The majority of US small businesses

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1 Small Business Insurance Exchanges doi: /hlthaff HEALTH AFFAIRS 31, NO. 2 (2012): Project HOPE The People-to-People Health Foundation, Inc. By Terry Gardiner ANALYSIS & COMMENTARY Health Insurance Exchanges Of Past And Present Offer Examples Of Features That Could Attract Small-Business Customers Terry Gardiner (tgardiner@ smallbusinessmajority.org) is the vice president for policy and strategy for Small Business Majority, in Washington, D.C. ABSTRACT The Affordable Care Act calls on states to create health insurance exchanges serving small businesses by These exchanges will allow small-business owners to pool their buying power, have more choices of health plans, and buy affordable health insurance. However, creating an exchange that appeals to small-business owners poses several challenges. Past and current exchanges provide valuable insights into the role exchanges can play, services they can offer, and design features that can make them successful. For example, states should allow insurance brokers to provide employers with advice and analysis regarding plans offered in the exchanges. Exchanges should also provide services to ease enrollment, such as a single application for all of the plans they offer, and make additional benefits, such as wellness programs, available on a stand-alone basis or within insurance plans. The majority of US small businesses are truly small: 80 percent of them have fewer than 10 employees. 1 The people who run these companies are very busy doing everything that needs to be done to keep their enterprises alive. They are answering phones and designing ad campaigns, creating products and negotiating with suppliers. They have a lot to do and only twenty-four hours a day to get it done. The experience of small-employer health insurance exchanges has demonstrated that exchanges need to be easy to use and provide valuable services if they are to thrive in a marketplace where a harried entrepreneur has a multitude of insurance options. If exchanges don t make small-business owners lives easier, owners will turn to the outside insurance market to meet their needs, and the exchanges could have minimal impact or even fail. This article discusses the small-business exchange from the perspective of small-business owners. All comments from individuals come from interviews the author conducted throughout the summer and fall of Elements Of A Successful Small- Employer Insurance Exchange As any competent business owner recognizes, the starting point for building a successful enterprise is knowing your customer. The Small Business Health Options Program (SHOP) exchanges created by the Affordable Care Act of 2010 must do the same thing. They will compete in the insurance marketplace and will have to offer health plans and services that are attractive to small-business owners if they are going to thrive. America s small businesses are as diverse as the economy and the country. Small-business owners are everywhere farmers, construction contractors, information technology specialists, retailers, manufacturers, lawyers, physicians, 284 Health Affairs February :2

2 and accountants. They work in urban, suburban, and rural areas. Understanding and responding to the needs of this diverse group presents a challenge to those creating the SHOP exchanges. Most small employers will need the exchanges to serve as their human resources department for the purpose of administering health insurance, because the activity is highly complex. Frank Knapp, president of the South Carolina Small Business Chamber of Commerce, which represents more than 5,000 small businesses, observes that his group s members will need a health insurance exchange that is transparent [and] easy to use for owners and employees, and [that] doesn t require a time-consuming effort to become an insurance expert. Brokers, Navigators, And Learning About Exchanges A major challenge for creating a successful exchange will be ensuring that smallbusiness owners know it exists and understand how it works. Insurance brokers and exchange navigators can be invaluable allies in achieving this goal. The role of each is described in more detail below. A national study by Small Business Majority in November 2010 found that only a third of smallbusiness owners were aware of the exchanges. 2 A California-based study in February 2011 found that even though small employers were not knowledgeable about the Affordable Care Act or their rights under it, many strongly supported a state health exchange. 3 Taken together, these findings reveal the scope of the challenge and opportunity for the potentially fifty state exchanges. BROKERS: A review of existing and past small-employer exchanges shows that successful exchanges use brokers as part of their systems. Exchanges that did not do so encountered major problems in attracting small employers. States should examine these historical experiences and the current role of insurance brokers in their markets. 4 Brokers help their clients obtain and manage health products. The vast majority of small businesses that purchase health insurance use a broker, who receives a commission for this service. 