Only 2 Percent of Small Businesses Have Checked Out Obamacare’s Small Business Exchanges

business-dealAs well as health insurance exchanges for individuals, which have suffered much criticism for their failings, Obamacare created exchanges especially for small businesses: Small Business Health Options Program (SHOP).

SHOP is a bigger failure than the exchanges for individuals. SHOPs were supposed to open up nationwide on October 1, 2013, alongside those exchanges. However, the deadline was deferred, and only 15 states currently have SHOPs.

And they are a complete bust. Only two percent of eligible small businesses have “checked out” SHOPs, and few of them have enrolled.

What is the problem? Industry consensus is that insurers extended incumbent policies through 2014, so small businesses have got some breathing room and will have another look at SHOPs for 2015.

I doubt it. One problem is that small business owners are too busy to figure out SHOPs. Also, while businesses with fewer than 25 employees with a payroll of under $50,000 per head can get a tax credit by using the SHOP in its state, such businesses are not subject to Obamacare’s employer-mandate to offer health benefits.

The employees of such businesses will be eligible for Medicaid or subsidized coverage on the Obamacare exchanges for individuals. So, it likely makes more sense for small businesses to wash their hands of the administrative burden of employer-based health benefits altogether.

SHOPS are a small piece of Obamacare that are useless. Bipartisan agreement to eliminate them would be a worthy goal.

Comments (10)

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  1. Frank says:

    I don’t know if they need to be eliminated because they’re not being taken advantage of. But I don’t understand why small businesses would continue to provide coverage when they can simply give employees a voucher to get their own health care from individual exchanges.

    • John R. Graham says:

      They don’t give them a voucher, but I think we’re on the same track, conceptually.

  2. Bob Hertz says:

    The SHOPS are even worse than you imply.

    I may have my numbers a little wrong, but as I remember a business could get a tax credit of about 35% of the premiums for its employees, assuming its payroll was low enough.

    The drafters of ACA live in Washington and either work for the govt or large corps.

    They do not understand Sub S taxation.

    They also do not understand that paying 65% of the premiums is a big burden for businesses with uneven cash flow (which is most small businesses.)

    As an FDR liberal, I would point out that small businesses pay their share of FICA and Medicare taxes with almost 100% compliance.

    So we should have added more people to Medicare. I know this is anathema to some readers of this blog, but as someone who has run a small business I would be delighted by it. My competitors would be paying the same FICA rates.

  3. Ron Greiner says:

    Bob is right, these small employers are brain dead on taxation.

    Of course the smart move is for employers to tell these low paid employees to get the HSA Bronze plan with tax credits and the employers to get out of the health insurance business because they do not have a clue on what they are doing. Employees with families earning $50,000 (MAGI) can usually get this coverage for $0 to $100/month in most states.

    Employers are paying Payroll tax, Worker’s Comp and Unemployment Tax on every dollar of compensation to these employees. These employees are paying Payroll Tax, State Income and Federal Income Tax on every dollar of compensation.

    If the employer puts a dollar into the employee’s tax-free HSA – NO TAXES!! Abra-abra-cadabra compensation without taxation!.

    It’s smart when employers and employees work together and cut the IRS – OUT.

    Dr. Graham, want to see exactly how HSA illiterate the small employer are in Florida? Our Tax-Free HSA Task-Force member Lee sent me this email:

    Well we have our work cut out to educate the masses on the HSA.

    As you can see by the report HSA’s are not being taken advantage of in the small group markets.

  4. Bob Hertz says:

    Ron, let’s say an employer does tell its lower paid employees to go onto the exchange.

    This could cause any existing group insurer to cancel a policy, due to low participation.

    Now what do you do with the higher paid employees? (which in many small firms, may include the boss and his family and his brother or sister and their families)

    If you send them to the exchanges, and if they are older, they might face some pretty high premiums.
    If you give them a bonus to help pay those premiums, that bonus is taxable so about 25% of it is lost.

    The numbers may all work out, but I would be cautious.

    • Ron Greiner says:

      That is correct Bob, each situation is different. As a matter of fact all of the different combinations would be more like a book than a post.

      Take Wayne State University(WSU) for example because I have those numbers in my head. At WSU the total premium is $2,110/month for family coverage. In round numbers the employees’ cost is $1,170/month and the employer’s is $940/month. If the employee cannot afford the $1,170 they cannot go to the exchange because their employer is trying to sell them insurance.

      A 40-year-old couple and 2 children can get the Bronze plan for $566.25/month from Blue Cross in Wayne County, MI. If this family earned $50,000, Modified Adjusted Gross Income (MAGI), the tax credits are $516.54/month resulting in a net premium for the family of $49.71/month.

