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Small Business Health Option Program SHOP
By: John Kabateck





  The Patient Protection and Affordable Care Act (PPACA) requires everyone to have health insurance and provides subsidies for lower income people to purchase a non-employer-sponsored policy in a government-sanctioned exchange. One highly likely consequence of the new law is that low income employees who are covered by employers and have a large cost-share will abandon the employer plan and bolt for the exchange with its subsidies. The subsidies in these instances would likely be larger than the employee contribution. A second employee consideration might be his or her individual personal/family situation. Small employers almost always offer a single health insurance plan, a plan that may be adequate for most employees but not all.

A recent survey asked offering small employers if employee coverage erosion to subsidized policies in the exchange would affect their continued provision of a health insurance plan. If employees began to leave, how likely would they be to seriously explore dropping their firm’s coverage? Twenty-six (26) percent indicate that they are “very likely” to seriously explore the option and another 31 percent are “somewhat likely” to do so for a total of 57 percent (Q. 11). Meanwhile, 22 percent are “not too likely” and 19 percent are “not at all likely” for a total of 41 percent taking the opposite view. Since owners of the largest firms (those employing 20 or more employees) are more likely to explore this possibility, the proportion of employees impacted would be larger than the proportion of businesses.

Still, small employers say that it would take a large share of their workforce opting out before they would drop their plans altogether. Thirty-five (35) percent of those small employers who expressed an interest in exploring the idea of dropping coverage should employees begin to leave for an exchange would require all full-time employees to leave before dropping theirs; another 43 percent would require a majority of full-time employees leaving; and, 2 percent would require a substantial minority (Q. 11a). Three percent think that if employees received subsidies, it makes no sense to have a plan, and 17 percent would not speculate on what it would take. It therefore appears there will be at least initial small employer resistance to abandoning their health insurance plans unless a substantial share of employees leaves for the exchange and its subsidies.

The number of required defections before dropping a plan could change dramatically however, if it appears employee participation is beginning to unravel or competitors start dropping their plans. (Recall there is no financial penalty for dropping insurance among firms with fewer than 50 employees or 50 or fewer employees depending the portion of the law to which one is referring.) The former could occur quite rapidly as it becomes apparent there can be financial advantages to leaving the employer’s plan. A limited number of employers may follow or even lead his/her employees to the subsidies of the exchange. But should competitors start to drop and gain a significant competitive advantage, the small employer may have no choice but to follow. The exchange’s subsidized employee premiums can effectively substitute for employer premium payments, reducing immediate business costs while keeping employees whole. The problem is that someone must pay for those subsidies with taxes, and small-business owners are a likely candidate to shoulder a notable share of that burden.

Owners of firms in the process of change tend to be more likely to explore changes in insurance provision. The employer decision that cannot be addressed here is the extent to which they will forego establishing health insurance plans either because their employees will get a better deal in the exchange or because competitors are not burdened with those costs (premium-share). The issue therefore is not just a matter of dropping existing plans, but of not instituting them in the first place. And, the latter may be more important for small firms over time than the former.

From our survey:
NFIB is a  small business association, with offices in Washington, D.C. and all 50 states. Founded in 1943 as a nonprofit, nonpartisan organization, More information about NFIB is available online at