5 Despite the notion that insurance would be cheaper if employers bought it through an exchange, without the assistance of a broker and the attendant brokerage costs, there are many practical reasons that brokers should continue helping their clients as health reform is implemented. First, the owner of a small firm is not an expert on insurance. Purchasing health insurance requires a complex set of choices involving costs, benefits, trade-offs, and alternatives. In choosing among health insurance options, the employer must balance the cost with the needs of a wide range of employees and their families. Owners, therefore, need advice and analysis from someone who is knowledgeable about their business and whom they trust to answer their questions. Shawn Nowicki, director of health policy at HealthPass New York, an exchange that provides health plans to more than 4,000 small businesses, notes that brokers have long played this role for small businesses and do so in the case of HealthPass. Although not directly employed by the exchange, brokers very much play a supporting role, Nowicki says, describing their interaction with health insurance exchanges as decidedly complementary and synergistic. Second, employers are accustomed to dealing with a broker and often purchase other insurance products through that broker. Third, once a plan is chosen, brokers can help small businesses, which often don t have a human resources department, with tasks such as employee benefit education, enrollment changes, and wellness program administration. The employee choice feature of the SHOP exchanges will allow employees to choose a health plan that best meets the needs and budget of their family. Employers will designate a specific health plan, a reference plan, and employer contribution level. The employee s contribution will vary up or down based on the employer s reference plan. This new feature will require additional employee benefit education. The complex challenges of health insurance such as evaluating health plan options, finding a health plan that matches the company s needs, and understanding insurance plans and regulatory requirements make brokers particularly valuable for small employers. In addition to these benefits to clients, brokers participation can also benefit the SHOP exchanges, which will need a sizable number of customers to be viable. Although the ideal exchange size will vary depending on the market, if brokers shun exchange coverage and take their clients elsewhere, the exchanges will face a considerable challenge in reaching and sustaining a viable size. This is especially a concern in states with small populations. Historically, some brokers business practices such as steering groups expected to have high utilization toward an exchange, as happened with the California PacAdvantage exchange have created adverse selection for exchanges, and this could occur in the exchanges created by the Affordable Care Act. 4,6 States have many policy options for preventing such practices. These include prohibiting insurers from selling insurance outside the exchange, requiring February :2 Health Affairs 285

3 Small Business Insurance Exchanges insurers that sell insurance outside exchanges to sell only qualified health plans (plans that meet the criteria for being offered in exchanges and are eligible for federal subsidies), and otherwise requiring insurers to comply with the requirements applicable to plans sold inside exchanges. 7 Those designing and implementing the exchanges will need to develop strategies to provide brokers with the education, information, and tools to promote the exchanges to small businesses. Exchange staff members could work with a representative broker advisory group to ensure that the exchange is broker friendly. The experience, training, education, and tools developed by exchanges in Utah, Massachusetts, Connecticut, and New York also offer a wealth of valuable lessons. 8 For example, according to Phil Vogel of Connecticut Health Connections, the Connecticut exchange has learned that ongoing training for brokers is important. NAVIGATORS: The Affordable Care Act requires state exchanges to be staffed with navigators, whose job is to fairly and impartially provide individuals, families, and small employers with the information necessary to determine which health insurance option best fits their needs and then help them enroll in their plan of choice. The law prohibits navigators from inappropriately steering enrollees to or away from the exchange. The law recognizes the need for a variety of navigators to reach a wide assortment of individuals and groups. An effective navigator program for small businesses will require using parties that are knowledgeable and trustworthy. For example, a farmers trade group could be highly effective in reaching farmers, who are dispersed and seasonally very busy and who have specific insurance needs. Navigators will need to grapple with the many challenges of reaching millions of small-business owners. These owners are spread out geographically from family farmers to Main Street merchants to commercial fishermen. Many are so busy starting, growing, and running their businesses that they will probably be reluctant to add insurance exchange meetings to their calendars. To accommodate them, states should consider a wide range of outreach options in addition to public meetings. Reaching business owners through business groups is one possibility, but the membership in such groups is highly fragmented. Half of small-business owners report that they do not belong to a business group. A recent study found that trade and industry groups are the most frequent membership choice of small employers (34 percent), followed by the local Chamber of States are currently discussing a wide range of SHOP exchange designs. Commerce (28 percent). 