S.979 and H.R. 2360, The Small Business Health Act Options Program Act of 2009 (SHOP):
Where Does SHOP Fit in Health Reform?
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Bill Information:
S.979 / H.R. 2360
The bipartisan Small Business Health Options Program (SHOP) Act was developed because the current individual and small group health insurance markets are not working for the self-employed and small businesses. These two groups face more obstacles in finding affordable and accessible health coverage than large employers: fewer health plan choices; higher administrative costs; a greater susceptibility to sharp premium hikes because they are less able to spread the risk of becoming sick; and higher health insurance costs as a percentage of payroll, and, in the case of the self-employed, no guaranteed coverage.
SHOP is not a replacement for comprehensive healthcare reform but a valuable roadmap for addressing the specific needs of the self-employed and small business community and can help the broader reform effort move forward on a bipartisan basis.
A diverse coalition of stakeholders from across the political spectrum supports SHOP. Although each group has its own priorities for broader reform, they have joined together on a plan to address the needs of the self-employed and small businesses as one important component of reform.
The Self-Employed and Small Employers Struggle to Provide Health Coverage and Need Reforms
The self-employed and small businesses cannot afford to be left out of health care reform. The individual and small group and health insurance markets are dysfunctional and need to be reformed.
- A Large Fraction of Uninsured Workers are in Small Businesses: Of the nearly 46 million Americans without health insurance, more than half are small business owners, employees, their dependents, and the self-employed.
- Higher Costs are a Barrier to Coverage: The self-employed and small businesses continue to cite high and unsustainable premium increases as their top healthcare concern. On average, small businesses pay 18% more for the same benefits as larger employers. They pay more for administrative services such as marketing, enrollment, and premium collection. Among small businesses that offer coverage, 40% report spending more than 10% of their payroll on health care costs. As a result, fewer small businesses can afford to offer coverage. From 2000 to 2007, the percentage of small businesses offering coverage dropped from 68% to 59%, while large firms held stable at 99%.
- Coverage is Often Disrupted and Diminished: The self-employed and small employers face unpredictable premium rates that can spike when they or a single employee gets sick. When rates rise sharply, they are likely to shop for another health plan in order to maintain affordable coverage. In the past two years, more than half of small businesses switched to plans with higher out-of-pocket costs in response to rising premiums. Another third switched to a plan that covered fewer services, and 12% dropped coverage.
SHOP would help the Self-Employed with Reforms that Lead to More
Affordable, Predictable, and Accessible Coverage
SHOP allows the self-employed to participate in the SHOP small group plans and obtain affordable insurance coverage.
Expanded Choice of Insurance Options through Access to a Larger Pool: Today, the self-employed are typically on their own in the individual insurance market when they look for health insurance. SHOP will change that isolation, allowing the self-employed to shop for insurance as part of a larger pool. SHOP’s nationwide purchasing pool will offer private health plans that cover the entire nation, in addition to plans that operate only in a single state or area. These new plans will still be subject to state insurance regulation to protect those who choose them. In many states and eventually nationwide, individual employees will be able to choose their own health plan.
- The self-employed will be able to join a statewide purchasing pool and/or the SHOP pool and obtain group rates rather than the exorbitant rates in the individual insurance market. These pools will reduce administrative costs by providing a more efficient way for insurers to market their health plans and self-employed individuals to enroll in them.
Rating Reforms to Provide More Stable and Affordable Premiums: SHOP’s rating reforms will make premiums more stable from year-to-year and more affordable.
- Health status rating will no longer be permitted in the SHOP pool and in state small group markets beginning in 2012, which will protect individuals from large premium hikes if they get sick.
- The variation in premium rates that insurers can charge based on age will be reduced over time for plans sold through SHOP, so that health insurance does not become unaffordable as an individual ages. Healthy individuals will be encouraged to enroll while young to avoid a surcharge placed on those who wait to enroll until they are older and possibly sicker.
- A carefully calibrated phase-in of SHOP’s rating reforms will encourage states to adopt similar rating reforms, prevent adverse selection, and promote the long-term health of the new insurance pools.
Tax Credits to Reduce the Cost of Health Insurance
- SHOP will provide a tax credit to the self-employed of up to $1,800 for individual coverage and $3,600 for family coverage.
Simpler Shopping for Health Insurance
- SHOP will give the self-employed an easier way to find coverage. Statewide and nationwide purchasing pools will offer more health plan choices, facilitate plan comparisons, and provide one-stop shopping for small businesses.
Please Co-Sponsor the Small Business Health Options Program!
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