States Shop For Ideas For Their Small Business Exchange
According to some estimates, half of the uninsured in the United States are small business owners, employees or their dependents. The Small Business Health Options Program (SHOP) exchange is intended to provide health insurance coverage to these groups.
The SHOP exchange—in both principle and design—is quite different from the individual exchange. The SHOP exchange is intended to make health insurance more accessible to small businesses by easing administrative burdens and reducing costs. The operational model is also different and more complex than the individual exchange. In the SHOP exchange, the employer makes a choice of a benefit tier or range of health plans for employees to choose from, then the employee ultimately selects a specific plan. SHOP exchanges are also required to take on certain functions, like premium aggregation, that are not required of the individual exchange.
Given the unique functions of the SHOP exchange, many states are planning to separate their individual and SHOP exchange decisions and procurement. We’ve highlighted below a few states that have been shopping for ideas and have begun to move forward with key SHOP design decisions.
California
California issued an RFP in February for assistance in designing, developing and evaluating SHOP options and awarded the contract to PricewaterhouseCoopers (PwC) in March. The exchange board focused on SHOP at their April meeting where it heard PwC’s overview of SHOP decisions; lessons from the PacAdvantage experience (California’s former small business purchasing pool); and the small business perspective. Lessons learned from PacAdvantage include (1) create a value proposition for small businesses; (2) be sales focused; (3) understand plan motivation; and (4) avoid adverse selection. On the small business side, John Arensmeyer of the Small Business Majority stressed cost as the most important issue for small employers.
Upcoming SHOP-related policy decisions the board will have to make include setting standards for qualified health plans; establishing the degree of employer/employee choice; developing marketing strategies; defining the role of navigators; and shaping operational processes. In the meantime, the exchange laid out a number of goals to guide the establishment of the SHOP exchange. The board plans to further discuss the SHOP exchange at its May meeting and develop final policy recommendations in June.
Maryland
In March, Maryland released a Request for Information (RFI) from which exchange staff gathered information to develop recommendations on SHOP functions best performed by the state or contracted to others. The RFI asked respondents to evaluate several options based on a number of objectives, including transparency, friendliness to consumers, minimization of duplicative efforts, and minimum disruption to the existing market. As a result, the exchange staff recommended that the state proceed with creating the online marketplace and back office administration (including premium aggregation and payment functions), and also supported establishing a certification process for third party administrators (TPAs) to perform some of these SHOP functions. They hope that this hybrid approach will allow the state to meet CMS certification requirements, create opportunities for consumer choice, and allow employers to continue using TPAs with little disruption.
Tennessee
Tennessee recently released an RFI requesting feedback on a number of potential approaches to the SHOP exchange. The state aims to complement current market choices, leverage existing producer infrastructure and keep administrative costs low. Tennessee is considering requiring broker/agent participation in the SHOP exchange, at least for its initial years of operation. The RFI lays out options to have small businesses work directly with agents to purchase insurance coverage for their employees and includes specific questions to system vendors, agents and carriers.
What policy decisions is your state considering related to the SHOP exchange? Tell us in the comments below or in the SHOP discussion.

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