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Health Care Reform for Employers and Advisors
XXI. Exchanges, Qualified Health Plans (QHPs), and CO-OPs XXI.D. Small Business Health Options Program (SHOP)
D. Small Business Health Options Program (SHOP)
SHOPs are intended to allow small employers to offer their employees a choice of QHPs, the way large employers can—giving the small employer and its employees more bargaining power, a bigger risk pool, and more choices.174
HHS has posted a paper and online SHOP application for employers,175 and an application for their employees.176 An agent, broker, or insurer's customer service representative (or even an employer) may submit an application on behalf of an employee.177
1. Establishment of SHOPs
Each state Exchange is required to create a Small Business Health Options Program (“SHOP”).178 HHS has also provided for a federally facilitated SHOP (FF-SHOP) in states that do not establish a state-based Exchange.179
As foreshadowed in earlier FAQs,180 HHS final rules permit “SHOP-only” Exchanges involving a state-based SHOP for the small group market coupled with an FFE for the individual market.181 Under the final rules, a state may establish a SHOP-only Exchange based on reasonable assurance to HHS that the state will be in a position to establish and operate just a SHOP in 2014—the state is not required to have already obtained conditional approval.182 The regulations clarify that a state would not be permitted to operate a state-based Exchange in the individual market (with the SHOP operated as a federally facilitated SHOP).183
SHOP Participation Voluntary—But Only Means to Obtain Small Business Health Care Tax Credit.
Participation in a SHOP is strictly voluntary for small employers. Beginning in 2014, however, purchasing employer-provided health coverage for employees through a SHOP will be the only way for qualified employers to obtain a small business health care tax credit (discussed in detail in Section XXVI).*
*See PPACA, Pub. L. No. 111-148, § 1311(b)(1) (2010). Preamble to PPACA; Establishment of Exchanges and Qualified Health Plans; Exchange Standards for Employers, 77 Fed. Reg. 18310 (Mar. 27, 2012).
a. SHOP Functions
A SHOP is required to carry out all of the functions of an Exchange, but is not required to carry out certain requirements related to individual coverage.184 A state may choose to merge its individual and small group market risk pools and operate the Exchange and SHOP through the same structure, and may allow
individuals and employees of small businesses to have the same plan options. (And starting in 2017, an Exchange could choose to allow insurers in the large group market to offer QHPs inside the SHOP.)185 If a state does not merge the individual and small group market risk pools, the SHOP must permit each qualified employee to enroll only in QHPs in the small group market.186
Here are some additional requirements for SHOPs:
i. Employee Choice Model
Final regulations establish different structures for state-operated SHOPs and FF-SHOPs.187 Health care reform requires a SHOP to allow a qualified employer to choose a “metal” level of coverage (i.e., bronze, silver, gold, platinum—discussed in subsection C) and make all QHPs within that level available to its qualified employees. This is referred to as the “employee choice model.”188 State-operated SHOPs are not required to offer the employee choice model for plan years beginning before January 1, 2015, and FF-SHOPs will not start offering the employee choice model until plan years beginning on or after January 1, 2015.189
State-operated SHOPs have flexibility to allow a qualified employer to make QHPs available to employees by other methods in addition to the employee choice model.190 For example, according to HHS, some health insurers expressed openness to allowing an employee to “buy up” to certain plans at the next higher metal level above the one specified by the employer. This would give employees access to a broader range of health plans. While this may be a feature of some state-operated SHOPs, it will not be offered through the FF- SHOPs, at least in the first year of SHOP operation.191
Under both state-operated SHOPs and FF-SHOPs, employers will be given the option of limiting their employees to a single QHP (rather than all QHPs within a specified metal level). According to HHS, this is consistent with how employers operate today, and permitting this option will avoid interfering with health insurers' efforts to prepare and price QHPs for an employee choice environment and make systems and operational changes required for SHOP enrollment.192
Access to Small Business Tax Credit. HHS regulation did not initially allow for a single QHP option in the FF-SHOP. However, the addition of this option will permit employers who prefer to offer employees a single QHP to participate in an FF-SHOP and retain potential eligibility for the small business tax credit, which is only available through a SHOP beginning in 2014.*
*45 CFR §§ 155.705(b)(2) and (3); Patient Protection and Affordable Care Act; Establishment of Exchanges and Qualified Health Plans; Small Business Health Options Program, 45 CFR Parts 155 and 156, 78 Fed.
