to reform health care delivery 

by starting with a clean slate and moving toward a patient-oriented consumer-driven system. The exchange can be a transparent, 

information-based market where individuals and small businesses 

can select the plan most appropriate to their needs. Done right, the 

exchange should be easy to use and should promote decreased 

health care costs. Insurance rates and benefit levels should be set 

by the insurance market and not by government regulations. 

Washington State has 57 benefit and provider mandates that 

overlap the federal benefits. Ideally, an exchange should be able to 

offer an array of mandate-free or mandate-light insurance plans 

that satisfy market needs. Exchanges should not replace existing 

programs that work, such as association health plans. 

Any subsidies in the exchange should flow to and be controlled 

by the patient. Tax credits or premium supports to purchase health 

insurance could also be offered in an exchange. 

Each state should be able to function as a laboratory to design 

the most efficient, cost-effective exchange for small businesses and 

individuals with real choices and competition. 

Thank you very much. I look forward to your questions. 

Chairman COLLINS. Thank you, Dr. Stark. 

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8 

Our next witness is Adam Beck. Mr. Beck serves as assistant 

professor of Health Insurance at the American College of Financial 

Services. Prior to his current position, he practiced law in Philadelphia, Pennsylvania. 

Mr. Beck, thank you for appearing today, and you may now deliver your testimony. 

STATEMENT OF ADAM BECK 

Mr. BECK. Thank you, Mr. Chairman, Ranking Member Hahn, 

Members of the Subcommittee, for the opportunity to appear before 

the Subcommittee today. 

Small businesses and the people who work for them, they combine together to constitute the backbone of the American economy. 

Health insurance is a tremendously valuable and often lifesaving 

financial product, which our tax code affords special status. And 

therefore, it is an important and essential goal to allow small business owners the opportunity to offer quality, affordable health insurance coverage to their employees. 

The Small Business Health Options Program, or SHOP Marketplace, was designed by the 111th Congress to lower costs for small 

business, increase competition, and therefore, choice for business 

owners, and simplify the process of offering health coverage. These 

are laudable goals. However, it is my opinion that the SHOP Marketplace as it is currently structured and presented, falls short of 

these goals. 

I believe that the SHOP Marketplace will remain inadequate and 

continue to enroll relatively few companies so long as three factors 

remain—the existing tax incentives, the lack of engagement of 

agents and brokers, and shortcomings in information technology infrastructure. 

First, the tax incentives are too small, or indeed for most small 

employers, nonexistent. Without substantial and long-term tax 

credits, the cost of plans through the SHOP Exchange has been for 

most employers similar to the cost outside of SHOP and prior to 

the implementation of the Affordable Care Act. While most small 

employers have the desire to offer health coverage, the costs, both 

direct and opportunity, have been prohibitive for many. The Small 

Business Health Care Tax Credit created by the ACA does nothing 

to alleviate the cost burden for most employers. It is a complicated 

tax credit that is available only to a select number of very small 

businesses with few qualifying for the full 50 percent credit, and 

even then, they are only able to claim it for two years. 

The Government Accountability Office estimates that up to four 

million small businesses could qualify for the credit, but this requires that the small business know about the credit and go 

through the difficult process of determining eligibility. Further, 

even by the GAO’s own admission, advocacy groups identify that 

four million figure as the likely high point of potentially eligible 

businesses, with some estimating that as few as 1.4 million employers would qualify. 

Data from the first year of the tax credit in 2010 indicate that 

the overwhelming majority of employees who are eligible for any 

credit were not eligible for the full credit. Only 17 percent, in fact, 

were eligible for that full credit. The greatest obstacle, according to 

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the GAO analysis, was the annual wage requirement. In the first 

year, 68 percent of businesses who received less than the full credit 

would have qualified for the maximum percentage based on the 

number of full-time equivalent employees but failed to qualify 

based on their wages. 

Second, the SHOP Marketplace has not sufficiently engaged or 

compensated the agents or brokers who are so often the conduit to 

the small business community. Many brokers have encouraged 

their small group clients to consider purchasing plans off the SHOP 

Exchange because it requires about half the time of the broker and 

the compensation structure is the same whether the plan is on or 

off shop. States have required training of brokers to be SHOP certified, that many brokers have reported to be unhelpful and inaccurate. Overall, the SHOP Exchange has been very poorly marketed to both businesses and brokers alike. 

Third, and hopefully most obviously, the delay by the administration of the federal-facilitated SHOP Marketplace and the accompanying website limited the ability of small businesses and the 32 

states relying on the federal marketplace, but it also created confusion for business owners, brokers, and navigators in the states that 

had functioning shops. Additionally, states that were operating 

their own SHOP Exchange in 2014 experienced IT problems of 

their own that hindered enrollment. 

I would compare the existing SHOP Marketplace to a new restaurant that despite offering some very good entrees, is struggling 

because of a poor location, minimal advertising, and prices that for 

many are simply too high. It has much potential but it needs much 

to change in order for that potential to be realized. 

Small businesses want to offer health coverage. It simply needs 

to be more affordable, simpler, and facilitated by an experienced insurance broker. The Small Business Health Options Program has 

the potential to offer just that, but marketing, tax credits, information technology, and the agent-broker involvement need to be dramatically increased in order for the program to achieve wider popularity and demonstrate markers of success. 

I thank you for the opportunity to testify, and I look forward to 

your questions. 

Chairman COLLINS. Thank you, Mr. Beck. 

I will now yield to Ranking Member Hahn so she can introduce 

our next witness. 

Ms. HAHN. Thank you, Mr. Chairman. 

It is my pleasure to introduce Jon Gable, the Senior Fellow at 

the National Opinion Research Center at the University of Chicago. 

He has more than 35 years of experience and is a nationally-recognized expert on the private health insurance and has authored 

more than 135 articles in scholarly journals. He is also an adjunct 

professor at the George Washington University in the Health Policy 

Department. He received an M.A. in Economics from Arizona State 

University and an A.B. in Economics from the College of William 

and Mary. 

Welcome, Mr. Gabel. 

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STATEMENT OF JON GABEL 

Mr. GABEL. Thank you. Thank you, Chairman Graves, Ranking 

Member Hahn, Members of the Committee. Thank you for the opportunity to discuss the promise and challenges of Small Business 

Health Options Program or SHOP. I am John Gabel, senior fellow 

at NORC at the University of Chicago. 

NORC is an independent, nonprofit, nonpartisan research organization, whose mission is to conduct objective research in the public 

interests. The views I express are mine and not those of NORC. 

Today, I will discuss factors promoting and inhibiting the success 

of SHOPs. Now, let me, given the time, I want to start off going 

through some graphics. So first, if you can turn to page four. What 

I want to point out—this is data from the Kaiser Family Foundation—that we are going through a period of price stability according to the Kaiser Foundation Survey. In fact, last year there was 

actually a decline in premiums. 

Just a brief history of SHOPs and purchasing pools. Exchanges 

are not a new idea. Over the last 25 years, states attempted to 

build what was termed ‘‘health insurance purchasing co-ops’’ 

(HIPCs), but none enjoyed widespread success. Among the states to 

build HIPCs were California, Connecticut, Washington, Florida, 

Kansas, Colorado, and Kentucky. Connecticut got an 8 percent 

market share and that was considered successful. Massachusetts 

invested more than a million dollars in research and marketing in 

2012–2013 and enrollment is less than 10,000. 

I am going to allude later to the lessons learned of these earlier 

HIPCs, but just note that the authors of the ACA addressed many 

of these earlier shortcomings of the HIPCs. 

Now, if you will turn now to number four, which is on page nine, 

this is a study we did for CCIIO. Here we compare the price of 

plans sold on the SHOP compared to those sold off the SHOP by 

the same metal tier. And what you see is the plans on the SHOP 

are lower cost than those off the SHOP. This may be due to narrow 

networks. This could be due to more nonessential benefits. But in 

any case, the costs are lower on the SHOP. 

If SHOPs are to succeed where HIPCs fail, they must demonstrate added value over the traditional market. Shops can offer 

lower prices, tax credits not available off the SHOPs, wider employee choice, and a defined contribution that reduces the risk of 

future price increases. The authors of the ACA wrote into legislation provisions that would address major problems of earlier 

HIPCs. 

Specifically, they made inside and outside the market played by 

the same underwriting rules. Administratively, CCIIO has tied 

large carriers to participate in the SHOPs. The promise of SHOPs 

is they operate under fair market rules. Prices on the SHOPs are 

lower than off the SHOPs. Lower prices are attributed to maybe 

narrow networks, but for employers seeking lower premiums, 

SHOPs are the place to shop. 

Multiple carriers are participating in the SHOPs in all but one 

state. With the Employee Choice Model, employees can choose from 

multiple carriers and in some multiple tiers. Carriers on the competitive fringe of the small employer market, as well as nonprofit, 

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vertical, integrated organizations such as Kaiser Permanente see 

SHOPs as a way to build their market share. 

If SHOPs and fully ensured plans are to survive, they must 

stand off threats by other insurance systems, such as self-insurance. To paraphrase Lincoln, a house divided cannot stand. Two insurance systems, one risk rated and the other not, will lead to a 

system with disproportionate share of bad risk and one with favorable risk. Such a system will live to the demise of the non-risk 

rated system. 

I want to close with an observation from nearly 40 years of research. Many times I have written why are we making—may I proceed? 

Many times I have written, why are we making such a big deal 

out of HMOs, PBOs, HRAs, and HSAs? They have only X percent 

enrollment. Why are we giving them so much attention? 

All in due time became prominent insurance products, but it required many years of growth. So to paraphrase John Lennon, give 

SHOPs a chance. 

I would be delighted to answer your questions. 

Chairman COLLINS. Thank you very much. 

Here is what we are going to do because our first vote series 

really does not end in nine minutes like that says. We have an 

extra 10, and I would like, in deference to Congresswoman Herrera 

Beutler, allow her to ask her questions, at which point we will adjourn for about 20 minutes. It is only two votes. And then Ms. 

Hahn and I will come back and continue. 

So, I yield to Ms. Herrera Beutler. 

Ms. HERRERA BEUTLER. Thank you, Mr. Chairman. 

I have a few different questions and thoughts. 

I understand, Mr. Gabel, what you were talking about in terms 

of giving things a chance. I think some of the challenges that we 

are seeing in Washington State may allude to a bigger problem. 

A little bit of background for folks. Washington State has called 

successful its implementation of ACA based on the number of individuals it has added to the Medicaid state roles. And regardless of 

whether or not you believe shifting from the private market to the 

Medicaid market is success or not, that is a separate issue. 

On the SHOP-specific exchange, I am gravely concerned because 

we do have association health plans. We do have some other options for the small businesses who want to offer insurance, but 

those are being—I think the screws are being tightened on those 

in favor of the shops; yet, there is only one insurance provider in 

Washington State that partakes of the SHOP. And actually, it is 

only in two of the 39 counties. Next year, there will be one for all 

of the counties, and then those two counties may have a second option, but still that is a major, major challenge because, as you 

noted, premiums increasing, these small business owners do not 

have a lot of options except for push people into the individual 

market. 

So I guess my first question I would like Dr. Stark to speak to, 

as you mentioned, the SHOP Exchanges were supposed to provide 

these business owners with choice and that was going to push 

down the prices. In my view, this has failed. The SHOP has failed. 

But what are you hearing from small businesses? Are you hearing 

SBREP-219 with DISTILLER

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hopefulness? Am I being too critical? You are working with a lot 

of these folks. 

Dr. STARK. Yeah, I do not believe you are being too critical, 

Congresswoman. Our two big business associations in the state of 

Washington are the Association of Washington Businesses (AWB) 

and the NFIB chapter there in Washington. And both of those organizations are in a watch-and-wait mode. I think the individual 

employers are looking to see will SHOP expand? Will there be 

choices? Will there be competition in the SHOP in the state of 

Washington? As it is now, as you alluded to, the association health 

plans are very popular in the state of Washington. The screws are 

being tightened on those. The qualifications are being tightened 

and a lot of business owners are very fearful that those are going 

to go away and they will be left with either putting their employees 

in SHOP or in the individual market. So there is a lot of concern 

on the part of small employers in the state. 

Ms. HERRERA BEUTLER. What do you think if the association 

plans are on their way out and even for next year we do not really 

have much choice for the small businesses, what do you think is 

going to start to happen? What have you seen numbers-wise in 

terms of whether they are offering coverage, not offering coverage, 

or just closing down? Where are they supposed to go? 

Dr. STARK. Well, we have three major employers in the individual market, or three major carriers in the individual market in 

the state of Washington, and so far none of those three have opted 

or elected to participate in SHOP, and we do not see them participating. Certainly, in 2015, it is doubtful; 2016 and 2017, they are 

going to have a product available for SHOP. So I think employers 

are going to be looking at either doing away with coverage and putting individuals—their employees in the individual exchange or the 

individual market, and I think that is probably the biggest option 

that they are going to—or getting out of the health insurance business completely. 

Ms. HERRERA BEUTLER. Do you think that this is going to 

make it—so one of the things I heard I think from Mr. Gabel and 

from Ranking Member Hahn—I cannot remember everybody’s titles—is that marketing could be a piece of this. It is my understanding that for the SHOP Exchange that the state has had about 

$1.4 million to market, and I think your numbers were 11 employers with 40 employees? 

Dr. STARK. Yes. 

Ms. HERRERA BEUTLER. How much would it take? 