9 As states roll out their exchanges, they should evaluate a number of different ways to reach small businesses for example, through business and trade groups, trade journals, insurance brokers, trade shows, business media, governmental business license lists, and big-business partners that provide supplies and services to small businesses. In addition to an effective navigator program, exchanges will need to employ other communication tools, including focus groups to test market approaches, user advisory groups, and telephone and online customer support. ESSENTIAL SERVICES: States are currently discussing a wide range of SHOP exchange designs. These range from simple state-chartered websites, similar to those offered by ehealth Insurance and HealthPlanOne, to a full-service small-employer exchange like the Connecticut Business and Industry Association s Health Connections. The services offered by Utah and Connecticut are good examples that other SHOP exchanges could follow. They provide a single point of entry; comparative plan information for employers and employees; a single application for all plans offered within the exchange; a single point of contact for enrollment changes; and a clear method of communication, such as a call center. Other necessities include an easy-to-use website for employers, brokers, and employees; a single premium payment for each employer, with the exchange allocating premium amounts to insurers based on employees plan choices; and a detailed accounting to the employer of each employee s plan choices, the number of family members covered, and health coverage additions for withholding purposes to help employers establish their employees contributions. Health insurance exchanges can also offer more than a marketplace for competing plans and assistance with enrollment. HealthPass New York, Connecticut s Health Connections, the Ohio Council of Smaller Enterprises, the Small Business Association of Michigan, and SMC Business Councils of Pennsylvania provide 286 Health Affairs February :2

4 Several exchanges have developed wellness programs for small-business employees. an array of services in addition to health plans. For example, Health Connections provides many health insurance related services to its more than 6,000 small-business customers, according to Vogel, the exchange s senior vice president. These include a wellness program, administration of health insurance through the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 for continuation of employer coverage after employment ends and Internal Revenue Service Section 125 plans (cafeteria plans and flexible spending accounts), and health reimbursement arrangements. Popular services offered by various exchanges include assisting with coverage for out-of-state employees; coordinating coverage of Medicareeligible employees, dependents, and retirees; and offering a software tool that allows an employer to consolidate the premiums for employees or to charge employees based on individual ratings that involve factors such as age, tobacco use, and geography. Additionally, the Affordable Care Act specifies that state exchanges must help small businesses by providing guidance about federal and state health care tax credits to help offset insurance costs and the estimated value of those credits. State exchanges may also consider providing additional human resources services to small businesses, as other successful exchanges have done, in order to compete with grandfathered plans (that is, those whose benefits do not conform to the new law but that have been allowed to continue with existing insurance contracts) and with the market outside the exchange. Such services could include administering COBRA and Section 125 plans and wellness programs. Wellness Programs Wellness programs have not typically been available to small firms. They are in increasing demand among small employers as they face increasing health plan costs and learn that wellness programs have enabled large employers to reduce or control health care costs, improve employee health, and lower absenteeism. Making such programs a component of state exchanges will make the exchanges even more attractive to small employers. A recent employer survey found that small employers offer wellness programs only one-third to half as often as larger employers, which are primarily self-insured and can more easily benefit from any savings due to improved employee health and lower health plan costs than smaller employers can. 10 Because more than 40 percent of Americans in the private sector work at small businesses, 11 offering wellness