Health Insurance Exchanges Vs SHOP Exchanges - a view
Anyone who has been following the U.S. healthcare landscape closely is well aware that President Obama’s Affordable Care Act of 2010, mandates U.S. states to set up online insurance marketplaces. The marketplaces or ‘exchanges’ for both individuals and small businesses are to be addressed as – Health Insurance Exchange (HIX) and Small Business Health Option Program (SHOP) Exchange, respectively.
The fundamental principle behind setting such exchanges is to make the U.S. consumers well-informed about the health insurance choices available to them,
so that they can take an educated decision while purchasing a plan for themselves, their families or employees. Both HIX and SHOP will serve the basic purpose of providing affordable insurance options to individuals, groups and small businesses. The exchanges will allow consumers to avail of high-quality health plan choices from various insurers and carriers, albeit at standardized rates.
Although the basic premise on which both health insurance exchanges and SHOP exchanges have been proposed remains the same, both the individual exchanges and SHOP exchanges have a few key administrative differences between them.
In health insurance exchanges, individuals can apply for federal subsidies and tax credits if they are eligible, so individual exchanges need to verify applicants’ income data and also need to offer an online functionality where consumers can calculate their net costs after subsidy deductions etc.
SHOP exchanges have been proposed to primarily cater to the small business community. Small businesses offering employer coverage through the SHOP exchanges will not be eligible for premium tax credits except in certain cases where the premiums from SHOP-coverage exceed 9.5% of employees’ income.
Secondly, Individual exchanges are not required to act as health premium collection centers or transfer these collected premiums to health plans. Also, to reduce the administrative burdens for small employers, the SHOP exchange may need to collect premiums from employees and transmit the appropriate amount to the respective health plans.
Health insurance exchanges and SHOP exchanges also differ with respect to the time period for which the premium rates of health plans remain fixed. In Individual exchanges, every new health plan applicant receives the assurance that his/her premium rates will not increase for a defined period of time, which is usually set for 6 or 12 months.
On the other hand, employers usually prefer having a precise idea about their yearly contributions in employees’ plans, before they even decide to offer health insurance coverage. So, SHOP exchanges may also need to devise a clearly defined strategy that addresses the premium rate escalation concerns of small businesses participating in SHOP exchanges.
Health Insurance Exchanges and SHOP exchanges were proposed to service different insurance markets – individual and small business, respectively. While there are talks about the efficacy of merging both SHOP exchanges and Individual health insurance exchanges together, it may not be a viable option as in spite of functional similarities, both the exchanges differ on several key administrative aspects. Nevertheless, it would be too early to surmise which insurance exchange model will be a better option vis`-a-vis´ other models.