      Employer-based health insurance is really expensive. Like you say, small business is a family affair in America. If this 40 year old couple are the owners earning $150,000 a year they would not qualify for tax credits. It would be best if the family could find an agent that knows what they are talking about. I’m not talking navigator here. Also, if they don’t qualify for tax credits then they are not restricted to just the plans on the exchange.

      • John R. Graham says:

        What about if the husband and wife who owned the business and earned 6 figures each did the following: One spouse takes a significant salary cut. The second resigns and becomes a self-employed consultant, with the family business as his client, taking his former salary and most of his spouse’s former salary as his consulting fee. He then buys individual health insurance and can deduct the premium from taxable income because he is self-employed. How does that sound?

  5. Ron Greiner says:

    Dr. Graham, this post was so good I made my wife Pam read it. I have been telling her about the NCPA Blog forever but this is the 1st post she has ever read. She only said 7 words about it but it was quite a compliment to you.

    Bob, I told her to read your 1st comment too and then asked her, “So what do you think of Bob?” She said, “I liked that he used the word – anathema.”

    Then I read this comment that you wrote Dr Graham, “So, it likely makes more sense for small businesses to wash their hands of the administrative burden of employer-based health benefits altogether.”

    Then I asked her, “That’s smart right?” She said, “Yes, now get out of here because I don’t want to talk about health insurance anymore.”

    Mitt Romney’s Healthcare Policy guy Roy – I just commented on one of his articles at Forbes and told him I was going to Re-Post it here. I started it with Don’t try and be coy Roy, but then I decided to show more respect than that. I don’t know why though, Mitt Romney?

    Avik Roy, I think you are too nice on employer-based health insurance because it is very dangerous and way too expensive. Maybe it’s because I enrolled America’s 1st tax-free MSA in Oct of 1996 with TIME Insurance Company that makes my eyes a little more judgmental than your typical Forbes reader. As a matter of fact I come from the free and open market so maybe I understand things a bit more clearly than say – Dr. John Goodman.

    I have been telling Dr. Goodman for almost 2 decades that employer-based health insurance is dangerous because these insurance companies are terminating the sick employees with their sneaking Eligibility Requirements. You know what I mean, if an employee becomes too sick to work 30-hours-per-week, because of cancer or MS, the employee is put to a short-term COBRA for insurance TERMINATION. We all know when a young woman loses her insurance 18 months into her cancer that it is depressing at best and deadly at worst.

    Employer-based health insurance is expensive. The city of St. Petersburg, Florida is spending a whopping $1,897.48/month for employees with family PPO coverage. This is INSANE because in the FREE and OPEN Market a 40-year-old couple and 2 children can get the HSA Bronze plan for $608.33/month from Humana. If this family was earning $50,000 Modified Adjusted Gross Income (MAGI) I won’t even tell you how much the tax credits are but trust me, it makes the net premium for this family really cheap and affordable.

    The worst thing about these over-priced dangerous employer-based plans is that these employers are selling them to their own employees with non-licensed HR people without FULL and PROPER DISCLOSURE, a serious ETHICS VIOLATION. We hope to put a stop to this lawlessness soon in the state of Florida.

    Currently in Florida we have a Governor’s race between 3 individuals. Rick Scott and Charlie Crist want to take $51 Billion in Medicaid expansion tax dollars that our unborn grandchildren will spend their entire life paying off with interest. The good news is that Libertarian Adrian Wyllie refuses to take the $51 billion for Medicaid and prefers a solution utilizing the free and open markets in combination with educating Floridians about their health insurance options, including the tax-free HSA. Of course HSAs enjoy tax-free deposits, growth and withdrawals, total tax freedom.

    Our goal is to educate the electorate in Florida between now and Election Day and reclaim this great state from these two uninformed politicians. One of our problems is that non-profit Blue Cross of Florida’s CEO want’s that $51 Billion so bad he is dumping millions into this political race to bribe Rick Scott to take those $51 billion in Medicaid tax dollars. Wish us well. I tried to tell Dr. Merrill Matthews but he said that Adrian Wyllie can’t be a Libertarian because he has allowed no medical underwriting into the state of Florida because of the ACA. See, that’s just faulty thinking.

    If you are the top dog in opinions you should consider an opinion on the Florida race for Governor. We have 2 crony politicians wanting Medicaid expansion and Libertarian Adrian Wyllie who desires to help the people of Florida, the 4th largest populated state in the Union.

    Ron Greiner
    Director of Healthcare Policy

    • John R. Graham says:

      Thank you. We may well write about Florida health policy. However, we never endorse political candidates.

      • Ron Greiner says:

        Of course not. But, I am after Jane Orient MD, Executive Director of American Association of Physicians and Surgeons (AAPS), because she does.

        Roy’s job is to have opinions and I think he should point out that Rick Scott was CEO of a company that paid the largest Medicare fraud fine in history so Scott has demonstrated leadership. It’s just an opinion not an endorsement.