SMALL BUSINESS HEALTH OPTIONS PROGRAM

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1 SMALL BUSINESS HEALTH OPTIONS PROGRAM This summary provides an overview of what is currently known about the Small Business Health Options Program (commonly referred to as "SHOP"), an aspect of the American Health Benefit Exchanges ("Exchanges"). Beginning in 2014, small employers will be permitted to purchase health coverage for their employees through the SHOP. What is the SHOP? The SHOP is a program operated by the Exchanges through which a "Qualified Employer" (see below) can provide employees and their dependents access to qualified health plans ("QHPs"). Please refer to the previous summary of the Exchanges for more information on QHPs. SHOPs will be available in all Exchanges, including those run by the federal government ("federallyfacilitated SHOPs" or "FF-SHOPs"). 1 Who is a "Qualified Employer"? A Qualified Employer is a small employer who elects to offer, at a minimum, all full-time employees a QHP through the SHOP and either has its principal business address in the Exchange service area and offers coverage to all full-time employees through that SHOP or offers coverage to each eligible employee through the SHOP serving that employee's primary worksite. A Qualified Employer is therefore permitted to offer coverage through multiple SHOPs. A "small employer" for this purpose is an employer who employed an average of employees on business days during the previous calendar year and who continues to employ at least 1 employee on the first day of the plan year. For plan years beginning before January 1, 2016, the state that operates the SHOP can elect to limit the definition of Qualified Employer to one that employed an average of 1-50 employees. FF-SHOPs will adopt the state definitions of the small group market. A Qualified Employer can remain eligible for the SHOP even if it ceases to be a small employer because of an increase in the number of employees until the Qualified Employer otherwise ceases to be a Qualified Employer or the Qualified Employer elects to no longer offer coverage through the SHOP. Beginning in 2017, the state that operates the SHOP can elect to expand the SHOP to employer in the large group market. In that instance, the large employer will have to meet the same requirements as a Qualified Employer other than be a small employer. What coverage is available through the SHOPs? Generally, the SHOP will offer QHPs that will be available for the small group market. A state can choose to merge the Exchange and the SHOP, which would provide access to individual QHPs through the SHOP. Additionally, the SHOP will offer multi-state plans ("MSPs"). An 1 The requirements for SHOPs and FF-SHOPs are generally the same, so except when different rules are noted, this summary will refer only to SHOPs

2 MSP is essentially a QHP that is offered through the Exchanges and the SHOPs that has an agreement with and is subject to the additional requirements of the Office of Personnel Management. A Qualified Employer will be able to choose the level of coverage offered by the Qualified Employer through the SHOP. All QHPs within that level will then be available to the Qualified Employer's employees. The level of coverage for this purpose is the "metal level": bronze, silver, gold, or platinum (please see the summary of the Exchanges for more information on the metal levels). A state-run SHOP can permit a Qualified Employer to further select one or more QHPs within the level of coverage to offer to its employees. In FF-SHOPs, a Qualified Employer can elect either a level of coverage or a single QHP. However, for 2014, Qualified Employers will be permitted to elect only a single QHP. What functions will the SHOP perform? Generally, the SHOP will perform the same function as the Exchange as well as the following additional functions: 1. Determine whether an employer is a Qualified Employer and whether an employee is a Qualified Employee. A "Qualified Employee" for this purpose is an employee who receives an offer of coverage from a Qualified Employer. 2. Facilitate enrollment in the SHOP and the QHPs and transfer enrollment materials to the QHPs. 3. Aggregate the premiums due to all the QHPs and collect the Qualified Employer's payment and make all payments to the QHPs. This function will be optional for SHOPs in FF-SHOPs will not aggregate premiums in 2014 because Qualified Employers are permitted to select only a single QHP, so there will be no premiums to aggregate. 4. Require all QHP issuers to make any change to the rates at uniform times (either monthly, quarterly, or annually) and prohibit QHP issuers from varying rates for a Qualified Employer during the Qualified Employer's plan year. 5. Ensure the QHPs terminate employees' coverage if a Qualified Employer withdraws from a SHOP. The SHOP will also provide advance notice of the termination to the employees. The notice will include information about other potential sources of coverage, including access to the individual market in the Exchange. How does a Qualified Employer enroll in coverage through the SHOP? For 2014, the first enrollment period is the initial enrollment period for the Exchanges, October 1, 2013 to March 31, 2014, discussed further in the summary of the Exchanges. Thereafter, a Qualified Employer will have an opportunity to enroll in the SHOP throughout the year. The employer's plan year will be the twelve month period beginning with the effective date of the Qualified Employer's coverage