Dr. STARK. Yeah, I do not know. I am not a marketing person, 

so I really do not understand. I know our state exchange has been 

marketed fairly heavily, especially in the Medicaid population. We 

have been very successful at signing up Medicaid patients, but I 

am not aware of any big organized campaign on the shop aspect 

of the exchange. 

Ms. HERRERA BEUTLER. So I wonder if that means that part 

of the goal is just to get folks—and my time is up—to get them out 

of group markets all together. But that is just for thought. 

With that I will yield back. Thank you. 

Chairman COLLINS. Thank you very much. 

SBREP-219 with DISTILLER

13 

What we are going to do is adjourn for about 15-ish minutes, 

maybe 20. We will go and cast this vote and then when the second 

vote comes up, Ms. Hahn and I could quickly vote and be back up 

here. I apologize for that but it happens more than not and it is 

outside of our control. 

So with that we will adjourn for about 15 or 20 minutes and then 

we will be back. 

[Recess] 

Chairman COLLINS. I call the hearing back to order. 

So we will kind of jump into questions and I will ask some and 

then leave it to Ms. Hahn to ask a few, and then I may have some 

follow up, and she may have some follow up. So since this is a 

crazy day, I think we will take it from there. 

So I guess, let me start with you, Director Alvarez. We have been 

trying very hard to get the hard data numbers from your group on 

how many businesses have signed up for the SHOP. Maybe the 

state exchanges and the federal, and how many—and we have not 

been successful. Is that data available yet? Do you have those numbers? And if not, when might we see it? 

Ms. ALVAREZ. So just to provide some context, in 2014, small 

businesses had the opportunity to apply for coverage through the 

SHOP program, the paper application utilizing an agent and 

broker or directly through issuers. As a result of that, we are not 

the source of information as far as SHOP enrollment. CMS is not. 

We are working with issuers to get that information so that we can 

better understand the number of small businesses that enrolled in 

coverage through SHOP. And as soon as we get that information 

we will share it with you, as well as with the American public. 

Chairman COLLINS. Is the same true of the state exchanges? 

Were they all paper-based or do we have data from the—what is 

it, is it 18 states that are providing their own? Do we have data 

from them? 

Ms. ALVAREZ. It really does vary depending on the state. Some 

of them are working directly with issuers because they had a more 

manual process, while others are able to send numbers. As soon as 

we have a more accurate picture of what the enrollment in SHOP 

looks like, we will definitely give you that information. 

Chairman COLLINS. There is a sign in my office. People actually 

take pictures of it, ‘‘In God we trust. All others bring data.’’ It is 

the data that will tell the story. So to some extent now we are all 

supposing in doing that there is always a bias. The data takes the 

bias out of it, so I would encourage, certainly as you now move into 

the electronic piece and you are going to be rolling out your, across, 

what is it, five states, kind of an early enrollment piece? 

Ms. ALVAREZ. Yes. 

Chairman COLLINS. My concern has been, and I own a number 

of small businesses, is I sometimes think of the SHOP Exchange 

as a solution looking for a problem because the Chambers of Commerce across the United States did a marvelous job providing small 

businesses with health insurance—sole proprietorships and others. 

In fact, some would argue half the memberships at Chambers of 

Commerce signed up for the health insurance. And now that they 

are no longer in that, Ms. Alvarez, what would you say to those 

like me who would say we had an opportunity through the ChamSBREP-219 with DISTILLER

14 

bers of Commerce. It was working well and now we are into the 

SHOP Exchanges. Any comments there? 

Ms. ALVAREZ. Definitely. It is important to consider that when 

we speak to small business owners, when I have talked to folks 

across the country, they want to provide coverage to their employees. They want the opportunity to give this as a benefit. And what 

we know is that we want to provide that opportunity through the 

SHOP program. 

And when we talk about previous plans that were available to 

small businesses, we have to really talk about the quality of the 

coverage that the small businesses had access to and the risky environment that they were operating in. If one person got sick, premiums would go up. Sometimes if they needed hospitalization or 

treatment, it was not covered because it was not part of the defined 

package of services. What the Affordable Care Act is doing is providing access to health insurance coverage that is high quality, that 

provides a package of essential health benefits, that is going to be 

there when you need insurance the most. That is the reasoning behind ensuring that small businesses have access to these types of 

plans so that they know that their coverage will be there when 

they need it the most. Services like preventive care, hospitalization, 

emergency room care, cancer treatment. Services that we want and 

expect insurance to cover. 

Chairman COLLINS. Sure. So what do you say to the patient 

who had a policy where their drug treatment for cancer was provided and now they have signed on to an exchange and it is not 

covered anymore and their formulary took it out? Or how about the 

person who was going to this hospital and all of a sudden under 

the restrictions of the insurance and the exchange, that hospital, 

they cannot go there anymore. Or their doctor is not in there. So 

I am just curious. Because I think you would agree there are cases 

where cancer coverage has been dropped from the formularies, hospitals have been dropped, and doctors have been dropped. Is that 

not an accurate statement? 

Ms. ALVAREZ. I do not know the specifics of what cases you are 

referring to, Chairman, but what I can tell you is that what the 

marketplace has intended to offer is options for people. 

Chairman COLLINS. Intended. 

Ms. ALVAREZ. It does offer. 

Chairman COLLINS. Okay. But you stated that they get all this 

coverage and I am saying that is just not so. I have had people call 

up and say, ‘‘I had my cancer drugs covered but now under 

Obamacare they have to provide prescription drugs but subject to 

their formulary.’’ Am I wrong? I mean, does Obamacare require 

that every drug be covered under all the formularies? 

Ms. ALVAREZ. Not every drug. 

Chairman COLLINS. Right. So they dropped the most expensive 

ones. 

Does Obamacare require that people can go to any hospital? 

Ms. ALVAREZ. No, the networks vary. 

Chairman COLLINS. Yeah. Sometimes so restrictive. 

How about if you had your doctor you can keep it. Are all doctors 

in these plans? 

Ms. ALVAREZ. The networks vary. 

SBREP-219 with DISTILLER

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Chairman COLLINS. Yeah. In other words, it is, in many cases, 

a very bad day at the office when somebody comes home and says 

to their spouse, ‘‘We lost our hospital, we lost our doctor, and by 

the way, I just lost my cancer coverage.’’ 

So I think it is, again, the facts mean a lot, and I know you are 

sugar-coating it, but these have been very painful times for a lot 

of folks. As was pointed out, small businesses that had insurance, 

and you are right in saying in many cases without prescription 

drug coverage. What I have seen is prior to Obamacare, a lot of 

small companies with younger employees were able to provide that 

Affordable Health Care, and they did not offer prescription drug 

coverage. But in the younger populations, if most of your employees 

are under age 40, to a large extent that insurance was very affordable. Now all of a sudden, they have to provide prescription drug 

coverage so they lost all their insurance. So I would beg to differ 

with you when you again put this happy face on it. 

If I am 35 years old with a young family and I have health insurance and now because the new policy I have to have has prescription drug coverage, which my family does not need because antibiotics are generic, a lot of pharmacies give them away for free. 

Most high blood pressure is generic now. Lipitor equivalents are 

generic now. That was not a good day for folks to come home and 

say I now have no insurance. 

I guess maybe, Dr. Stark, I would ask you to comment on my— 

that is my bias but I have had it come firsthand—if you have heard 

similar things. 

Dr. STARK. In the state of Washington, for example, we know 

at least 290,000 people lost the insurance plan they were on. We 

have no idea how many of those people then went into the individual exchange or how many people signed up on the individual 

market or went without insurance. So no, it is a significant issue, 

at least in the state of Washington; certainly nationally as well. 

Chairman COLLINS. The other thing I have seen is higher 

deductibles. I have seen deductibles go up. So I guess, Director, 

when you talked earlier about small businesses now are comfortable now that they are not going to be penalized for having 

more women than men, they are not going to be penalized for having an older workforce, is that really true? Are you telling me that 

any company anywhere with a bunch of 65-year-old employees is 

going to pay the same insurance as somebody with 22-year-olds? 

Ms. ALVAREZ. So premiums may vary, but they may vary only 

on a set number of factors. Age is one of them, but it is limited to 

three to one. Prior to the Affordable Care Act, older adults could 

pay 10 times more than a younger adult, so now we are limiting 

what that difference can be, as well as geographic area, and tobacco. 

Chairman COLLINS. So men-women is not part of that anymore? 

Ms. ALVAREZ. That is correct. 

Chairman COLLINS. All right. But I know I have seen and 

heard where three to one is fine until they increase the individual, 

the younger. They increase the younger so that they are still getting the same on the older as opposed to keeping the younger the 

same. I mean, have you heard or seen of folks where the young are 

SBREP-219 with DISTILLER

16 

being penalized now? Their premiums are going up more than 

ever? 

Ms. ALVAREZ. I think it is important to consider what the 

health insurance market looked like before the Affordable Care Act. 

You saw health insurance premiums going up by double-digit increases, and no one had an understanding of why. What the Affordable Care Act does now is yes, insurance premiums can go up, but 

they are going up at a slower rate. In some states they are going 

down. 

Chairman COLLINS. So is 20 percent a low rate? 

Ms. ALVAREZ. It varies. Congressman, it varies. 

Chairman COLLINS. There are 20 percent increases being announced all over because—well, let me again, what you know or 

may not know, is it not true that a lot of small businesses last year 

renewed their policies in October to lock in premiums last October 

where they were not subject to many of the mandates but now this 

October, as in a couple of weeks, they are getting their renewals 

and their renewals now compared to what they had are up 20 percent, 28 percent? 

Ms. ALVAREZ. And the opportunity exists to have additional options in the marketplace. That is what the marketplace has intended to do, provide small businesses a choice. We have some preliminary information on 2015 rates for small businesses, and what 

we are finding is that there is going to be a decrease or only a modest increase in those premiums. 

Chairman COLLINS. That is not so. That is just not so. 

Ms. ALVAREZ. That is based on the preliminary information 

that we have, so we are happy to share that once it is available. 

Chairman COLLINS. Once it is available. 

Again, I mean, you are providing this without any data to support it. The data that we have supported is in New York State. 

Now, New York State is running its own exchange. All over the 

place, there is 18, 22, 24 percent increase for these companies all 

over the place. That is hard data. That is published data. 

So again, I am just pointing out in my opinion, and we can agree 

to disagree, this whole SHOP experience is a solution looking for 

a problem. Small businesses that wanted to provide coverage, we 

are providing it. And granted, in many cases, perhaps not with prescription drug coverage, but that made it affordable. Now the easy 

thing for a lot of small businesses is just push people out, cancel 

it, and to some extent say, you know, go into the individual exchange. 

Mr. Beck, I just wonder what experience—I am sharing some of 

mine. I am just wondering if you have any similar—— 

Mr. BECK. Well, the experience that I have seen speaking with 

independent agents and brokers from across the country is that a 

lot of them are concerned that they will lose their small group clients. I think from a policy perspective, the question then becomes 

is that such a bad thing for the marketplace or for the employees 

if they had previously had small group coverage and now are encouraged or even incentivized through their payroll to then go on 

to the individual exchange where they can—statistically they would 

have a likelihood of qualifying for tax credits. But I do definitely 

hear from agents and brokers that small group clients are nervous. 

SBREP-219 with DISTILLER

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I think a lot of the early renewals had to do with uncertainty as 

much as they had to do with concerns about having to cover the 

10 essential health benefits, but whether it is because of the SHOP 

Exchange or simply despite the SHOP Exchange, I think the nature of the small group market is going to change, and that probably has more to do with the availability of the individual marketplace with the tax incentives than it does anything else. 

Chairman COLLINS. Thank you. I think I will reserve additional 

questions so we can hear from Ms. Hahn. And also, I think I saw 

Mr. Luetkemeyer get here, so Ms. Hahn. 

Ms. HAHN. Thank you, Mr. Chairman. 

Again, I think it is important to remember what our health care 

system was like before Congress passed the Affordable Care Act. It 

was a broken system. And fortunately, many of those folk were offering insurance plans that were bad plans. They did not cover 

what was needed. Many times you think you are young and you 

do not need certain prescription drugs or certain coverage, and you 

do not know what is going to happen. That is why it is an insurance plan. I do not think any of us can foretell what is going to 

happen to us, but we know a lot of people were wiped out financially in this country, many small businesses, because of a couple 

of catastrophic illnesses, bad accidents, unforeseen health challenges, and that is what Congress was attempting to fix with the 

Affordable Care Act. And we know that now a lot of individuals, 

even who work for small businesses, have the choice to get insurance. Your insurance does not matter who your employer is. 

I was one of those whose insurance was tied to my employer and 

when I was laid off by a financial investment banking company, my 

only option was COBRA. And you want to talk about high premiums. I was a single mother at the time with three kids. It was 

impossible for me to pay that. So, and being a woman was a preexisting condition. And I know the communities I represent, you 

know, children have a higher instance of asthma because we live 

near big polluters in southern California, and many of those families could not get insurance because their kids already had a preexisting condition. So let us try to remember how bad our health 

care system was in this country. It was very much broken. And the 

Affordable Care Act is an attempt to remedy that. 

Now, if there are places where we can do better, we should work 

together, you know, we should work together and try to do that. 

But certainly, wiping it away and going back to what we had is 

really not an option. And many people who have plans now that 

do not cover certain things, you know, those are plans that they 

chose. So these are plans people actually make the choice for, and 

you can look at all your options. You can line them all up, see what 

is available, see what the cost is going to be, and know. You never 

knew that before with insurance plans. You did not really know 

until you needed it whether or not it was going to be there for you. 