Reg. 15557 (Mar. 11, 2013).
ii. Premium Calculator, Billing, and Aggregation
HHS regulations also added a requirement that a SHOP provide a premium calculator to help employees determine their cost of coverage after any employer contribution.193 The calculator must compare available QHPs after the application of any applicable employer contribution in lieu of any advance payment of the premium tax credit and any cost-sharing reductions.194
Bills provided by a SHOP must contain, in addition to the total amount due by the employer, the portion of each employee’s premium for which the employer is responsible and the portion for which the employee is responsible. A SHOP may also include an average premium on the billing statement to assist employers in smoothing premium costs between employees.195
A SHOP is required to facilitate aggregate billing, so that the employer can make one payment to the SHOP for the premiums for all its employees' QHP coverage.196 This function will not be necessary in 2014 for state -operated SHOPs that delay implementation of the employee choice model, and, since all FF-SHOPs will delay the employee choice model until 2015, FF-SHOPs will perform premium aggregation only for plan years beginning on or after January 1, 2015.197
iii. Minimum Participation Requirements
Under HHS regulations, a SHOP may have minimum participation requirements so long as they are based on the rate of employee participation in the SHOP, not on the rate of employee participation in any QHP of a particular issuer.198 (Under final insurance market reform regulations, insurers cannot deny coverage for failure to meet minimum participation requirements.)199
The default minimum participation rate for the FF-SHOP is 70%, also calculated at the level of the participation of the employees of the employer in the FF-SHOP and not enrollment in a single QHP.200 Outside of the annual open enrollment period, the FF-SHOP will hold an employer’s application (and not forward it to an insurer) until the employer meets the 70% minimum participation requirement. An employer not meeting the requirements may reapply within the same calendar year. And the FF-SHOP will only check minimum participation rates at initial enrollment and then again at renewal, so a group that falls below the minimum participation rate during a plan year will be allowed to continue participation in the FF-SHOP through the plan year.201
FAQ guidance addresses who is counted when determining the minimum participation rate in the FF-SHOP.
For instance, retirees offered coverage will be counted in the employer’s participation rate. (All retirees, active employees, and dependents will be rated using the same standard age curve.) COBRA enrollees also will be counted in the minimum participation rate.202
b. Federally Facilitated SHOPs
According to HHS guidance, federally facilitated SHOPs (FF-SHOPs) are expected to provide a number of tools and resources to help employers, employees, agents, and brokers evaluate coverage options.203 They will allow employers to model scenarios, for instance by changing the employer contribution percentage,
before selecting coverage. Beginning in 2015, FF-SHOPs will collect a single, aggregated payment from each employer and distribute the payment to QHP insurers based on participating employee plan selections. FF- SHOPs are expected to offer additional administrative support, including employer billing, receipt of
payments, disbursements to plans, and payment reconciliation. Multi-state employers participating in the FF- SHOP will offer coverage to all eligible employees either through the FF-SHOP serving the employer’s primary place of business or through the state-based or the FF-SHOP serving each employee’s primary worksite.204
Employers participating in the FF-SHOP must offer coverage to all full-time employees (averaging at least 30 hours per week) and cannot vary coverage for different employee classifications (for example, salaried vs.
hourly), but they may impose waiting periods of up to 60 days.205
FF-SHOP Rules for COBRA Enrollees. For 2014, HHS has stated that “current insurance market standards and protocols” for notifying employees and paying for COBRA coverage will remain unchanged in the FF-SHOP. But for 2015, when the FF-SHOP will provide billing and payment services for FF-SHOP employers, COBRA premiums will be included on a single employer invoice, and employers will be expected to remit the full amount owed by the due date (and no later than the end of the grace period).*
*Federally-Facilitated-Small Business Health Options Program (FF-SHOP) Issuer Frequently Asked Questions, Q/As-23–25 (July 5, 2013) (as visited Sept. 10, 2013).
2. Employers and Employees Eligible for a SHOP
a. Qualified Employers and Qualified Employees Are Eligible for a SHOP
A SHOP must permit qualified employers to purchase coverage for qualified employees through the SHOP. A qualified employer is defined as an employer that meets three requirements:
is a small employer;
•
elects to offer, at a minimum, all full-time employees coverage in a QHP through a SHOP; and
•
either has its primary office in the Exchange service area and offers all its employees coverage through that SHOP, or offers coverage to each eligible employee through the SHOP servicing the employee's primary worksite.206
•
A “small employer” is an employer that employed an average of at least one but not more than 100
employees on business days during the preceding calendar year, and employs at least one employee on the first day of the plan year.207 (Prior to 2016, SHOPs are generally limited to employers that have 50 or fewer full-time equivalent employees. Starting in 2016, SHOPs will be open to employers with 100 or fewer FTEs.)