programs in those businesses would greatly benefit the US population. In response to small-employer demand, several health insurance programs and exchanges have developed robust wellness programs for small-business employees. For example, the Connecticut Business and Industry Association provides a wellness program with confidential employee health assessments, individual health tracking tools, educational materials, and employee participation incentives. The Ohio Council of Smaller Enterprises provides customdesigned wellness programs to help small businesses control health care costs by better managing chronic diseases, encouraging healthier lifestyles, and reducing unnecessary use of health care services. Commonwealth Choice plans in Massachusetts provide subsidies to small employers who participate in their wellness programs. Plan administrators hope that this additional service will both bring more businesses to the exchange and spread risk within the pool. Some groups, such as the American Heart Association and Families USA, have raised the concern that wellness programs could be used as an indirect way to set premium rates based on health status. 12 For example, if healthier people enroll in plans with wellness programs while sicker people do not, plans with the healthier workers could end up charging lower premiums. However, others have found that wellness programs are a positive force for employee health. Federal Regulatory Requirements For Exchanges The Department of Health and Human Services has left to the states most decisions on exchanges that will define their level of functionality and services for small employers. However, in July 2011 the department released a Notice of Proposed Rule Making 13 that specifies several items SHOP exchanges should include: a single health plan application each for employers and employees; employee choice of plans, with flexible options for state exchanges to meet this February :2 Health Affairs 287

5 Small Business Insurance Exchanges requirement; monthly and special enrollment periods to match existing insurance market practices; and monthly insurance billing, including premium aggregation for employees choosing different health plans. The requirement for premium aggregation a mechanism for paying premiums from multiple sources is vital and practical. Offering multiple health insurance plans creates accounting complexity for small employers, which must make monthly premium payments to each insurer. Some exchanges, such as HealthPass and Health Connections, already offer premium aggregation, collecting one monthly payment from an employer and channeling the funds to each insurer, thereby creating seamless behind-thescenes accounting for the small employer. The proposed federal rules give states flexibility on how to structure employees choice of health plans. SHOP exchanges must provide the option for employers to pick a coverage tier and allow employees to pick any plan in the selected tier. Exchanges could also offer employers the ability to pick one or more plans within one tier of coverage, to select multiple tiers, or to include all qualified health plans as options for employees. Many stakeholders, from health reform advocates to insurers, have expressed concern about the potential negative effects of employee choice. These include adverse selection and the impact of higher premiums for older employees caused by age-rating banding. State policy makers will need to balance these concerns against the advantage of allowing small employers and their employees a choice of health plans, such as those that federal employees and employees of many large companies have today, and that consumers in the individual exchanges will have when those are up and running. Beyond the basic requirements of the proposed regulations from the Department of Health and Human Services, it will be up to state policy makers and exchange managers to decide on the majority of vital design features such as the role of brokers and navigators, the array of State policy makers and exchange managers will decide on the majority of vital design features. human resources type services provided by the exchange, and the extent of wellness program offerings. Conclusion With the advent of health insurance exchanges, states will be engaging more extensively than ever before in the highly competitive world of health insurance. The lawmakers designing exchanges, the boards overseeing them, and the staff operating them will face many of the same questions that business owners have to answer: Who are our customers? What do they want? How will they learn about what we are offering? And how do we get these products and services into their hands? Lessons learned from earlier and current small-employer insurance exchanges can be instructive for policy makers. Small businesses will vote with their feet. They will either shop at or shun the exchanges as a new marketplace for health insurance. Thus, it is important that the exchanges get the basics right at launch: that they offer a broad choice of plans, provide excellent customer service, make sure their services are useful, and make sure the website runs smoothly. Then the exchanges must listen to their customers, compete