So one of the things, Ms. Alvarez, I was going to ask, it was disturbing, Dr. Stark, to hear, you know, that a lot of insurance companies are not participating in the SHOP, and that is not good for 

consumers. We know that competition does drive down cost, and we 

know that is better. So I was going to ask you, what are you doing 

to ensure that insurance carriers do participate? How can we do a 

SBREP-219 with DISTILLER

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better job? Is there something we can do here in Congress to encourage insurance companies to participate in the various SHOPs 

and exchanges? 

Ms. ALVAREZ. We completely agree. We think competition does 

drive down cost for small businesses and individuals alike. And we 

are encouraged by some of the preliminary information we are seeing and participation in the SHOPs for 2015. Based on this preliminary information, we do anticipate that every state will have coverage in their SHOP market. And I do think it is a continual improvement process. The first year had some issues. The second year 

we are working on those issues and improving them, such as adding online functionality come November 15th, and that is the process of setting up this program, ensuring that we are learning from 

the lessons that we experience and improving for the next year. So 

2015 is going to have online functionality come November 15th. We 

will learn valuable lessons this year and we will make it even better in 2016 and 2017. But yes, I agree that we are looking at better 

competition for small businesses across the country with greater 

participation by issuers. 

Ms. HAHN. And just to follow up on that, do you think that is 

a long enough period to launch in October in five states and then 

in November a full launch? Is that enough time for us to look at 

this pilot launch and learn and make enough changes if need be? 

Is that a long enough time? 

Ms. ALVAREZ. So just to clarify, we have done all of the necessary security testing and end-to-end testing in order to have a 

nationwide launch come November 15th for online functionality of 

the SHOP program. What we are doing at the end of October is 

providing early access to five states and, based on their market, 

based on on-the-ground agent and broker participation and a network of small businesses to give us their feedback of what the 

SHOP online marketplace looks like. They will be able to upload 

their employee roster, fill out an application, get an eligibility determination, and be able to access that website and identify any 

glitches or issues that we can then turn around and address for 

November 15th. 

And, coupled with that, we are reaching out to agents and brokers to ensure that they have the opportunity to access a new portal that is established for agents and brokers to, again, be able to 

fill out their information so small businesses can assign themselves 

to this agent and broker, and be able to monitor activity once open 

enrollment begins. It is intended to identify any last minute 

glitches or issues so that we can be ready when we launch nationwide on November 15th. 

Ms. HAHN. Right. Because we cannot afford another bad rollout 

of this. 

Mr. Gabel, I was just was going to—it looked like you wanted to 

respond earlier, which you are welcome to do. But I know you sort 

of talked about some of the features, like getting one bill, writing 

one monthly insurance check, comparing plans that were positive 

benefits. Did not know if you could give us some more of your findings that you are hearing that are positive benefits from SHOP Exchanges. 

Mr. GABEL. Okay. Just for the record—— 

SBREP-219 with DISTILLER

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Ms. HAHN. Is your mic on? 

Mr. GABEL. Just for the record, we studied 26 states. Washington is the only state with one carrier. Some states, like Maryland, have 10 carriers. There are too many—it is in my testimony— 

too many have two carriers, but Washington is not typical. 

And also, for the record, about 45 percent of small employers do 

not offer coverage, but that number is not declining. That number 

stayed relatively constant over the last couple of years. So, so far 

we do not see a movement towards individual exchanges. 

What we can say, we did a survey for the Commonwealth Fund, 

and it is in my testimony. We asked small employers what you are 

looking for, and what we found was many of the attributes of 

SHOPs are what small employers are looking for. For example, if 

you will go to page seven, you have about 41 percent say it is very 

important to have more plans choices, and 34 percent say somewhat important. Ability to compare plans, 68 and 23 percent. That 

is very important. These are firms offering coverage. Having a 

third-party payer as a go-to or to answer questions, that is very important to about 40 percent roughly. And even for firms that do not 

offer coverage, the most important item basically is—well, two 

items—costs less than it does today. And as I showed you, the 

SHOP plans cost less than the plans off the marketplace. And another one is sick employee will not increase the cost. 

Being a small employer in the pre-ACA days was a risky business because you never knew if you are offering coverage now and 

all of a sudden one of your employees gets cancer and then the next 

thing you know nobody wants to ensure your group. Or they will 

give you a prohibitively high premium. So I think those are aspects 

that will appeal to small employers. 

Now, let me just also say the history of—this is not a new concept. Health insurance purchasing pools were really thought of as 

the solution back in the late ‘80s and the ‘90s, and a number of 

states sponsored them. But nobody had succeeded. But the way the 

SHOPs are organized, they have addressed some of the problems 

that the previous health insurance exchanges faced and could not 

overcome. 

Ms. HAHN. Thank you. 

Chairman COLLINS. Thank you, Ms. Hahn. 

I would like to yield to Mr. Luetkemeyer. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

I would like to read to you a little statement from the folks that 

own and operate an animal hospital close to where I live. This particular business has nine employees and they say, ‘‘I am skeptical 

about whether the Affordable Care Act will help my employees in 

the long run, but the rollout is such a mess it may cost me thousands of dollars extra in the first couple of years. I am required to 

enroll in the SHOP program, not just an ACA-compliant program, 

which I already am enrolled in. Or I may stand to lose the tax 

credit. The problem is the laws change on a weekly basis so even 

the insurance companies cannot tell me what to do in advance to 

ensure I will make the correct decisions. The worst case scenario 

is I will lose the tax credit and my employees will lose their employer-provided health care. I am spending hours and days trying 

to figure out what the best route is to take, but as mentioned 

SBREP-219 with DISTILLER

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above, no one has the answers to what I need to do to make the 

best business decision. At this point, I am planning on sticking 

with the plan I recently enrolled in after hours of research by myself and my financial advisors and let the government tell me later 

whether this is the correct plan or not.’’ 

This is the dilemma that many of my small business folk have. 

And so the question I have for you, Ms. Alvarez, is will the temporary or limited tax credit be available to businesses outside the 

SHOP Exchanges in a situation like this gentleman due to the 

delay online and/or when the administration starts allowing or continues to allow certain individuals to obtain the taxpayer subsidies 

outside the individual exchange? 

Ms. ALVAREZ. The tax credit is available for SHOP plans that 

are available through the SHOP Marketplace. 

Mr. LUETKEMEYER. So if he shops outside it, he does not get 

it? 

Ms. ALVAREZ. It depends, honestly. For the state of Washington, in the first year of enrollment in the SHOP program, we 

actually worked with Treasury to ensure that small businesses in 

the state of Washington still had access to the tax credit. 

But one important point of clarification is that no small business 

with less than 50 employees is required to offer coverage to their 

employees. The SHOP program is intended to provide options for 

small businesses if they want to provide their employees coverage. 

So for this veterinary hospital, while I do not know the specifics, 

I would want to clarify to them that they are not required. But I 

would expect that, like many small business owners, they want to 

offer this coverage and we want to get them answers to the information that they need. So we have a dedicated SHOP call center 

to provide answers. We have many partners on the ground willing 

and able to answer those questions, and we are more than happy 

to work with you, Congressman, to get them that information. 

Mr. LUETKEMEYER. Okay. Next question, HHS and IRS decided last year that employees could no longer provide tax-free contributions to standalone reimbursement arrangements so that employees could purchase their own individual coverage. There are a 

lot of employers that use this that cannot afford to pay full insurance but they will pay $100, $200, $300 per employee per month 

or per week, whatever their pay period is, to be able to do that. The 

continuous arrangement will result in $100 per employee per day 

penalty, and many folks are not aware of this strict fine. Do you 

not think that the SHOP program should be encouraging innovation like this to be able to make and support the employers to be 

able to help their employees afford health insurance rather than 

penalize them? 

Ms. ALVAREZ. What the SHOP program is doing is giving options to small businesses to have access to quality, affordable coverage. What I think you are referencing is the Department of 

Treasury rule. 

Mr. LUETKEMEYER. Right. HHS and IRS—— 

Ms. ALVAREZ. Right. 

Mr. LUETKEMEYER.—together made the decision. 

SBREP-219 with DISTILLER

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Ms. ALVAREZ. And the understanding for the SHOP program is 

intended to provide those options for small businesses. Before the 

Affordable Care Act, whatever available health plan—— 

Mr. LUETKEMEYER. So with the SHOP program they can pay 

only part of the premium? 

Ms. ALVAREZ. They have to be willing to pay at least 50 percent 

of the cost of coverage. 

Mr. LUETKEMEYER. Okay. So if they have 10 employees and they pay the cost per employee is $300 a month and they pay $150, 

they are okay is what you are telling me? 

Ms. ALVAREZ. I am sorry. Say that one more time. 

Mr. LUETKEMEYER. Okay. If the cost of the program is $300 per month per employee, and they then pay $150 towards that, 

that is okay? The employee picks up the rest? 

Ms. ALVAREZ. If you are using ‘‘program’’ as the key word for 

health insurance available through the SHOP program, yes. What 

we are trying to do is incentivize small businesses who are offering 

coverage to their employees, and that is done so through this tax 

credit. It is worth up to 50 percent of the cost of coverage for these 

employers that are contributing to employees’ coverage. And that 

is available. It has been available since 2010 at 35 percent. It is 

going up to 50 percent, and we will know more information about 

how many small businesses took advantage of this opportunity 

soon. 

Mr. LUETKEMEYER. Published reports have got that the president has waived a lot of different businesses from having to have 

business coverage for their employees. Can you tell me the basis 

for those waivers? 

Ms. ALVAREZ. What we have been able to do is provide flexibility to employers that may not have been ready to transition into 

this market. And that is what we have been doing based on feedback from businesses. That is what we are trying to do with implementation, is be able to better understand and reflect the needs of 

Americans where possible with implementation of the law. Through 

the health insurance marketplace, it was up and running in 2014, 

and millions of people were able to have coverage as a result of it. 

Today, we announced that 7.3 million people were enrolled in coverage and paid their premiums. 

Mr. LUETKEMEYER. Can I ask that question again? Because I 

am not getting an answer for it. 

I asked the question, on what basis were the waivers given by 

the president for certain businesses? 

Ms. ALVAREZ. It was based on our authority as the assigned departments to implement the law. 

Mr. LUETKEMEYER. Okay. You were able to do it based on the 

authority, but what was the basis for the decision on why certain 

businesses got the waiver and other businesses do not get the waiver? 

Ms. ALVAREZ. Implementation of this complex law requires a 

lot of stakeholder engagement and feedback and that is what we 

listened to. And looking at the different provisions, where we had 

flexibility, based on our authority, we were able to do so. 

Mr. LUETKEMEYER. So the business had to come in to you and 

make a case that we cannot afford this? Or it is going to bankrupt 

SBREP-219 with DISTILLER

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us? Or I cannot compete anymore with my competitor? What was 

the basis for the decision? 

Ms. ALVAREZ. Sir, the conversations with the secretary and 

leadership are not ones that I am privy to. 

Mr. LUETKEMEYER. Yeah, but you are administering the program; right? 

Ms. ALVAREZ. I can tell you that the changes that were made 

to the program—— 

Mr. LUETKEMEYER. So what were some of the businesses that 

were waived and why did they get those—you do not know why 

they were given the waivers? 

Ms. ALVAREZ. It was done in order to be flexible with implementation and to be responsive to the needs of the market. 

Mr. LUETKEMEYER. But you do not know the basis of the 

waiver? 

Maybe she knows the basis of the waiver. 

Ms. ALVAREZ. I can definitely get back to you with that information. 

Mr. LUETKEMEYER. Oh, Mr. Chairman, Mr. Chairman, another day at the capital. 

I yield back. 

Chairman COLLINS. Thank you, Mr. Luetkemeyer. 

We will now yield to Mr. Schneider. Five minutes. 

Mr. SCHNEIDER. Thank you. Brad Schneider from Illinois. 

I want to thank the witnesses for being here. I appreciate your 

input and time. 

The Affordable Care Act is often a contentious issue, but I think 

many of us on the Committee can at least agree that the issues 

small businesses are facing, have been facing in the marketplace, 

are difficult. Cost was not the only rising—was not only rising at 

unsustainable rates for small businesses and employees, but it was 

also proving to be an efficient and effective coverage that many 

businesses and individuals working in those businesses were receiving. 

Both of these problems have the effect of ultimately stifling economic growth and putting businesses and individuals unnecessarily 

at undue risk. I know that in the early ‘90s we were seeing doubledigit increases routinely in my insurance agency. The SHOPs take 

steps to address these issues, but clearly the implementation has 

not been perfect. 

I guess Director Alvarez or Dr. Stark, maybe to one of you, Dr. 

Stark, in your testimony you indicated that when the plan was introduced, when SHOP plans came online, there were upwards of a 

million potential businesses, but so far only 170,000 recipients took 

the tax credit in 2011. Delivery has been inefficient. With an estimate so much higher, what can we do to streamline the process to 

make it more efficient to help these small businesses take advantage of the SHOP? 

Dr. STARK. I think there is a broader answer to your question, 

or maybe it should be a broader question, and that is what should 

the employer-employee model really look like? Is the SHOP an effective way really to provide the sort of health insurance that employees need? 

SBREP-219 with DISTILLER

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First of all, it is unclear that employers should be in the health 

insurance market. Traditionally, they are. They have been since 

the mid-1940s. Should that be the model for the country? And quite 

frankly, I do not think it should be. 