208 A qualified employee is an individual employed by a qualified employer who has been offered health insurance coverage by such qualified employer through the SHOP.209
Determining Small Employer Status. For purposes of counting employees to determine whether an employer is a small employer (and thus SHOP eligible), HHS regulations adopt the Code § 4980H(c)(2)
counting method, which applies for employer shared responsibility (play or pay) purposes and which, in simplified terms, counts not only full-time employees (those averaging 30 hours of service per week) but also part-time employees (as full-time equivalents under Code § 4980H(c)(4)). These counting rules apply in 2014 for FF-SHOPs, but a transitional rule allows state-operated SHOPS to rely on state counting methods—which in some states may not include part-time employees—for determining group size and status as a full-time employee until 2016.*
*45 CFR § 155.20.
There is an appeals process for employers (and employees) who are denied eligibility to purchase coverage through a SHOP.210 If a qualified employer ceases to be qualified solely because of an increase in the number of employees, HHS regulations require a SHOP to continue treating the employer as qualified until the employer either fails another eligibility requirement or elects to no longer purchase coverage for its employees through the SHOP.211
Employees in Multiple States. Some small employers may have employees in multiple states or SHOP service areas, so HHS allows multistate employers flexibility in offering coverage to their employees.* Unlike the individual market, in the SHOP there are no statutory residency standards for either the qualified employer or qualified employee. But small employers either offer employees coverage through the SHOP serving the employer’s principle business address or offer coverage to an employee through the SHOP serving the employee’s primary worksite. HHS cautions, however, that this does not exempt an employer from the size standard for the SHOP. If an employer has more than 100 employees divided among multiple SHOP service areas, such an employer is still considered a large employer.† See subsection C for a discussion of multi-state plans in the SHOP.
*45 CFR § 155.710(c); 45 CFR § 157.200(b).
†PPACA; Establishment of Exchanges and Qualified Health Plans; Exchange Standards for Employers, 77 Fed. Reg. 18310, 18399 (Mar. 27, 2012).
b. Qualified Employer Participation Rules
HHS regulations set a uniform process and timeline for each employer seeking to become a qualified employer through the SHOP.212 The SHOP must permit a qualified employer to purchase coverage for its small group at any point during the year. The employer’s plan year must consist of the 12-month period beginning with the qualified employer’s effective date of coverage.213
The SHOP must provide qualified employers with a period of no less than 30 days prior to the completion of the employer’s plan year and before the annual employee open enrollment period (discussed below), in which the qualified employer may change its participation in the SHOP for the next plan year.214 If an employer remains eligible for coverage and does not take action during the annual employer election period, the employer will continue to offer the same plan, coverage level, or plans selected the previous year for the next plan year unless the QHP or QHPs were no longer available.215
Qualified employers are required to provide the SHOP with information about individuals or employees whose eligibility to purchase coverage through the employer has changed. This notice would apply both to newly
eligible employees and dependents as well as to those no longer eligible for coverage. The employer would retain all notice responsibilities under state and federal law for these individuals (including, for example, COBRA election notices).216
c. Qualified Employee Enrollment Rules
HHS regulations established standards for annual and special enrollment periods for individuals enrolled through an Exchange or SHOP. SHOPs are required to adhere to the open enrollment period requirements for Exchanges and provide the special enrollment periods of an Exchange, with a few exceptions.217
The SHOP must establish a standardized annual open enrollment period of no less than 30 days for qualified employees prior to the completion of the applicable qualified employer’s plan year and after that employer’s annual election period.218 SHOPs also must allow qualified individuals and enrollees to enroll in a QHP or change from one to another as a result of the following triggering events:219
A qualified individual or dependent loses minimum essential coverage;
•
A qualified individual gains a dependent or becomes a dependent through marriage, birth, adoption, or placement for adoption;
•
A qualified individual’s enrollment or non-enrollment in a QHP is unintentional, inadvertent, or erroneous and is the result of the error, misrepresentation, or inaction of the Exchange or HHS;
•
An enrollee adequately demonstrates to the Exchange that the QHP in which he or she is enrolled substantially violated a material provision of its contract in relation to the enrollee;
•
A qualified individual or enrollee gains access to new QHPs as a result of a permanent move;
•
An Indian may enroll in a QHP or change from one to another one time per month; and
•
A qualified individual or enrollee demonstrates to the Exchange that the individual meets other exceptional circumstances (as defined by the Exchange).
