California Health Benefit Exchange

The California Health Benefit Exchange will be a market for individuals and small groups to purchase health insurance at a competitive price with appropriate coverage. The Exchange organizes the private insurance market and includes a more stable risk pool, greater purchasing power for the individual or small group, more competition, and more detailed information to the consumer regarding price, quality, and services. Premiums for plans in the Exchange will be based on income with higher incomes paying more for coverage.

While 99% of California firms with over 200 employees offer health insurance, only 61% of California businesses with 3-9 employees and 75% of those with 10-49 employees do. 5-7 million Californians lack health insurance coverage. Approximately 1/3 of those, about 2 million Californians, without health insurance live in a household headed by someone who works in a small business with fewer than 50 employees. (Pacific Community Ventures, October 2011)

The participation in Small Business Health Options Program Exchange, also known as SHOP Exchange, will be voluntary but there will be strong financial inducements for purchasing insurance through this market during its start up phase. After 2014, the SHOP Exchanges will be the only place that permits small groups to access federal tax credits for the purchase of health insurance on behalf of their employees.

One is health insurance “exchanges”  is where small businesses can pool together to purchase insurance that meets certain benefits and cost standards for their employees.  States will set up Exchanges and Small Business Health Options Program (SHOP) for easy-to-use formats on web portals, where private insurance companies can sell their plans. California, being the first to establish the SHOP Exchange amongst the states, has a potential to expand coverage to thousands who are uninsured. Several exchange models already exist, some publicly and others privately run. As different approaches are used for each exchange, analysis and research will be conducted to see how they have met varying degrees of success and what their enrollment strategies were in order to make the PPACA’s health exchange successful when it launches in 2014.

Another strategy is using a tax credit program for particular small businesses who provide health insurance coverage to their employees. According to a study conducted by Pacific Community Ventures in Fall 2010, these credits can cover about 35% of health care costs for qualifying businesses through 2013 and almost up to 50% in 2014.

In the state of California, 80% of small businesses will qualify for some relief under this provision and 24% of small businesses will be eligible for the full credit which will be available for only 2 years (PBGH Issue Brief).

Educating small business owners about the SHOP Exchange is crucial and enrollment is critical for its success. Also, the importance of ensuring premium stability for plans and enrollees in the Exchage is essential, especially during the launch of this program. Overall, the Exchange will allow individuals to have options in terms of picking health insurance coverage but also recertify and manage their eligibility information online efficiently and effectively.

5 Factors from California’s Experience with Small Group Exchanges (PBGH Issue Brief)