So then the second part to your question is, well, what can we 

do with SHOP? Well, again, if you really want to help employers, 

then you have to increase the competition and you have to increase 

choices that they are going to have in SHOP, and you have to get 

away from the 10 essential benefit mandates that really make 

every product sold in SHOP exactly the same. You have to get 

away from government pricing, which really limits what insurance 

carriers can charge, and I think that is the answer to it. Set up 

an exchange that is transparent, that offers people an array of 

products that they can use. 

Mr. SCHNEIDER. Dr. Alvarez? Or Director Alvarez? I am sorry. 

Ms. ALVAREZ. The biggest problem, I think, with that approach 

would be adverse selection and the fact that people that need more 

services are going to select the plans that have more services, and 

it will be more expensive for them. And that is not leveling the 

playing field for Americans across the country. What the Affordable 

Care Act does, with the essential health benefits package, is just 

that. Insurance has to pool risk. There have to be people who are 

sick and people that are healthy coming together in a pool in order 

to balance it out and have better access to competition which drives 

down cost. But that is the expectation because no one knows what 

is going to happen in their life, if there is going to be a car accident 

or a serious diagnosis or if we are going to need prescription drug 

coverage sometime. We do not know. We do not know what tomorrow holds for us, and insurance should be there when we need it 

the most. That is the premise. 

Mr. SCHNEIDER. So, Mr. Gabel, I think you touched on this. By 

definition, small businesses do not have the numbers to pool risk 

to get the benefit of the law of large numbers. What are your 

thoughts? 

Mr. GABEL. Most definitely, they do not. And I believe that you 

have to have a minimum benefit package because without a minimum benefit package, let us say all the people who do not think 

they have mental health problems will not have mental health benefits, and they will not cover it. And they will not cover it. Whereas, those with mental health benefits, people with mental health 

benefits will go in. This has happened historically. This will most 

definitely occur. 

I do want to say this. The average plan before the ACA of a 

small employer was a little bit less than .80 or .79, something like 

that. So this is not like the individual market. Before the ACA, the 

individual market, 50 percent of the plans did not meet the actuarial .6 threshold. 

Mr. SCHNEIDER. Okay. 

Mr. GABEL. Most, almost all the small employer plans in the 

country had a .6 actuarial value before. 

Mr. SCHNEIDER. Great. Well, thank you. I am out of time so 

I will yield back. 

Chairman COLLINS. Okay. I guess to finalize where we are, 

maybe a couple of questions then, I guess. 

SBREP-219 with DISTILLER

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Dr., or Director Alvarez, I am assuming the government has provided funding to the states, however many that is, the 18 or so 

states that are creating SHOP Exchanges. I am assuming that is 

correct. Can you tell us how much has been spent towards the 

SHOP Exchanges in those 18 states? 

Ms. ALVAREZ. I do not have the specific figures in front of me, 

but just one point of clarification, Congressman. What we have 

done is give establishment grants to state-based marketplaces. We 

have not given specific money for the establishment of a SHOP 

Marketplace. It is related to the establishment of the state-based 

marketplace. And as one of their requirements of operating a statebased marketplace, it is also operating a SHOP. 

Chairman COLLINS. So let us go back to the data piece. Now, 

today, Administrator Tavenner did say 7.3 million folks, individuals have enrolled in health plans. Are any of those SHOP enrollments or are they all on the individual side? 

Ms. ALVAREZ. They are all on the individual market. 

Chairman COLLINS. So we still do not have any numbers on the 

SHOP? 

Ms. ALVAREZ. We are working to get that information for you. 

Chairman COLLINS. Well, and so let me just conclude by encouraging anyone and everyone in your arena to get the data because I know as a business guy, I cannot even imagine flying blind 

the way we are. We would like to answer the question, how many 

businesses are taking advantage of it? How many employees are 

taking advantage of it? What is the cost? And then once you have 

got that benchmark, you can go quarter-to-quarter, month-tomonth, because on the SHOPs they can sign up every month, so 

it is not like a snapshot which we may have on the individual, that 

anything we could do to have that data will let the taxpayers understand how their money has been spent. And without it there is 

a frustration that I have and others where we are supposing 

things. And I think you understand that frustration. So if you could 

just let us know, and sooner than later where we are. 

So I was just wrapping up. I did not know if you had anything 

else to add or not, Ms. Hahn? 

Ms. HAHN. No. Just thank you to all of you for coming and expressing your concerns. Director Alvarez, I really appreciated and 

was impressed by your knowledge of the situation and your ability 

to clarify and illuminate for us what the intended purposes are of 

the Small Business SHOP Exchange. And again, I would reiterate 

my opening comments that certainly we have already found out 

things are not perfect, but I am dedicated to and committed to, and 

I hope my friends across the aisle are as well, to fixing what we 

think needs to be fixed because ultimately I think this is a good 

law and a lot of it I think has helped we already know millions of 

Americans. So thank you for being here today. 

Chairman COLLINS. I also would like to thank everyone for appearing and just concur that this health care debate is going to be 

continuing for some time to come. And the more data we have, the 

better the context can be. We do not have to talk over each other. 

The debate should be on the data, which then will lead us to see 

where we are going. 

SBREP-219 with DISTILLER

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And I would like to point out though, I am a small business 

owner, and I probably visit in any given week when I am back in 

the district, 15 or 20 small businesses. And I can tell you universally that the biggest problem they bring up is Obamacare. The 

mandates on hours and the fact that they are cutting workers’ 

hours to 28 hours, and I hear this prescription benefit cost which 

can be 25–30 percent, the cost of insurance, and some of these folks 

with young employees do not have any need for it. So what we are 

doing is penalizing the young and the healthy in order to provide 

for the old and the sick, and I understand that balance, but let us 

face it, the young and the healthy are not signing up at anywhere 

near the percentage that was put out, and partly as a result we 

are now seeing some of the costs go up because they have got a 

year of data and the young and the healthy were not there for it. 

Ms. HAHN. May I just add one thing? 

Chairman COLLINS. Sure. 

Ms. HAHN. I also visit lots of small businesses in my district in 

Los Angeles. I have business roundtables all the time I make it a 

point to walk into, and universally, the biggest concern that my 

small businesses have are not with health care but with the economy. They want more customers, and their access to capital. Many 

of my small businesses, particularly my women-owned and minority-owned businesses, want to find out how they can access small 

business loans so that they can grow, expand, and hire people. 

That is what I hear universally. 

Chairman COLLINS. We could have a whole discussion about 

Dodd-Frank and what that has done to the economy, but we will 

not be there today. 

So again, you have all provided valuable insight and I appreciate 

your attendance. 

I will ask unanimous consent that members and the public have 

five legislative days to submit supporting material into the record. 

And hearing no objections, so ordered. 

The hearing is now adjourned. 

[Whereupon, at 2:51 p.m., the Subcommittee was adjourned.] 

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A P P E N D I X 

SBREP-219 with DISTILLER


Insert offset folio 26 here 89780.001
27 

1http://www.commonwealthfund.org//media/Files/Publications/In%20the%20Literature/ 

2006/May/Benefits%20and%20Premiums%20in%20Job%20Based%20Insurance/ 

Gabel—benefitspremiumsjobbased—925—itl%20pdf.pdf 

Statement of Mayra E. Alvarez on 

‘‘An Update on the Small Business Health Opti8ons 

Program: Is It Working for Small Businesses?’’ 

U.S. House Committee on Small Business Subcommittee on 

Health and Technology 

September 18, 2014 

Chairman Collins, Ranking Member Hahn, thank you for the opportunity to discuss the many benefits that the Affordable Care Act 

is providing for small businesses. The Affordable Care Act has improved the insurance market for small employers, making it easier 

for them to find and purchase employee health coverage. Qualified 

small employers can now purchase coverage for their employees 

using the Small Business Health Options Program (SHOP), and 

small businesses are receiving a more generous tax credit in 2014 

for offering their employees a qualified health plan through the 

SHOP in their states. Small employers will see even greater options this fall when the online functions of the Federally-facilitated 

SHOP Marketplace, and those of many state-based SHOPs, become 

available on November 15. 

In the past, although many small employers have wanted to offer 

health benefits to their employees, they have faced many challenges. Historically, small businesses have been charged 10 to 18 

percent more for the same benefits compared to large employers.1

Small businesses employing women or workers with chronic or 

high-cost illnesses, or with pre-existing conditions, have faced higher insurance rates in most states. Because small firms have fewer 

employees to pool than larger firms, premiums varied dramatically 

from year to year due to changes in just one or two workers’ health 

status or because of small changes in the ratio of male to female 

employees. The Affordable Care Act limits the factors insurers can 

use in determining what they charge small business and thus helps 

provide small businesses more predictable rates. In doing so, the 

law helps small employers provide their employees with high-quality, affordable health care coverage that cannot be priced so high 

that it’s out of reach for businesses just because someone gets sick. 

Affordable Care Act Implementation: Building on Progress 

in Affordability, Access and Quality 

A new wave of evidence shows that the Affordable Care Act is 

working to make health care more affordable, accessible and of a 

higher quality, for families, seniors, businesses, and taxpayers 

alike. Thanks to the Affordable Care Act, consumers today enjoy 

better access to affordable health coverage, stronger protections in 

the case of illness or changes in employment, and a competitive 

SBREP-219 with DISTILLER

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2 Council of Economic Advisers. 2014. ‘‘Recent Trends in Health Care Costs, Their Impact on 

the Economy, and the Role of the Affordable Care Act.’’ Economic Report of the President, http:// 

www.whitehouse.gov/sites/default/files/docs/erp—2014—chapter—4.pdf 3 Jason Furman. ‘‘Good News on Employer Premiums Is More Evidence of a Dramatic Change 

Economic Change for the Better,’’ http://www.huffingtonpost.com/jason-furman/good-news-onemployer-pre—b—5798244.html 4http://kff.org/report-section/ehbs-2014-section-one-cost-of-health-insurance/ 

5 New England Journal of Medicine, Health Reform and Changes in Health Insurance Coverage in 2014. 

Marketplace that allows them to choose from and enroll in insurance coverage that is right for them. Millions of people—including 

many of the self-employed—have obtained private insurance coverage in the Marketplace, over seven million children, families, and 

individuals have gained coverage through Medicaid and CHIP, and 

more than three million young adults gained or retained insurance 

under the Affordable Care Act by staying on their parents’ plan. 

Recent years have seen historically low growth in overall health 

spending, and a variety of recent data show that very slow growth 

in health care costs is continuing.2,3 In fact, just last week, the 

Kaiser Family Foundation and Health Research and Education 

Trust reported the premiums for small businesses rose by just 1.7 

percent from 2013 to 2014, the smallest increase since the organizations’ survey began in 1999.4 These increases are far below the 

double-digit increases small businesses experienced in the decade 

before the Affordable Care Act was enacted. 

Several recent reports make clear that the Affordable Care Act 

is reducing the uninsured rate. A study published in the New England Journal of Medicine found that, as compared with the baseline trend, the non-elderly uninsured rate declined by 5.2 percentage points by the second quarter of 2014, a 26 percent relative decline from the 2012–2013 period, corresponding to 10.3 million 

adults gaining coverage.5 These independent surveys point to the 

same overarching trend—the success of the Affordable Care Act in 

lowering the number of uninsured Americans. 

The Affordable Care Act benefits Americans broadly, not simply 

those who are newly insured. Over the past three years, Americans 

have benefitted from insurance reforms that have already gone into 

effect, such as allowing adult children up to age 16 to stay on their 

parents’ insurance, eliminating lifetime dollar limits on essential 

health benefits, and prohibiting rescissions of insurance when 

someone gets sick. Preventive benefits, including wellness visits 

and certain cancer screenings with no cost sharing, as well as new 

incentives to pay doctors and hospitals for improving outcomes, are 

aimed at improving the quality of the health care that Americans 

receive. Now pre-existing conditions no longer preclude individuals 

from gaining health insurance, and consumers have better access 

to comprehensive, affordable coverage. Consumers now have the 

comfort of knowing that if their employment changes or they lose 

their current coverage, they can purchase affordable coverage 

through the Marketplace—regardless of their personal health history—or have access to Medicaid in many states. Small business 

owners can be assured that they will not face wide variations and 

high volatility in premiums based on the type of work they do or 

the health status of their workers. 

SBREP-219 with DISTILLER

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The Affordable Care Act’s reforms are effective because they 

have benefits across the health care system. Reductions in the uninsured rate should mean doctors and hospitals provide less uncompensated care, a cost that is often passed along to taxpayers, 

as well as consumers and employers who pay premiums for health 

coverage. And new pools of people buying insurance means insurers 

have an opportunity to grow by competing to provide better access 

to quality, affordable choices—the same advantages that consumers 

are used to in any competitive marketplace. The creation of a viable health insurance market benefits all Americans, no matter 

where they get their health insurance. 

Small Business Health Options Program (SHOP) 

The Affordable Care Act established the Small Business Health 

Options Program (SHOP) to make it easier for small businesses to 

obtain health coverage for their employees. Just as in the individual Marketplaces, the SHOP allows small businesses to easily 

compare and select plans that meet the needs of their employees. 

In 2014, the SHOP opened to small employers with 50 or fewer 

full-time equivalent employees. In 2016, the program will be open 

to businesses with 100 or fewer full-time equivalent employees. It 

is important to remember that unlike the individual Marketplace, 

eligible employers can begin participating in the SHOP at any 

time, and are not limited to a single open enrollment period. Just 

as they always have, small employers may purchase coverage for 

their employees throughout the year. 