•
The following are not special enrollment triggers in a SHOP (although they are for the Exchange):
An individual, who was not previously a citizen, national, or lawfully present individual gains such status;
and
•
An individual is determined newly eligible or newly ineligible for advance payments of the premium tax credit or has a change in eligibility for cost-sharing reductions, regardless of whether such individual is already enrolled in a QHP.
•
The SHOP special enrollment period for most applicable triggering events (e.g., a qualified individual or dependent losing minimum essential coverage or a qualified individual gaining a dependent or becoming a dependent through marriage, birth, or adoption) is 30 days.220 For the triggering event of loss of Medicaid or CHIP eligibility, the final regulations specify a 60-day special enrollment period.221 Also, dependents are eligible for a SHOP special enrollment period only if the employer offers coverage to dependents of qualified
employees.222 Thus, the SHOP special enrollment periods are consistent with the special enrollment periods for the group market under other applicable law, such as the HIPAA portability regulations.223
Employer Notice to Employees About the SHOP. A qualified employer participating in a SHOP must provide information to its employees about the methods for selecting and enrolling in a QHP through the SHOP.* This requirement appears to be in addition to the Exchange Notice, discussed in subsection E.
*45 CFR § 157.205(c).
3. Employer Contributions
Employers in the SHOP may elect a variety of ways to contribute toward health coverage. Because
employees in the SHOP may be choosing their own coverage and will need to know the net cost to them after the employer’s contribution, each employer must choose a contribution method before its employees select coverage. To facilitate this, each SHOP will define one or more standard methods by which employers contribute toward employee coverage.224 In the FF-SHOP, the employer will be required to define a
percentage contribution toward premiums for employee-only coverage under a specific reference plan and, if dependent coverage is offered, a percentage contribution toward premiums for dependent coverage under the reference plan.225
174 See PPACA, Pub. L. No. 111-148, § 1311(b)(1) (2010).
175 Small Business Health Options Program (SHOP): Health Coverage Application for Employers (as visited Sept. 10, 2013). States may submit for approval alternative SHOP applications. See Guidance on State Alternative Applications for Health Coverage through the Small Business Health Options Program (SHOP) (as visited Sept. 10, 2013).
176 Small Business Health Options Program (SHOP): Health Coverage Application for Employees (as visited Sept. 10, 2013). States may submit alternative SHOP applications for approal. See Guidance on State Alternative Applications for Health Coverage through the Small Business Health Options Program (SHOP) (as visited Sept. 10, 2013).
177 Prop. HHS Reg. § 155.730. See also PPACA; Program Integrity: Exchange, SHOP, Premium Stabilization Programs, and Market Standards, 45 CFR Parts 144, 147, 153, 155, and 156, 78 Fed. Reg.
37031, 37052 (June 19, 2013). For details on broker functions in the FF-SHOP, see Federally-Facilitated- Small Business Health Options Program (FF-SHOP) Issuer Frequently Asked Questions, Q/As-31–36 (July 5, 2013) (as visited Sept. 10, 2013).
178 See PPACA, Pub. L. No. 111-148, § 1311(b)(1) (2010). Preamble to PPACA; Establishment of Exchanges and Qualified Health Plans; Exchange Standards for Employers, 77 Fed. Reg. 18310 (Mar. 27, 2012).
179 General Guidance on Federally-facilitated Exchanges (May 16, 2012); Fact Sheet: Affordable Insurance Exchanges (May 16, 2012) (as visited Sept. 10, 2013).
180 Small Business Health Options Program (SHOP)-Only Marketplace FAQs (May 10, 2013) (as visited Sept. 10, 2013).
181 HHS Reg. § 155.100(a)(2).
182 HHS Reg. § 155.100(a)(3).
183 Program Integrity: Exchange, SHOP, and Eligibility Appeals, 45 CFR Parts 147, 153, 155, and 156, 78 Fed. Reg. 54069, 54075 (Aug. 30, 2013).
184 The SHOP must carry out all the functions of an Exchange except for standards related to individual eligibility determinations, enrollment standards related to qualified individuals, standards related to the premium tax credit calculator, standards related to exemptions from the individual coverage requirement, and standards related to the payment of premiums by individuals, Indian tribes, tribal organizations, and urban tribal organizations. 45 CFR § 155.705.