with insurers in the changing outside market, and, over time, add other services that customers value. The Commonwealth Fund provided funding for this article. NOTES 1 Census Bureau. Statistics about business size (including small business) from the US Census Bureau [Internet].Washington (DC): Census Bureau; 2011 Oct [cited 2012 Jan 3]. Available from: 2 Small Business Majority. Opinion survey: small business owners views on key provisions of the Patient Protection and Affordable Care Act [Internet]. Sausalito (CA): Small Business Majority; 2011 Jan [cited 2012 Jan 3]. Available from: smallbusinessmajority.org/reports/ SBM-Healthcare_Survey_ pdf 3 Small Business Majority [Internet]. Sausalito (CA): Small Business Majority; Press release, California small businesses more likely to offer health insurance after learning of key provisions in healthcare law; 2011 Mar [cited 2012 Jan 27]. Available from: Health Affairs February :2

6 businessmajority.org/news-andevents/press-room-view.php?id=111 4 Weinberg M, Kramer B. Building successful SHOP exchanges: lessons from the California experience [Internet]. San Francisco (CA): Pacific Business Group on Health; 2011 Aug [cited 2012 Jan 12]. Available from: documents/pbgh_shop_05.pdf 5 Pacific Community Ventures. Health care and small business: understanding health care decision making in California [Internet]. San Francisco (CA): Pacific Community Ventures; 2011 Oct [cited 2012 Jan 23]. Available from: and_small_business_2011.pdf 6 Blumberg LJ, Pollitz K (Urban Institute, Washington, DC). Health insurance exchanges: organizing health insurance marketplaces to promote health reform goals [Internet]. Princeton (NJ): Robert Wood Johnson Foundation; 2009 Apr [cited 2012 Jan 23]. (Timely Analysis of Immediate Health Policy Issues). Available from: qsexchangefinal.pdf 7 Jost TS (Washington and Lee University, Lexington, VA). Health insurance exchanges and the Affordable Care Act: key policy issues [Internet]. New York (NY): Commonwealth Fund; 2010 Jul [cited 2012 Jan]. Available from: Fund%20Report/2010/Jul/1426_ Jost_hlt_insurance_exchanges_ ACA.pdf 8 Gardiner T, Perera I. SHOPping around: setting up state healthcare exchanges for small businesses: a road map [Internet]. Washington (DC): Small Business Majority, Center for American Progress; 2011 Jul [cited 2012 Jan 3]. Available from: majority.org/reports/shop_ exchange.pdf 9 Small Business Majority. Small Business Majority frequency questionnaire [Internet]. Sausalito (CA): Small Business Majority; 2010 Oct [cited 2012 Jan 12]. Available from: pdf/sbm-energy-questionnaire.pdf 10 Kaiser Family Foundation, Health Research and Educational Trust. Employer health benefits: 2010 annual survey [Internet]. Menlo Park (CA): KFF; 2010 [cited 2012 Jan 27]. Available from: pdf/2010/8085.pdf 11 Small Business Administration, Office of Advocacy. How important are small businesses to the US economy? [Internet]. Washington (DC): SBA; 2011 Jan [cited 2012 Jan 12]. Available from: sites/default/files/sbfaq.pdf 12 American Association of People with Disabilities, American Cancer Society/Cancer Action Network, American Diabetes Association, American Federation of Labor and Congress of Industrial Organizations, American Federation of State, County, and Municipal Employees, American Heart Association/American Stroke Association, et al. Letter to: Treasury Secretary Timothy Geithner, Labor Secretary Hilda Solis, and Health and Human Services Secretary Kathleen Sebelius, re: proposed changes to 71 FR 75014: Nondiscrimination Based on a Health Factor and Wellness Programs [Internet]. Washington (DC): National Partnership for Women and Families; 2011 Feb 24 [cited 2012 Jan 27]. Available from: site/docserver/hhs_dol_ Treas _Employer_Wellness_ Programs AHA _2011.pdf? docid= Department of Health and Human Services. Patient Protection and Affordable Care Act; establishment of exchanges and qualified health plans. Proposed rules. Fed Regist [serial on the Internet] Jul 15;76(136): Available from: pkg/fr /pdf/ pdf ABOUT THE AUTHOR: TERRY GARDINER Terry Gardiner is thevicepresident for policy and strategy for Small Business Majority. In this month s Health Affairs, Terry Gardiner writes that although health insurance exchanges will offer important benefits to small businesses, designing them will present challenges. Examining past and present exchanges, Gardiner recommends service and design features as well as specific roles that exchanges can play that can make them successful. We don t have to recreate the wheel, he says. We just need to apply the lessons learned to fit the specific market and regulatory differences in each state. Gardiner is the vice president for policy and strategy for Small Business Majority, a Washington, D.C. based organization that advocates on behalf of small businesses. He previously was business group director of Herndon Alliance, a health care research and polling firm. Gardiner was speaker of the Alaska House of Representatives from 1979 to 1981 and one-time chair of its Judiciary Committee. He is also a former chair of the Alaska Criminal Code Commission. Gardiner attended Western Washington University before his election to the Alaska legislature. February :2 Health Affairs 289