This past year, small employers have offered coverage to their 

employees through the Federally-facilitated SHOP Marketplace by 

receiving an eligibility determination from the SHOP, and enrolling 

in coverage through an agent, broker, or issuer. Some of these employers have also been able to claim the small business health care 

tax credit, which can cut their premiums by as much as 50 percent. 

Since August 2013, small employers have been able to contact a 

dedicated call center with questions about the Affordable Care Act 

and Federally-facilitated SHOP enrollment. HHS also added new 

small business online tools to HealthCare.gov earlier this year, including a consumer-friendly small business health care tax credit 

estimator that helps small employers determine if they qualify for 

the small business health care tax credit and how much it could 

be worth for a small employer. 

Consistent with state law, agents and brokers are playing a vital 

role in the SHOPs, as they do in the small group market today. 

Agents and brokers act as trusted counselors, providing service at 

the time of plan selection and enrollment and customer service 

throughout the year. For the 2014 plan year, more than 79,000 

agents and brokers trained to assist consumers in the Federally-facilitated Marketplace—including many who completed the SHOPspecific course. The SHOP Call Center is also available to help 

agents, brokers, Navigators, and other Marketplace approved assisters specifically working on behalf of small employers in states 

participating in the Federally-facilitated Marketplace. 

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HHS has worked to create a seamless online experience and add 

key new features for the Federally-facilitated SHOP Marketplace 

in 2015. New features include offering employees a choice of health 

plans, premium aggregation services, and a dedicated online system for licensed agents and brokers to assist their SHOP small 

business clients. Starting November 15, the online Federally-facilitated SHOP Marketplace on HealthCare.gov will offer new health 

coverage options to small employers with one to 50 employees, and 

make it easier for them to shop for, select and offer employees high 

quality health plans and dental plans, and allow employees to enroll online. 

SHOP Early Access 

As we move to expand online functionality for the SHOP this November, CMS is committed to acting on lessons learned and continuously improving the user experience. Thus, small employers, 

agents and brokers in five states—Delaware, Illinois, New Jersey, 

Missouri, and Ohio—will have the opportunity to experience key 

features of the new online SHOP Marketplace on HealthCare.gov, 

in advance of the full SHOP Marketplace launch nationwide on November 15. During ‘‘SHOP Early Access’’, small employers in these 

states will be able to establish a Marketplace account, assign an 

agent/broker to their account, complete an application, obtain an 

eligibility determination, upload their employee roster, and—when 

available in early November—browse available plans and pricing. 

Beginning on November 15th, small employers in these states and 

others participating in the Federally-facilitated SHOP will be able 

to complete their plan selection and enrollment and offer coverage 

to their employees that takes effect as soon as January 1, 2015. 

Early Access will also allow for targeted consumer testing with 

small businesses, agents, brokers, and assisters before the SHOP 

functions are made available online in all Federally-facilitated 

SHOP Marketplace states. This consumer testing will add to the 

rigorous performance testing completed on the core software product and interfaces prior to Early Access and go-live. 

SHOP Employee Choice 

We are also making important progress in offering small business employees additional choices for their health coverage. In the 

past, most small employers were only able to offer a single health 

and dental plan for all of their employees. Now, through the ‘‘employee choice’’ option, small businesses in many states will have the 

option to allow employees to choose any health plan and dental 

plan available at the coverage level selected by the employer. Employee choice provides significant benefits to both employers and 

employees. It can lessen the administrative burden on employers 

and allow employees to select the plan that best fits their individual and family circumstances. Additionally, in 2015, all employers participating in the Federally-facilitated SHOP Marketplace 

will make their monthly premium payments directly to the SHOP 

Marketplace, which will disburse payments to all of the different 

SBREP-219 with DISTILLER

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plans selected by employees when employee choice is offered, thus 

further reducing administrative hassle for employers. 

In addition to expanding choices for consumers, employee choice 

has the potential to facilitate greater market competition in 

states—making it possible for smaller, less established issuers to 

break into small group markets and encourage all small group 

market issuers to compete based on price, customer satisfaction, 

and other quality measures. 

HHS is aware that small business markets differ from state-tostate. To help smooth the transition to employee choice, HHS has 

allowed State Insurance Commissioners to request that the SHOP 

in their state defer implementation of the employee choice provision in 2015 if, in the Insurance Commissioner’s expert judgment, 

doing so would be in the est interests of small employers and their 

employees and dependents. HHS is committed to implementing employee choice in a way that learns from early experience and ensures success. In total, 14 states with a Federally-facilitated SHOP 

Marketplace plus most State-based SHOPs will make employee 

choice available to small businesses in 2015, doubling the number 

of states offering this option. In 2015, nearly two-thirds of Americans will live in states where small business employees could be offered the option to choose a health plan rather than have their employer do it for them. 

Small Business Health Care Tax Credit 

In addition to choice, we know how important affordability is. 

The Affordable Care Act created the Small Business Health Care 

Tax Credit to help small employers of lower wage workers afford 

a significant contribution towards workers’ premiums. An employer 

may qualify for a tax credit if it has fewer than 25 full-time-equivalent employees making an average of less than $50,000 a year (as 

adjusted for inflation beginning in 2014). To qualify for the Small 

Business Health Care Tax Credit, an employer must also pay at 

least 50 percent of the premium cost of employee-only coverage for 

each of its employees. For tax years starting in 2014, the tax credit 

can be worth up to 50 percent of for-profit employer’s contribution 

towards employees’ premium costs and 35 percent for non-profit 

employers, and is generally available only when employees are enrolled in SHOP coverage. The 2014 maximum credit amount for the 

Small Business Health Care Tax Credit is a significant increase 

over the maximum amount for the credit from 2010–2013, when it 

should be worth up to 35 percent of employer-paid premium costs, 

or 25 percent for tax-exempt employers. Since the Small Business 

Health Care tax credit first became available in 2010, it has provided hundreds of thousands of small businesses more than $1.5 

billion in tax credits. 

Conclusion 

In conclusion, for too long, small business owners have struggled 

to keep up with the ever-rising cost of health insurance for their 

employees. The Affordable Care Act makes it easier for businesses 

to find better coverage options and builds on the current employerSBREP-219 with DISTILLER

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based insurance market. The SHOP, combined with new insurance 

reforms and tax credits provided by the Affordable Care Act, gives 

employers new options to provide their employees with high quality, affordable health care coverage. I look forward to continuing to 

work with you to improve the health care options for America’s 

small businesses, families, and communities, and am happy to answer any questions you may have. 

SBREP-219 with DISTILLER

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1 U.S. Department of Health and Human Services @ http://www.hhs.gov/healthcare/rights/law/ 

2What is the SHOP Marketplace @ https://www.healthcare.gov/what-is-the-shop-marketplace 

3What You Need to Know About the Small Business Health Care Tax Credit @ http:// 

www.irs.gov/uac/Small-Business-Health-Care-Tax-Credit-for-Small-Employers 

Testimony of Roger Stark, MD, FACS 

House Small Business Subcommittee on Health and Technology 

September 18, 2014 

The Small Business Health Options Program 

Background 

The Patient Protection and Affordable Care Act (ACA) became 

law in 2010. The law is based on an individual mandate that requires every adult to own health insurance and an employer mandate that requires every employer with 50 or more full-time employees (FTEs) to provide health insurance to their employees.1

Under the ACA, states are allowed to expand their Medicaid entitlement program for the poor and are required to establish health 

insurance exchanges or utilize the federal exchange. These exchanges function as insurance brokerages where individuals can access insurance plans and potentially receive taxpayer subsidies to 

help them pay the insurance premium. Each exchange must offer 

at least four plans which must include t he ten essential benefits 

mandated in the ACA. Pricing must be approved by the government. 

The ACA also attempts to establish an exchange marketplace for 

employers with less than 50 FTEs. The Small Business Health Options Program (SHOP) is designed to help ‘‘businesses provide 

health coverage to their employees.’’ 2

Small businesses with less than 25 FTEs may qualify for tax 

credits if they pay at least 50 percent of the total health insurance 

premium cost for employees and the average wage of their employees is below $50,000, The tax credit is determined by the number 

of employees and by average wages. Basically, the smaller a business is, the larger the tax credit it could receive. 

Phase I of the employer tax credit began in 2010. Eligible employers may qualify for a tax credit of up to 35 percent of their contribution toward employees’ insurance premiums. The employer 

must pay at least 50 percent of the employee-premium. 

Phase II of the employer tax credit began in 2014. Eligible employers may receive a credit of up to 50 percent of their portion of 

premium costs. However, these employers must purchase coverage 

through a SHOP Marketplace, or qualify for an exception to this 

requirement, to be eligible for the credit. The credit is only good for 

two consecutive tax years.3

At least 70 percent of employers must be enrolled in the SHOP 

Marketplace for the employer to qualify for tax credits. Employees 

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4 It’s Still Hard for Small Businesses to Shop Around for Health Coverage by Meir Rinde @ 

http://www.njspotlight.com/stories/14/04/29/it-s-still-hard-for-small-businesses-to-shop-aroundfor-health-coverage/ 5Obamacare Small Business Facts @ http://obamacarefacts.com/obamacare-smallbusiness.php 

6SHOP Flop: Obamacare for Small Businesses, by Brett Norman @ http://www.politico.com/ 

story/2014/06/shop-sdmall-business-health-options-program-delay-107649.html 7Small Employer Health Tax Credit: Factors Contributing to Low Use and Complexity @ 

http://kstp.com/kstplmages/repository/cs/files/ 

SMALL%20EMPLOYER%20HEALTH%20TAX%20CREDIT.pdf 8Why We Still Don’t Know How Many Small Businesses Signed Up Through Obamacare by 

J.D. Harrison @ http://www.washingtonpost.com/business/on-small-business/why-we-still-dontknow-how-many-small-businesses-signed-up-through-obamacare/2014/07/10/773d0cb6-0859-11e4- 

a0dd-f2b22a257353—story.html 9Obamacare’s Online SHOP Enrollment Delayed by One Year by Sarah Kliff @ http:// 

www.washingtonpost.com/blogs/wonkblog/wp/2013/11/27/obamacares-online-exchange-for-smallbusinesses-is-delayed-by-one-year/ 10With Statewide Insurance Options, Washington’s Business Health Exchange Readies For 

Close-up by Gregg Lamm @ http://www.bizjournals.com/seattle/blog/health-care-inc/2014/09/withstatewide-insurance-options-washington-s.html 

who purchase their own health insurance count toward the 70 percent. Employees who have insurance through their spouse or who 

have government insurance, such as Medicare or Medicaid, do not 

count toward the total.4

Some state exchanges started accepting enrollees through a 

SHOP Marketplace this year. The federal exchange will start accepting online applications this November for coverage in 2015. 

Employers with more than 50 FTEs will be able to access SHOP 

on November 1, 2015 and employers with more than 100 FTEs will 

be able to access the program in 2016.5

The demand and interest level of employers in an exchange such 

as SHOP was never determined. There is speculation and anecdotal evidence that SHOP was placed in the ACA for political reasons and convenience, rather than at the insistence of the law’s architects.6

Enrollment in SHOP to Date 

When the ACA became law in 2010, estimates showed that 1.4 

million to 4 million employers were eligible for tax credits. Only 

170,00, or 4 to 12 percent of employers, filed for credits that year.7

Individual state exchanges have had varying success at SHOP 

enrollment. New York state had nearly 1 million enrollees in its exchange, but only one percent were in the small employer market. 

California had a similar experience with 1.4 million enrollees overall, but less than 1 percent enrolled in SHOP.8

The federal exchange has delayed online enrollment until November, 2014.9

Officials in Washington state chose to establish a state-run 

health insurance exchange, including a SHOP. Coverage began in 

2014, with SHOP having an open enrollment period. Only one carrier, Kaiser Permanente, offered plans and only offered those five 

plans in two counties in Southwest Washington. Although 4,300 

small businesses created online accounts, only 11 companies, with 

a total of 40 people, actually purchased insurance on the SHOP exchange this year.10

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11 Ibid. 12See ref 5. 13 But Small Employers are Walking Away From Coverage by Sarah Wheaton @ http:// 

www.politico.com/politicopulse/0914/politicopulse15173.html 

A second insurance company, Moda, has applied to offer 14 plans 

state-wide starting in 2015. 

The Director of the Washington State SHOP Marketplace, Catherine Bailey, stated that ‘‘many of the carriers were not interested 

in expending additional resources to be in the small business exchange right away.’’ 11

The Government Accountability Office (GAO) has speculated that 

the use of tax credits and the SHOP enrollment are so low for several reasons. The first reason is the complexity in doing all the paperwork.12 Conversations the GAO has had with tax preparers reveal that employers must spend from two to eight hours or possibly 

longer collecting employee data and tax preparers must spend an 

additional three to five hours calculating the credit. 

Second, the GAO reports the tax credit is not a large enough incentive for many small employers. 

Third, the majority of small businesses have never offered health 

benefits to employees. The Medical Expenditure Panel Survey 

(MEPS) estimated that 83 percent of small companies did not offer 

health insurance in 2010 when the ACA became law. 

In addition, insurance companies are seeing a drop-off in employer-sponsored health insurance for small businesses. The CEO 

of Well Point, Joseph Swedish, is on record earlier this month stating that ‘‘small employers (are) shifting employees to the individual 

exchange or (are) dropping coverage completely.’’ He goes on to say 

small employers are making ‘‘a very radical, fast shift to walking 

away from the so-called moral imperative’’ of providing health insurance.13

Policy Analysis 

Although the employer mandate is a critical part of the ACA, the 

SHOP marketplace for small businesses seems to be almost an 

afterthought in the law. There is no clear evidence of interest on 

the part of small companies to provide health insurance through a 

marketplace with tax credits. 

