Market Forces at Work: Small Business Owners SHOPping with their Feet

In sharp contrast to the more successful rollout of for individuals and families this year, the government’s Small Business Health Options Program (SHOP) is off to a slow start. SHOP could only muster 200,000 visits in its first week, ultimately throwing into question the need for a federal program with such little support and utility.

The saga of SHOP has been well-documented. Established under the Affordable Care Act (ACA), initial enrollment was delayed for a year due to technical glitches that today remain for many state exchanges. The requirement that employers offer a selection of options has also been stalled to at least 2016. As a result, small businesses in 18 of the 32 states with SHOP exchanges can offer only one coverage option to their employees. On top of this, employers find the tax credit system – a key reason to use SHOP – difficult to navigate. It should be unsurprising, given these issues, that a recent report by the Government Accountability Office acknowledged that SHOP will likely undershoot its target of two million signups by 2015 by a substantial margin.

But the most challenging issue for SHOP is the shifting fundamentals of the small group market. Small businesses with less than 50 employees are not required to provide health insurance coverage, but many see it as an important tool to recruit and retain top talent. Instead of pursuing a small group insurance plan, however, an increasing number of small business owners are offering employees a one-time “raise” to buy their own health coverage in the individual market. For small business owners, the calculation is clear – going outside the traditional group market provides employees with greater choice of coverage and for those who qualify access to subsidies. It also helps moderate business expenses, making them more predictable and manageable. I expect this trend to continue to gain momentum in the coming years.

Even for those small business owners who choose to stay with group coverage, the market dynamics are moving swiftly. For years, owners have struggled with the administrative and financial burden that comes with choosing and managing their employees’ health insurance and relied instead on the counsel and support of a qualified agent or broker. Most do not employ a human resources officer, and have long valued this support. Brokers of new technologies are also starting to emerge promoting additional alternatives to SHOP with added services like HR administration, payroll integration or more importantly supplemental coverage options that help consumers confront the increasing cost and financial burden tied to rising deductibles, out of pocket expenses and non-covered services.

All of this begs the ultimate question – should SHOP be scrapped? Unlike’s slow start in 2013, there is little reason to believe SHOP will see a significant uptick in customers even if it begins to run smoothly. Instead, it must compete against the prevailing trends of a shrinking small group market and an individual option that offers superior economics. Private solutions are showing their versatility and effectiveness while millions in taxpayer dollars continue to support a program that, if privately run, would have folded long ago. At times it’s easier to sanction what you can’t control.

Barring major structural change, employer-based coverage will continue to be the largest source of health insurance for Americans, and the government rightly recognizes that small businesses can be an important provider of employee coverage. Even so, with the pace of innovation and range of successful offerings in the private space, we must decide whether the unpopular and costly SHOP program is worth supporting in the new and evolving health care landscape. In the meantime, business owners will continue voting with their check books.


Ken Fasola is President and Chief Executive Officer of HealthMarkets, Inc. a holding company focused on serving the insurance needs of individuals, families, and small business.

Morning Consult