The Affordable Care Act ("ACA"), which is composed of The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act, requires the establishment of a Health Insurance Exchange (“Exchange”) in every state by January 1, 2014. The law affords each state the opportunity to build an Exchange to meet the needs of its citizens, as long as it follows certain federal requirements.

In the past month, the Department of Health and Human Services (“HHS”) published two final rules that are designed to facilitate the implementation of the Exchange provisions of the ACA. The first final rule, published on February 25, 2013, outlines standards related to the actuarial value and coverage of essential health benefits (“EHB”) for the Exchanges. This final rule also establishes a timeline for Qualified Health Plans ("QHPs") to be accredited in the Exchange. The second final rule, published on March 11, 2013, outlines information on the Small Business Health Options Program (“SHOP”). The SHOP enables employers to select the level of coverage they will provide to their employees and gives employees the opportunity to choose among different QHPs within the level of coverage that the employer selects. The EHB will be based on actuarial values and classified as bronze (60%), silver (70%), gold (80%) or platinum (90%). It has been proposed that employees should be able to “buy up” from the plans their employers offer on the SHOP. Depending on the level of EHB offered and what the employee selects, the plan would pay a percentage of the health care expenses, with the employee responsible for paying the remainder.

Non-grandfathered plans in the individual and small group insurance markets must provide coverage of essential health benefits, which consist of the following 10 categories: (1) ambulatory patient services; (2) emergency services; (3) hospitalization; (4) maternity and newborn care; (5) mental health and substance use disorder services, including behavioral health treatment; (6) prescription drugs; (7) rehabilitative and habilitative services and devices; (8) laboratory services; (9) preventive and wellness services and chronic disease management; and (10) pediatric services, including oral and vision care.  

Each state will select a benchmark insurance plan that will provide a set level of coverage for each EHB. Each QHP must then either meet or exceed the coverage provided in the state-selected benchmark insurance plan. Twenty-six states have already selected a benchmark plan, and for the remaining states, HHS has established each state’s benchmark plan based on the state’s small group market. Details on the benchmark plans for each state are available on the Centers for Medicare and Medicaid Services (“CMS”) website, published here. Each EHB benchmark plan is based on 2012 insurance plan designs.

One of the goals of the SHOP is to provide small businesses with the opportunity to compare health plans in one setting where insurance companies will compete for business – the idea being that the increased competition will lead the insurance companies to reduce costs and lower their premiums. HHS believes the SHOP will: (a) simplify choices by providing side-by-side comparisons of employer-selected QHPs; (b) enable small employers to offer more choices from multiple insurance carriers; (c) allow employers to retain control of the plans offered and the amount, if any, they will contribute to their employee’s plans; and (d) lower overhead costs by consolidating billing.

One major benefit of participating in the SHOP is the potential to receive the small employer health insurance premium tax credit. A small group employer may be eligible for the tax credit of up to 35 percent of the employer’s share of the employees' premiums if the employer has fewer than 25 full-time workers, the average annual employee wage does not exceed $50,000, and the employer covers at least 50 percent of the employees' health insurance costs. In 2014, the tax credit may increase up to 50 percent of the employer’s share, as long as the employer purchases its coverage through the SHOP. Non-profit employers meeting the eligibility criteria may be eligible to receive a tax credit of up to 35 percent of their premium costs for two years starting in 2014. Also, the SHOP will provide employers with quality information and consumer satisfaction surveys to assist in their selection of a QHP.

To be eligible for SHOP, an employer must have fewer than 100 employees. However, a state may elect to limit participation to businesses with only 50 employees until 2016. Again, the purpose of the SHOP is to simplify choices for employees by allowing them to compare Qualified Health Plans by reviewing benefits, premiums and quality. The Qualified Health Plans available through the SHOP will be from multiple insurance carriers. Premiums will not be based on an individual’s medical history and will only vary depending on age and use of tobacco products.