Small businesses are typically start-up or low-margin companies 

where the added cost of employee health insurance can mean the 

difference between success and failure. The paperwork and regulatory burden in the SHOP exchange are definite hurdles for a 

small business employer. 

There is no real free market in the individual exchanges or in 

SHOP. Proponents will claim that competition exists, yet all insurance plans offered in the exchanges must contain the ten government-mandated essential benefits. Insurance premium prices must 

be approved by the government. Consequently, individuals and employers only have government-approved plans and not meaningful 

choices or real competition. 

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The incentive of tax credits has not been significant enough to 

encourage employers to use SHOP. Obtaining the credit is so complicated that small businesses are unwilling or unable to spend the 

time and effort to complete the necessary forms. 

The SHOP Marketplace duplicates the private insurance marketplace with an added burden to taxpayers. Private association 

health plans, for example, have flourished for years without government financial support. 

Since employer interest and utilization of the tax credit is so 

small, the benefits of the SHOP Marketplace are unclear. 

Recommendations 

Designing an insurance exchange, whether it’s private or government-run, offers each state, like Washington, the opportunity to reform health care delivery by starting with a ‘‘clean slate’’ and moving toward a patient-oriented, consumer-driven system. The exchange can be a transparent, information-based market where individuals and small businesses can select the plan most appropriate 

to their needs. States can use the exchange as a mechanism to 

combine all existing state government insurance plans, such as 

Medicaid and Basic Health, into one administrative program. 

Done right, the exchange should be easy to use and should promote decreased health care costs. Insurance rates and benefit levels should be set by the insurance market and not by government 

regulations. The administration of the exchange should be done 

through a nonpolitical, independent board, not by a politicized bureaucracy. 

Under the ACA, all plans must contain the ten essential benefits 

that meet federal requirements. Washington state has 57 benefit 

and provider mandates that overlap the federal benefits. Ideally, 

the state exchanges should be able to offer an array of ‘‘mandatefree’’ or ‘‘mandate-light’’ insurance plans that satisfy market needs. 

Greater use of high deductable insurance plans coupled with health 

savings accounts can control costs and offer more choices for patients and employers without compromising quality. 

Any subsidies in the exchange should flow to and be controlled 

by the patient, not by insurance executives or government officials. 

Tax credits or premium supports to purchase health insurance 

could also be offered in an exchange. 

Each state can function as a laboratory to design the most efficient, cost-effective exchange for small businesses and individual. 

Although the ACA includes hundreds of new mandates and regulations, states should have an opportunity to overhaul their existing 

programs, start fresh and establish a meaningful patient-directed, 

market-oriented health care system. The alternative is to submit to 

more government regulation and central planning with the attendant bureaucratic inefficiencies which will not increase competition, 

improve access, or decrease costs to patients and employers. 

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1Gardiner, Terry and Pereera, Isabel. ‘‘SHOPping Around’’ Report of the Center for American 

Progress and Small Business Majority. June 2011. http://www.smallbusinessmajority.org/reports/ 

shop—exchange.pdf 

Testimony of Professor Adam Beck to the Subcommittee on 

Health and Technology 

Committee on Small Business 

United States House of Representatives 

Washington, D.C. 

September 18, 2014 

Good morning. 

Thank you Mr. Chairman, Ranking Member Hahn and members 

of the Subcommittee for the opportunity to appear before you 

today. My name is Adam Beck and I am an assistant professor of 

health insurance at The American College in Bryn Mawr, PA. 

Since the College was founded in 1927, it has grown to become the 

nation’s leading non-profit provider of higher education for professionals in the financial services industry. Today, The American College has the highest level of accreditation available and offers 

twelve professional designation and exam preparation programs, 

two master’s degrees and a PhD in Financial and Retirement Planning. At The American College, I lead the Chartered Healthcare 

Consultant designation and teach courses focused on Health Care 

Reform for Employers and Advisers, Healthcare Consulting, Financing Long-Term Care for Seniors, and Life Insurance Law. I am 

the author of a textbook on the Essentials of Health Care Reform 

and the co-author of texts on healthcare consulting and long-team 

care financing. Additionally, I am an attorney with active licenses 

in New Jersey and Pennsylvania and advise medical and psychotherapy practices on matters relating to health insurance, Medicare, HIPAA and compliance with the Affordable Care Act. 

Small businesses and the people who work for them comprise the 

backbone of the American economy. Health insurance is a tremendously valuable, often life-saving, financial product, which our federal tax code affords special status. Therefore, it is an important 

and essential goal to allow small business owners the opportunity 

to offer quality, affordable health insurance coverage to their employees. Prior to the implementation of the Affordable Care Act, 

half of the uninsured in this country were part of the small business community—owners, employees and dependents.1 That is not 

for a lack of desire on the part of small business owners to offer 

health insurance coverage. The Small Business Health Options 

Program, or SHOP Marketplace, was designed by the 111th Congress to lower health costs for small business, increase competition 

and therefore choice for business owners, and simplify the process 

of offering health coverage. These are laudable goals, however it is 

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2 ‘‘Small Employer Health Tax Credit: Factors contributing to low use and complexity.’’ Report 

of the U.S. Government Accountability Office. May 2012. http://gao.gov/assets/600/590832.pdf 

(page 10) 

my opinion that the SHOP Marketplace as it is currently structured and presented falls short of these goals. I believe the SHOP 

Marketplace will remain inadequate and continue to enroll relatively few companies so long as three factors remain: the existing 

tax incentives, the lack of engagement of agents and brokers, and 

shortcomings in information technology infrastructure. 

I. The Small Business Health Care Tax Credit is Overly 

Complicated and Too Small 

The Patient Protection and Affordable Care Act created the 

Small Business Health Care Tax Credit to be an accompanying incentive to participate in the Small Business Health Options Program. Prior to the launch of SHOP marketplace on January 1, 

2014, the tax credit was available in a smaller form for most private market small group health plans enrolled in by qualifying 

business organizations during the tax years 2010 through 2013. 

For the initial four years of the tax credit’s existence, the maximum credit available was 35 percent for for-profit entities and 25 

percent for tax-exempt organizations. Beginning in 2014, the tax 

credit increased and became conditioned upon participation of eligible employers in a SHOP plan. The maximum available tax credit 

is today 50 percent for for-profit entities and 35 percent for tax-exempt organizations. 

While a fifty-percent tax credit may sound like a substantial incentive—particuarly considering that employers may still use pretax funds to pay for employee health benefits—the reality is far 

more nuanced. First, there is the limited universe of eligible employers. The credit is only available to business organizations with 

25 or fewer full-time equivalent employees and average annual 

wages below $50,000. While this undoubtedly includes a substantial number of small businesses, it requires employers to engage in 

tedious and somewhat complex calculations of how many full-time 

equivalent employees they maintain in a given year, continually 

monitor compensation and face a perverse incentive for limiting 

pay, should increasing pay lead to average annual wages exceeding 

$50,000. Second, there is the sliding scale nature of the tax credit. 

The maximum credit of 50 or 35 percent is available only to businesses with 10 or fewer full-time equivalent employees and average 

annual wages below $25,000. The credit is then available in diminishing percentage amounts as the businesses grow larger or pay 

more. This again requires a complex calculation just so employers 

can estimate the potential tax incentives they could achieve from 

purchasing plans through a SHOP exchange. Third, the credit is 

time-limited. Those who qualify may only claim the tax credit for 

two consecutive years. 

The Government Accountability Office estimates that up to 4 million small businesses could qualify for the credit 2, but this requires 

that small businesses know about the credit and go through the 

difficult process of determining eligibility. Further, even by the 

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3Linda Blumberg and Shanna Rifkin. ‘‘Early 2014 Stakeholder Experiences With Small-Business Marketplaces in Eight States.’’ Report of the Urban Institute. August 2014. http:// 

www.rwjf.org/content/dam/farm/reports/issue—briefs/2014/rwjf414995 4http://money.cnn.com/calculator/pf/cost-of-living/ 

5GAO report, supra, at page 10. 6 Id. 7 Blumberg and Rifkin at page 3. 

8GAO report, supra, at page 13. 9 Robb Mandelbaum. ‘‘Why the Health Care Tax Credit Eludes Many Small Businesses.’’ The 

New York Times. September 25, 2012. http://boss.blogs.nytimes.com/2012/09/25/why-the-healthcare-tax-credit-eludes-many-small-businesses/ 

GAO’s own admission, advocacy groups identify the 4 million figure 

as the likely high point of potentially eligible businesses, with some 

estimating that as few as 1.4 million employers would qualify. 

Linda Blumberg and Shanna Rifkin of the Urban Institute analyzed this issue in a report issued last month that was commissioned by the Robert Wood Johnson Foundation.3 They found that 

qualifying for the credit was particularly difficult in high cost-ofliving areas, as the $50,000 limit in average annual wages applies 

uniformly nationwide. By way of comparison, someone earning 

$50,000 in Mason City, Iowa in 2014 would need to earn $73,104 

annually to maintain the same standard of living in Los Angeles, 

California.4 Data from the first year of the tax credit (2010) indicate that the overwhelming majority of employers who were eligible 

for any credit were not eligible for the full credit. Only 17 percent 

were eligible for the full credit.5 The greatest obstacle, according to 

GAO analysis, was the annual wage requirement. In the first year, 

68 percent of businesses who received less than the full credit 

would have qualified for the maximum percentage based on the 

number of full-time equivalent employees but failed to qualify 

based on wages.6 According to the Urban Institute report, many 

employers reported that they felt they needed the assistance of an 

accountant just to determine eligibility for the credit, a cost that 

sometimes exceeded the actual value of the credit.7 The GAO report offers a succinct summary of the degree of complexity involved 

in calculating the credit 8: 

On its Web site, I.R.S. tried to reduce the burden on taxpayers by offering ‘‘3 Simple Steps’’ as a screening tool to help 

taxpayers determine whether they might be eligible for the credit. However, to calculate the actual dollars that can be claimed, 

the three steps become 15 calculations, 11 of which are based 

on seven worksheets, some of which request multiple columns of 

information. 

Setting aside the studies and statistics, it is very difficult to find 

a small business that has actually claimed the credit. They indeed 

exist, as we know from tax filings, but apparently in such small 

numbers that even a media outlet with the reach of the New York 

Tines was unable to find one to profile.9 When I teach my students 

about the tax credit, I always ask if any of the students—who are 

active brokers and financial advisers—have assisted any clients 

with this particular tax credit. No student has yet to answer in the 

affirmative. 

While the cost of premiums for plans available on many state 

SHOP marketplaces have been comparable to—and in many cases 

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10 Robb Mandelbaum. ‘‘Small Businesses Showing Little Interest in State SHOP Exchanges.’’ 

The New York Times. December 23, 2013. http://boss.blogs.nytimes.com/2013/12/23/small-businesses-showing-litle-interest-in-state-shop-exchanges/ 

slightly lower than—similar plans prior to the opening of the 

SHOP, they generally remain higher than what many small businesses have determined they can afford to pay. This is where the 

tax credit is supposed to mitigate costs and increase the likelihood 

that a small business can actually afford to offer coverage. As expanded, simplified tax credit that is available for longer than two 

years would offer a real financial incentive for companies to either 

begin or continue offering health benefits. 

II. The Inclusion and Empowerment of Brokers has been 

Minimal 

For many small businesses that offer health insurance coverage 

to their employees, a health insurance agent or broker performs 

the bulk of the work necessary to facilitate benefit offerings. Small 

business owners frequently wear many (proverbial) hats, including 

that of human resources director, marketing director, and controller, among others. Thus, health agents and brokers play a critical role for small businesses. Many of these agents or brokers are 

comprehensive financial planners and advisers who work with 

small business clients on matters relating to life insurance and retirement benefits, investments and health insurance. The SHOP 

Marketplace will not succeed without a substantial buy-in from the 

agent and broker community. This much was readily acknowledged 

by John Arensmeyer, CEO of the pro-reform Small Business Majority, who said ‘‘at the end of the day, the success of the small-business exchanges is going to be very heavily dependent on brokers 

and agents.’’ 10

Health insurance, like any financial product, is complicated and 

its purchase often requires the advice and assistance of a licensed 

professional, such as an insurance agent or broker. Particularly for 

small group policies, where the health and financial well-being of 

multiple lives and families is at stake, there should be substantial 

involvement of agents and brokers to ensure that business owners 

make decisions that are in the best interest of both their company 

and their employees. 

In its first year, at least in the states with fully or mostly functioning SHOP marketplaces, the marketing of the program to brokers, as well as the overall inclusion of brokers in the program, including empowerment, compensation and training, has been severely lacking. In short, even for those brokers who are aware of 

the SHOP marketplace in their state and the potential benefits 

available to clients, they must undergo state-mandated training 

and spend twice as much time on SHOP applications, all for the 

exact same level of compensation they would receive to sell a nonSHOP plan. 

In the states that operate their own SHOP marketplace, brokers 

are required to be certified through a state-specific training process, which may either be in-person or delivered on the web. Brokers who went through the training program have indicated that 

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11 Id. 12Memorandum from the Centers for Medicare and Medicaid Services. May 1, 2013. https:// 

www.cms.gov/CCIIO/Resources/Regulations-and-Guidance/Downloads/agent-brokers-5-1-2013.pdf 

the materials were ineffective or even factually inaccurate. This included inaccurate exam questions and instructors who were required to teach material that was outdated. Further, many of the 

training programs covered SHOP only as part of a larger health 

care reform training, therefore requiring small business brokers to 

become educated upon issues unique to Medicaid, as opposed to 

more in depth discussion of SHOP. 