185 PPACA, Pub. L. No. 111-148, § 1311(b)(2) (2010); 45 CFR § 155.705.
186 45 CFR § 155.705(b)(8).
187 45 CFR § 155.705(b)(3).
188 PPACA, Pub. L. No. 111-148, § 1312(a)(2) (2010); 45 CFR § 155.705(b)(2).
189 45 CFR § 155.705(b)(3).
190 45 CFR §§ 155.705(b)(2) and (3).
191 Patient Protection and Affordable Care Act; HHS Notice of Benefit and Payment Parameters for 2014 and Amendments to the HHS Notice of Benefit and Payment Parameters for 2014; Final Rules, 78 Fed. Reg.
15409, 15500–01 (March 11, 2013).
192 Patient Protection and Affordable Care Act; Establishment of Exchanges and Qualified Health Plans;
Small Business Health Options Program, 78 Fed. Reg. 33232, 33234–35 (June 4, 2013).
193 45 CFR § 155.705(b)(11).
194 45 CFR § 155.705(b)(11).
195 45 CFR § 155.705(b)(4).
196 45 CFR § 155.705(b)(4); 45 CFR § 157.205(d). In performing premium payment administration, the SHOP must provide a monthly bill that delineates the employee and employer portions of the premium.
197 45 CFR § 155.705(b)(4)(ii).
198 45 CFR § 155.705(b)(10).
199 PPACA; Health Insurance Market Rules; Rate Review; Final Rule, 45 CFR Parts 144, 147, 150, 154, and 156, 78 Fed. Reg. 13416 (Feb. 27, 2013). For more information on minimum participation requirements, see Section XIV.B.
200 45 CFR § 155.705(b)(10).
201 Federally-Facilitated-Small Business Health Options Program (FF-SHOP) Issuer Frequently Asked Questions, Q/As-8–11 (July 5, 2013) (as visited Sept. 10, 2013).
202 Federally-Facilitated-Small Business Health Options Program (FF-SHOP) Issuer Frequently Asked Questions, Q/As-13–16 and 23 (July 5, 2013) (as visited Sept. 10, 2013).
203 General Guidance on Federally-facilitated Exchanges (May 16, 2012); Fact Sheet: Affordable Insurance Exchanges (May 16, 2012) (as visited Sept. 10, 2013).
204 See General Guidance on Federally-facilitated Exchanges (May 16, 2012); Fact Sheet: Affordable Insurance Exchanges (May 16, 2012) (as visited Sept. 10, 2013).
205 Federally-Facilitated-Small Business Health Options Program (FF-SHOP) Issuer Frequently Asked Questions, Q/As-19–20 (July 5, 2013) (as visited Sept. 10, 2013).
206 45 CFR § 155.710. See also 45 CFR § 155.20.
207 PPACA, Pub. L. No. 111-148, § 1312(f) (2010); PPACA, Pub. L. No. 111-148, § 1304(b) (2010). HHS Reg. § 155.20.
208 See What is considered a small business? (as visited Sept. 10, 2013).
209 45 CFR § 155.20.
210 45 CFR § 155.740.
211 45 CFR § 155.710(d).
212 45 CFR § 155.720(b).
213 45 CFR § 155.725(b).
214 45 CFR § 155.725(b).
215 45 CFR § 155.725(h).
216 45 CFR § 157.205(f).
217 45 CFR § 155.410; 45 CFR § 155.420; 45 CFR § 155.725(a)(3); HHS Prop. Reg. § 155.705(j)(1). For more on the annual and special enrollment periods, see subsection B.
218 45 CFR § 155.175(e).
219 45 CFR § 155.420(d); 45 CFR § 155.725(a)(3); HHS Prop. Reg. § 155.705(j)(1). For more on the annual and special enrollment periods, see subsection B.
220 45 CFR § 155.725(j)(3)(i).
221 45 CFR § 155.725(j)(3)(ii).
222 45 CFR § 155.725(j)(4).
223 Patient Protection and Affordable Care Act; Establishment of Exchanges and Qualified Health Plans;
Small Business Health Options Program, 78 Fed. Reg. 33233, 33236–37 (June 4, 2013).
224 45 CFR § 155.705(b)(11)(i).
225 45 CFR § 155.705(b)(11)(ii).
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