3 Employer Application. The guidance requires the SHOP to provide a single application to determine employer eligibility for the SHOP and to collect the necessary information to purchase coverage. The application will request the name and address of each of the employer's locations, the number of employees, the employer identification number, and a list of Qualified Employees and their tax identification number. The application may be submitted via internet, telephone, mail, or in person. The Department of Health and Human Services ("HHS") has issued a draft form application, which is three pages in length and requests the basic information noted above as well as information on the type of employer (for example, private sector or government). In contrast to the guidance, the draft application indicates that listing the Qualified Employees is optional. The draft application requires the employer to update any information on the application. The draft application indicates that the SHOP should provide an eligibility determination and QHP options within 1-2 weeks of applying. Coverage would then be effective as of the first day of the month two months after the employer mailed the application. Annual Renewal. Each year, Qualified Employers will have a period of at least 30 days prior to the end of the plan year and before the annual employee open enrollment (described further below) in which to change participation in the SHOP. The Qualified Employer may change: 1. The method by which it makes QHPs available to its Qualified Employees; 2. Its contribution to the cost of coverage; 3. The level of coverage offered to its Qualified Employees; and 4. The QHP or QHPs available to Qualified Employees. The Qualified Employer will be notified of this period in advance by the SHOP. The Qualified Employer will also have a continuing obligation to provide the SHOP with information about dependents or employees whose eligible status has changed (for example, newly eligible employees and dependents and loss of Qualified Employee status). Are there any minimum participation requirements to enroll in coverage through the SHOP? A SHOP may establish uniform participation rules based on the rate of employee participation in the SHOP (not in any particular QHP). FF-SHOPs will generally use a minimum participation rate of 70%. The minimum participation rate will be calculated by dividing the number of Qualified Employees who accepted the coverage over the number of Qualified Employees offered coverage. Employees who are enrolled in another employer-sponsored group health plan (such as a spouse's plan) or a governmental plan (such as Medicare, Medicaid, or TRICARE) at the time the employer submits an application to the FF-SHOP will be excluded from the calculation

4 This means that if an employer does not meet the minimum participation requirement, the employer will not be able to purchase coverage through the SHOP. The employer will, however, be able to purchase coverage outside of the SHOP because beginning in 2014 health insurance issuers must accept any employer that applies for coverage. How does a Qualified Employer's employees enroll in coverage through the SHOP? The Qualified Employer will provide information to its Qualified Employees about the process by which to enroll in the SHOP. Initial Enrollment Period. The SHOP will have an initial enrollment period that runs in conjunction with the initial enrollment period for the Exchanges, October 1, 2013 to March 31, 2014, discussed further in the summary of the Exchanges. Annual Enrollment Period. The SHOP will provide an annual open enrollment period of at least 30 days. The open enrollment period will begin prior to the end of the Qualified Employer's plan year and after the Qualified Employer's annual election period. The SHOP will provide employees with notice of the open enrollment. If a Qualified Employee remains eligible for coverage, the employee will remain in the QHP previously selected unless the Qualified Employer terminates coverage from the QHP, the Qualified Employee enrolls in another QHP (if that option is available), or the QHP is no longer available to the Qualified Employee. New Employees. New employees will be given an enrollment period beginning on the first date they become Qualified Employees. Special Enrollment Periods. Individuals who experience a trigger event will have a 30 day special enrollment period to enroll in a QHP. There are multiple trigger events for a special enrollment period; a few of the most common include: Loss of minimum essential coverage (e.g., losing employer-sponsored coverage). Gaining a dependent or becoming a dependent, through birth, adoption or marriage. Gaining access to new QHPs because of a move. Additionally, individuals who lose eligibility for Medicaid or CHIP or who become eligible for coverage assistance under Medicaid or CHIP have a special enrollment period of 60 days to enroll in a QHP. Employee Application. The guidance states that the SHOP will provide a single application for Qualified Employee eligibility determinations, QHP selection and enrollment. The application may be submitted via internet, telephone, mail, or in person. The SHOP will also provide new enrollees with an enrollment information packet. HHS has issued a draft application to determine whether Qualified Employees are eligible for SHOP coverage. In contrast to the guidance, the draft application does not provide for QHP

5 selection. Rather, the draft application indicates that after the application is submitted, the Qualified Employees will receive additional information on QHP options and enrolling in coverage. The draft application requires Qualified Employees to report any changes to the application to the employer's agent or broker or directly to the SHOP. Are there any incentives to purchasing coverage through a SHOP? Employers that choose to offer coverage to their employees through a SHOP may be eligible for the small business health care tax credit. The small business health care tax credit is available for all small employers that meet the eligibility requirements. The current amount of the credit is up to 35% of the nonelective contributions the employer makes toward health care premiums Beginning in 2014, the maximum credit available increases to 50% but is available only for coverage purchased through SHOP. Additionally, this increased credit is available for two consecutive tax years only. To be eligible for the credit, an employer: 1. Cannot employ more than 25 full-time employee equivalents (which will be determined based on an employer's full-time, part-time, leased and seasonal employees). Controlled group rules apply for purposes of counting the number of employees, meaning all employees in all entities under common control will be counted. Certain individuals are excluded in the count, such as owners and their families; 2. Cannot pay more than $50,000 in average annual wages for such employees (for 2013; the average wage will be increased by a cost of living adjustment in future years); and 3. Must generally contribute at least 50% of the premium cost for each employee. The premiums paid on behalf of the excluded individuals are not counted for purposes of the credit. The credit applies to the lesser of the premiums paid by the employer or the average premium in the small group market in the state where the employer offers coverage. The maximum credit is available for employers with 10 or fewer full-time employee equivalents with average wages of $25,000 or less. The credit phases out for employers with between 10 and 25 full-time employee equivalents with average wages between $25,000 and $50,000. Where can I get more information? Unresolved Questions SHOPs have the same unresolved questions as do the Exchanges generally. Additional questions for the SHOPs are: When is coverage effective for a Qualified Employee? When does coverage terminate? Presumably, the same coverage rules that apply in the Exchange will apply to the SHOPs but the current guidance is unclear on this point

6 Which SHOPs will be available for employers with 50 to 100 employees? The general rule is that employers with up to 100 employees will be eligible for the SHOP, but the rules permit SHOPs to limit eligibility to employers with up to 50 employees. Because the SHOPs are not yet operational, we do not know which SHOPs will limit coverage to employers with 50 or fewer employees