Those issues only apply to the brokers who feel they were included in the SHOP process. The marketing campaigns for state 

SHOP exchanges have often failed to target or reach small business health brokers, instead focusing on the federally-funded navigators who primarily support individual exchanges. Additionally, 

and perhaps most importantly, the outreach to the business community about the existence of SHOP and the role that brokers can 

play in facilitating enrollment has been minimal. Many businesses 

remain unaware that they can turn to a local broker to discuss potential options under the Small Business Health Options Program. 

The degree and structure of compensation for brokers has discouraged substantial involvement. A broker will earn the same 

commission or fee for selling a plan directly through an affiliated 

carrier as he or she would for selling a plan through the SHOP 

marketplace. 

However, the time involved in enrolling a client in a SHOP plan 

is often double that required to enroll in a plan directly through 

a carrier. Some, including Lev Ginsburg of the Business Council of 

New York, estimate that the SHOP process is even more laborious, 

possibly as much as three or four times what it necessary to enroll 

in a non-SHOP plan.11 The additional time is due to the complexity 

of the IT system and application interface necessary to complete 

the SHOP process, as well as the opportunity cost involved with 

the time that often must be spent explaining the new employee 

choice model to client companies. 

The commissions are not the doing of CMS. In its May 2013 

guidance, the Department of Health and Human Services clarified 

that broker commissions do not come from SHOPs, but rather from 

a negotiated arrangement between carriers and the brokers, but required that the rates be the same for a plan sold within a SHOP 

as it is for a plan outside of SHOP.12

This is not to say that either CMS or the state-run SHOPs have 

excluded agents or brokers. Indeed, they all have provided resource 

pages on their websites promoting the value of health insurance 

brokers and making materials available for the brokers themselves. 

It can be safely assumed that some broker perceptions are attributable to the focus during 2013 and 2014 on the individual health 

insurance exchanges, while SHOPs were delayed or given a lower 

priority. However, as the SHOP marketplaces fully launch later 

this year, CMS and the state marketplaces will prioritize the inclusion of brokers and the trade organizations that support them. 

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13Sarah Kliff. ‘‘Obamacare’s online SHOP enrollment delayed by one year.’’ The Washington 

Post. November 27, 2013. http://www.washingtonpost.com/blogs/wonkblog/wp/2013/11/27/ 

obamacares-online-exchange-for-small-businesses-is-delayed-by-one-year/ 14 Charles Gaba. http://acasignups.net/ 15 ‘‘Beyond the Website.’’ Fels Institute of Government, University of Pennsylvania. February 

2014. https://www.fels.upenn.edu/sites/www.fels.upenn.edu/files/aca—final—feb—6.pdf 16 Anna Gorman. ‘‘California’s Small Business Health Insurance Exchange Off To Slow Start.’’ 

Kaiser Health News. May 8, 2014. http://www.kaiserhealthnews.org/Stories/2014/May/08/Californias-Small-Business-Health-Insurance-Exchange-Off-To-Slow-Start.aspx 

III. The Website Delay and IT Issues Increased Uncertainty, Hindering SHOP 

Third, and hopefully most obviously, the delay by the Administration of the Federal Facilitated SHOP Marketplace and the accompanying website limited the ability of small businesses in the 

32 states relying on the federal marketplace, but it also created 

confusion for business owners, brokers and navigators in the states 

that had functioning SHOPs. Additionally, states that were operating their own SHOP Exchanges in 2014 experienced their own IT 

problems that hindered enrollments. 

On November 27, 2013, the Obama administration announced 

that the online enrollment component of SHOP would be delayed 

until November 2014, as opposed to launching in October 2013 as 

originally planned.13 (An earlier delay, announced September 26, 

2013, pushed back the October start to November.) While consumers were ultimately well aware of the online health exchanges, 

accessible through healthcare.gov, as evidenced by the 9.21 million 

online enrollments 14, small business owners who visited the site in 

one of the federal-facilitated states found themselves unable to 

browse and compare plans online, as promised. This delay had real 

effects on the efficacy of SHOP. Promoters of the law and brokers 

speaking with small business clients were unable to say ‘‘go to the 

website and explore your options.’’ Further, the delays caused confusion among the small business community, which leads to uncertainty about SHOP as an effective means of obtaining insurance in 

the future. 

The delays at the federal level were coupled with IT issues and 

a low prioritization in states that were running their own marketplaces. A thorough analysis of the impact of the Affordable Care 

Act in Pennsylvania was unable to draw meaningful conclusions 

about the efficacy of SHOP, as Pennsylvania did not have a functioning SHOP website.15 A spokeswoman for CoveredCA admitted 

that the launch of the individual exchange was the priority, and 

the California head of the National Federation of Independent 

Businesses said that even in his state ‘‘the SHOP program has 

kind of taken a backseat.’’ 16 In states with their own SHOP marketplaces, the low prioritization was often overshadowed by IT 

problems. Maryland and Oregon, for example, had online systems 

that were non-functional. 

For brokers, there were IT issues that left many uncompensated 

for their work. Brokers would assist business clients with enrollment in a SHOP plan and then the online system would not record 

the involvement of the broker and the insurance carrier would not 

know to pay the broker. These IT issues discouraged both brokers 

and carriers alike. 

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17http://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Marketplaces/2015- 

Transition-to-Employee-Choice-.html 18Paul Demko. ‘‘Small Business Exchanges off to rocky start.’’ Modern Healthcare. July 14, 

2014. 

The most recent SHOP-related delay by the Administration will 

likely further hinder the program in 2015. On May 27, 2014 the 

Administration issued final rules on the Employee Choice model in 

SHOP, which including transition relief allowing states the option 

of delaying Employee Choice until 2016.17 Eighteen states will 

delay Employee Choice an additional year. The Employee Choice 

model is an essential component of SHOP. In the past, small employees have been largely unavailable to provide choice or variety 

in health plans to their employees. While large firms overwhelmingly offer more than two plans to their employees, very few small 

employers were able to do so. The Employee Choice model will 

allow small businesses to offer employees a variety of plans within 

the same metallic tier or below a certain price point, which creates 

a real incentive for small employers to at least consider the options 

available within SHOP. An effective Employee Choice model, however, also requires a user-friendly information technology interface, 

which many states may not be fully prepared to offer. 

While SHOP was supposed to be fully functional nationwide in 

2014, what happened instead was a patchwork test run. In short, 

a key reason SHOP did not succeed in its first year was because 

its first year was postponed. A year with fully functioning structures and engaged players will be essential to truly judge efficacy. 

IV. Other Factors Impacting the Fist Year of SHOP 

Several other factors negatively affected SHOP during its initial 

year and will likely continue in the future. These include the many 

early renewals of small group plans in 2013, competition from private exchanges and the success of the individual marketplace. 

Many insurers actively encouraged small business clients to 

renew (or ‘‘early-renew’’) their existing small group health insurance plans prior to December 31, 2013. Any plans renewed on or 

after January 1, 2014 were required to comply with a host of new 

requirements under the Affordable Care Act, namely to offer a 

package of ten essential health benefits and limit cost-sharing. 

Thus, businesses with these early-renewed plans had no need to 

purchase health insurance plans in 2014, at least not until later 

this year. As many as 70 percent of small businesses may have 

opted to early renew policies in 2013.18 This dramatically limited 

the number of small businesses who otherwise may have been 

prime candidates for exploring plan options through the SHOP 

marketplace. 

Private exchanges are likely to grow in popularity over the coming years. Because the ACA requires the pricing of plans to be the 

same within a SHOP exchange as it is outside, the free market can 

be expected to result in competition from private actors who feel 

they can provide a greater variety of plans or a better customer experience. Private exchanges have been increasingly popular among 

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larger companies, but the private exchanges are actively seeking to 

sell to small groups. 

Finally, despite the well-publicized disaster that was the launch 

of healthcare.gov, the Health Insurance Marketplace ended up enrolling far more people than nearly anyone had anticipated and 

millions of Americans found health insurance at a lower rate than 

they had previously paid. If employees of small businesses have the 

option of obtaining affordable health insurance on their own, usually with the assistance of a federal tax credit, many small businesses who have not offered coverage in the past will likely simply 

direct their employees to the public marketplace, thus rendering an 

employer-based plan unnecessary and alleviating a prospective burden from the employer. 

In conclusion, many small businesses want to offer health coverage. It simply needs to be more affordable, simpler and be facilitated by an experienced insurance broker. The Small Business 

Health Options Program has the potential to offer just that, but 

marketing, tax credits, information technology and broker involvement need to be dramatically increased in order for the program 

to achieve its laudable goals. 

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Statement of 

Jon Gabel 

Senior Fellow 

NORC at the University of Chicago 

The Small Business Health Options Program: 

Its Promise and Challenges 

Before the 

U.S. House Committee on 

Small Business, Subcommittee on Health and Technology 

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1 J. Gabel, R. McDevitt, L. Gandolfo, J. Pickreign, S. Hawkins, and C. Fahlman, ‘‘Generosity 

and Adjusted Premiums in Job-Based Insurance: Hawaii Is up, Montana Is Down,’’ Health Affairs, May/June 2006, 25(3): 832–843. 

Statement of Jon Gabel 

‘‘The Small Business Health Options Program: Its Promise 

and Challenges 

September 18, 2014 

Chairman Collins, Ranking Member Hahn, Members of the Committee. 

Thank you for the opportunity to discuss the promise and challenges of the Small Business Health Options Program (SHOP). I 

am Jon Gabel, a Senior Fellow at NORC at the University of Chicago. I am a nationally recognized expert on private health insurance with more than 35 years of experience. NORC is an independent non-profit, non-partisan research organization whose mission is to conduct objective research in the public interest. The 

views I present are mine, and not those of NORC. 

Today I will discuss factors promoting and inhibiting the success 

of SHOPs. Some of the analysis will be based on recent research 

for CCIIO/CMS. 

The authors of the ACA designed SHOPs to bring the efficiencies 

of the large group market to small employers. Historically, the 

small group market (firms with 50 or fewer workers) was characterized by higher premiums and administrative expenses, and 

greater volatility in premium increases from year to year. For coverage with identical financial protection the smallest employers (1– 

9 workers) paid premiums 18 percent more than large employers.1

Whereas administrative expenses constituted less than 10 percent 

of the premium dollar for the nation’s largest firms, administrative 

expenses accounted for more than 20 percent of the premium dollar 

for small employers. One reason that administrative costs were 

higher in the small employer market was that insurers competed 

through medical underwriting—a technical term meaning making 

sure that an insurer does not sell to small firms with very sick 

pe9ple, or alternatively, charging higher premiums to reflect expected expenses plus risk. Medical underwriting entailed examining the medical records and past insurance claims of the prospective new customers. Insurers did so not because they were ‘‘bad 

companies,’’ but because the economic of health insurance dictated 

they do so. Medical expenses are concentrated among a few sick 

people. In employer-based insurance, the sickest 1 percent will account for 27 percent of claims expenses, the sickest five percent 

over 50 percent of expenses, and the healthiest 50 percent account 

for 5 percent of expenses. If an individual insurer unilaterally declined to medically underwrite, that insurer would attract the 

worst risks and be forced to price their products at non-competitive 

rates. The Affordable Care Act prohibits setting premiums based on 

the health status of the insured population. It does allow insurers 

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2 Neither of these figures were statistically significant from the previous year. 

to set premiums based on the age of the population within limits, 

by geography, and smoking status. Thus, the ACA transforms the 

small group market so insurers no longer compete on their ability 

to identify and exclude high-risk individuals and small groups, but 

now must compete on price and quality. 

Recent Trends in the Small Employer Market 

SHOPs are aiming to establish itself at a time of relative price 

stability in employer-based insurance including the small employer 

market. Data from the annual Kaiser Family Foundation/Health 

Research and Educational Trust (KFF/HRET) Employer Health 

benefits Survey show that in 2013–2014 premiums fell 1.2 percent 

(Exhibit 1) for employers with 3–50 workers. In 2013 premium increases were 2.3 percent.2 For all firms premium increases in 

2013–2014 for family coverage were only three percent. Small employers, similar to consumers in general, would be more likely to 

shop for new plans when premiums are rising rapidly. 

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Brief History of SHOPs and Purchasing Pools 

Exchanges for small employers are not a new idea. Over the past 

25 years many states attempted to build what was termed ‘‘health 

insurance purchasing co-operatives’’ (HIPCs), but none enjoyed 

widespread success. Among the states attempting to build HIPCs 

were California, Connecticut, Washington, Florida, Kansas, Colorado and Kentucky. Connecticut was perhaps the most successful 

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3 Richard Teske, ‘‘How the Kansas Business Health Partnership Can Learn from Other Health 

Purchasing Cooperatives (HPC’s)’’ Kansas Public Policy Institute, 2001. 4M. Hall, E. Wicks, and J. Lawler, ‘‘Health arts, HIPCs, MEWAs, and AHPs: A Guide for the 

Perplexed,’’ Health Affairs, 20:1 (2001): 142–153. 5States may use different variations of the employee model—allowing different breadths of 

plan options to employees, such as requiring them to choose from plans within a metal tier or 

offered by a single carrier—but most supported only limited choice for plan year 2014. These 

variations could be incorporated into future multivariate analyses. 

and attained an eight percent market share in the late 1990s.3

Massachusetts invested more than a million dollars in research 

and marketing in 2012–13 to attract small employers to their ‘‘Connector.’’ Enrollment today is less than 10,000 persons. 

One clear lesson from earlier attempts to build HIPCs is that underwriting rules must be the same inside and outside the HIPCs.4

Many states prohibited medical underwriting within the pools but 

allowed it outside the HIPCs. The inevitable result was that brokers sent their high risk groups to the HIPCs, medical claims expenses and premiums rose each year, risk selection worsened, and 

the HIPCs went into a death spiral. Another challenge to HIPCs 

was that large insurers often did not want to participate. 

The authors of the ACA addressed many shortcomings of earlier 

HIPCs. Underwriting was prohibited on and off the Marketplace 

and plans offered on the Marketplace must also be offered off the 

Marketplace and are considered one plan. CCIIO requires carriers 

with market share of 20 percent or more in the state small employer market to participate on the SHOP. If a ‘‘tied’’ carrier refused to participate, the carrier was not allowed to sell plans on the 

individual exchange in that state. 

Employee Choice and Employer Models 

Other witnesses have described the structure and market rules 

of SHOPs, as well as operational issues encountered over recent 

years. I will not delve into those subjects, but will review the two 

SHOP models—the ‘‘employee choice’’ and ‘‘employer model.’’ 

With the ‘‘employee choice model,’’ the employer contributes a 

fixed amount for plan offerings on the SHOP, regardless of which 

plan the employee selects. Although there is variation from stateto-state, in general employees can select plans from different metal 

tiers and carriers. If an employee picks a plan whose premium exceeds the employer’s contribution, the employee pays out-of-pocket 

the difference between the contribution and the premium for the 

selected plan. Thus the employee model provides a strong incentive 

for employees to select lower cost plans, while offering a wide 

choice of plans. All state-based SHOPs but Massachusetts use the 

employee choice model, whereas states relying on the Federally-Facilitated Marketplace (FFM) used the employer model in 2014.5

With the employer model, the employer chooses a single plan, and 

all employees that opt for coverage enroll in that plan. 

Value-Added Features of SHOPs 

If SHOPs are to succeed in enrolling significant numbers of small 

employers, they must provide value-added features not available in 

the current off-SHOP Marketplace. SHOPs have the potential to do 

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6 If an insurer offers a plan on the SHOP, it must offer the same plan off the SHOP at an 

identical premium. On the other hand, insurers can offer a plan off the SHOP only. 7 J. Gabel, H. Whitmore, J. Pickreign, J. Satorius, and S. Stromberg, ‘‘Small Employers’ Survey: Premiums, SHOP Exchanges, And Self-Insurance Are Main Concerns With The Affordable 

Care Act,’’ Health Affairs, Web Special, October 16, 2013 and November, 2013, 32:11, 2032– 

2039. 8 About 45 percent of firms with fewer than 50 workers do not offer coverage, according to 

the Kaiser Family Foundations/Health Research and Educational Trust. 

so. First, plans offered on the SHOP could have premium expenses 

lower than those plans only offered off the SHOP.6 Second, employers seeking tax credits must purchase plans on the SHOP. These 

tax credits are linked to the size of the firm and the percentage of 

the workforce who are low-income workers. Third, SHOPs can enhance employee choice. When using the employee choice-model, employers can make a defined contribution, and employees can then 

select plans among multiple carriers, and in some states, multiple 

metal tiers—rather than having to choose one plan from one carrier. Fourth, the employee choice model is a defined contribution 

model, so employers reduce their financial risk against future increases in premiums. Note that two of these four features require 

the employee choice model. 

A survey of small employers that my colleagues and I conducted 

with funding from the Commonwealth Fund and published in 

Health Affairs, found may potential ‘‘value-added’’ features are 

highly attractive to small employers—both firms offering and not 

offering health benefits.7,8 Exhibit 2 shows that among non-offering 

firms when considering whether to offer coverage, 82 percent say 

it is ‘‘very important’’ that insurance costs less than today; 73 percent indicate that it is very important that premiums don’t go up 

when there is a sick employee; 61 percent say ‘‘more plan choice’’ 

is very important; 64 percent indicate that tax credits are very important and 59 percent consider the ability to send one monthly 

check very important. Similarly, Exhibit 3 displays that among 

small firms offering coverage that 41 percent thought it was ‘‘very 

important’’ to have more plan choice; 68 percent to have the ability 

to compare plans; 37 percent to have a third party to handle claims 

questions and another 37 percent to have a third party to answer 

questions. 

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9 J. Gabel et al., ‘‘Is There a SHOP Risk Premium in Employee Choice States?’’ NORC at the 

University of Chicago, June 2014, Contract with the Consumer Information and Insurance Oversight (CCIIO). 

Availability of SHOP Plans 

As noted previously, earlier HIPCs often encountered resistance 

from large plans. Aware of this history, CCIIO required carriers 

with 20 percent or more market share in the small group market 

to participate in the SHOP. In a study of 26 states, we found on 

average there were 4.3 carriers selling on the SHOPs in the 26 

states, and 56 plans in total offered per state.9 In these same states 

there is an average of three carriers selling to small employers off 

the Marketplaces only. But carriers selling on the SHOP also sell 

off-the-SHOP-only plans. In all there are about three plans sold off 

the SHOP only for every plan sold on the SHOP. Moreover, in 

many states only one or two carriers offer plans on the SHOP. 

Washington State has but one carrier. Hawaii, Vermont, Alabama, 

Florida, Kansas, Maine, and Tennessee have only two. 

Tied carriers represent about 1/3 of the carriers participating on 

the Marketplace. In about 2/3 of those states, non-tied carriers offer 

more plans per state than tied carriers. We conducted interviews 

with nine employers who purchased coverage on the SHOP. A more 

common complaint was that there was too much choice rather than 

insufficient choice. 

Cost of Plans on the SHOPs 

One potential added value feature of SHOPs is to offer lower premiums than in the traditional small employer market. In the 26 

states we collected data from state insurance websites and SHOP 

Exchanges. We used descriptive and multivariate analysis to compare the cost of coverage for a 40 year old non-smoker (a one employee firm) for plans sold on the Marketplaces with plans sold 

only off the Marketplaces i the same metal tier. In both descriptive 

and multivariate analysis we found that premiums were lower for 

plans on the Marketplaces (Exhibit 4) for the bronze, silver and 

gold tiers. 

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In our multivariate analysis, we found, other factors held statistically constant, plans offered on the Marketplace on average have 

seven percent lower premiums that plans sold off the Marketplace 

only. Carriers not participating on the Marketplace have premiums 

two percentage points higher. One explanation for the lower premiums is that Marketplace plans are more likely to have narrower 

networks and thus obtain greater discounts from providers. Another possibility is the transparent and competitive market structure of Marketplaces leads to carriers offering lower premiums. A 

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10 J. Gabel, A. Lischko, Analysis of SHOP Participation Requirement, NORC at the University 

of Chicago, Report to CCIIO for Contract, June 2013. 11 J. Gabel, H. Whitmore, J. Pickreign, J. Satorius, and S. Stromberg, ‘‘Small Employers’ Survey: Premiums, SHOP Exchanges, And Self-Insurance Are Main Concerns With The Affordable 

Care Act,’’ Health Affairs, Web Special, October 16, 2013 and November, 2013, 32:11, 2032– 

2039. 

third explanation is the actuarial values used to assign plans to 

metal tiers are calculated for the essential benefit package. NonShop Plans may offer more non-essential benefits. 

Challenges to SHOP Success -- How Carriers View SHOPs 

We conducted nine interviews with carriers—both tied and nontied ones.10 We found all carriers thought initial enrollment would 

be small, and it turned out to be smaller than they expected. The 

low set of expectations was largely based on the experience in Massachusetts and Utah. Most tied carriers would not have participated had it not been for the tying requirement, and would have 

preferred to watch and wait before entering. We interviewed one 

tied carrier that did not participate in the SHOP, and this carrier 

indicated that it was not planning to participate on the individual 

Marketplace, so the tying penalty was not the main issue. 

Tied carriers and non-tied ones generally held divergent views 

about SHOPs. Non-tied carriers saw the SHOP as a means of entry 

or market share enhancement. The employee choice model offered 

an opportunity to enroll employees, whereas the tradition sale of 

one employer to one insurer would likely result in the dominance 

of traditional carriers. We spoke to Kaiser Plans and found that 

they were enthusiastic supporters of SHOPs. They viewed SHOPs 

as a useful way to reorganize the delivery of care and believed with 

employee choice they would be able to offer more value than the 

traditional fee-for-service insurers. We concluded that if SHOPs are 

to succeed, it will be due to the competitive fringe, not the current 

dominant insurers. 

Challenges to SHOP Success-The Role of Brokers 

Eighty percent of small employers use brokers or agents. Brokers 

often perform tasks that benefit managers do in larger firms. For 

example, among small firms using brokers, 84 percent responded 

that brokers select a health plan, 79 percent enroll employees, 59 

percent provide customer service such as denied claims, and 31 

percent decide employee contributions towards premiums.11 Earlier 

HIPCs learned that broker buy-in was necessary for HIPC enrollment. Insurers reported in our interviews that brokers do not feel 

‘‘plugged in’’ to the SHOP Marketplace and view SHOPs as competitors. Carriers stated that brokers believe they provide a valued 

service to small employers and that their role and income will be 

diminished if small employers purchase through SHOP. The dilemma for SHOPs is they need broker co-operation, but that 

SHOPs aim to reduce administrative expenses, and a major component of administrative expenses as brokers’ fees that may constitute five percent of premiums or more. 

Challenges to SHOP Success - Self-Insurance 

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As unintended consequence of the ACA is it makes self-insurance 

more economically attractive for small firms. Before the passage of 

the ACA self-insurance already had many regulatory advantages 

over full-insurance, ERISA pre-empts self-insured plans from state 

premium taxes, consumer protections, state mandated benefits, reserve requirements, and other state regulatory requirements. If an 

employer with a young and healthy workforce should self-insure, it 

would likely face lower premiums than if it were part of a larger 

pool of small employers as is the case with SHOPs. The foremost 

countervailing force to self-insuring has been the financial risk entailed with a catastrophic case, and the subsequent substantial increase in the cost of stop-loss coverage that would ensue. But the 

ACA eliminates medical underwriting so small firms can move into 

the fully-insured market if any insured workers or dependents 

were to experience catastrophic costs. Thus, self-insurance endangers both SHOPs and the traditional fully-insured market, and 

could repeat the experience of HIPCs. When there are two systems 

of insurance in the state, and one is risk-rated and the other is not, 

the risk-rated system will attract the better risks, and the nonrated system will attract the sick, and over time go into a death 

cycle. Data from the 2014 KFF/HRET Employer Benefits Survey 

does not show this happening yet. 

Summary 

If SHOPs are to succeed where HIPCs failed, they must demonstrate added value over the traditional small employer market. 

SHOPs can offer lower prices, tax credits not available off the 

SHOP, wider employee choice, and a defined contribution model 

that reduces the risk of future price increases. The authors of the 

ACA wrote into the legislation provisions that would address major 

problems of earlier HIPCs. Specifically, they required SHOPs and 

the off-the-SHOP market to play by the same underwriting rules. 

All plans sold on the SHOP must now be sold off the SHOP and 

priced as the same product. Administratively, CCIIO has tied large 

carriers to participate in the SHOPs. 

The promise of SHOPs is that they operate under ‘‘fair’’ market 

rules. Prices on the SHOPs are lower than off-the-SHOP for the 

same metal tier. Lower prices may be attributable to narrow networks, a competitive market structure, or fewer non-essential benefits. But for employers seeking lower premiums, SHOPs are the 

place to shop. Multiple carriers are participating on the SHOPs in 

all but one state. With the employee choice model, employees can 

choose from multiple carriers and in some states multiple tiers. 

The defined contribution model limits the risk of future premiums 

increases. Carriers on the competitive fringe of the small employer 

market as well as non-profit vertically integrated organizations 

such as Kaiser Permanente see SHOPs as a way to build their 

market share. 

Of course, the immediate and perhaps major challenge for 

SHOPs is information technology difficulties that others have discussed. But beyond IT problems, many challenges remain if SHOPs 

are to succeed where HIPCs failed. Dominant insurers have an ecoSBREP-219 with DISTILLER

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nomic self-interest to see that SHOPs remain marginal. Along with 

established brokers and agents, they have a stake in maintaining 

the current delivery system where these groups have been so successful. The broker community poses a real dilemma. Health insurance is often too complicated and time consuming for small employers to master so small firms turn to brokers who are held in high 

regard. But SHOPs will perform many of the functions that brokers 

currently do. So to achieve broker buy-in, SHOPs may have to forfeit many potential savings. 

If SHOPs and the fully-insured market are to survive, they must 

stand off threats by other insurance systems such as self-insurance. 

To paraphrase Lincoln, ‘‘A house divided cannot stand.’’ Two insurance systems, one risk-rated and the other not, will lead to one system with a disproportionate share of bad risks, and one with favorable risks. Such a division could lead to the demise of the non-risk 

rated system. 

I want to close with an observation from my nearly 40 years 

studying the economics of our health care system. Change does not 

come instantaneously. I can recall articles I read or wrote about 

HMOs, PPOs, HRAs and HSAs where it was observed, ‘‘What’s the 

big deal over (fill-in the blank). They only have X percent enrollment. Why are we giving this so much attention?’’ All in due time 

became prominent insurance products, but it required many years 

of growth. So to paraphrase John Lennon, ‘‘Give SHOPs a chance.’’ 

I would be delighted to answer your questions. 

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