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Tailoring marketplaces to address states’ small business needs.

As ACA enrollments rise and states continue to transition to State-Based Marketplaces (SBMs), many stakeholders wonder about the next steps their state will take to ensure more individuals and small businesses have access to affordable insurance options. With advancing technology and changing member demographics, states are feeling the pressure to innovate.

One thing holds true for all states—a flexible and customized approach is essential to meet residents’ unique needs.

In this blog, we’ll explore different states’ approaches to the Small Business Health Options Program (SHOP) and opportunities presented by the Individual Coverage Health Reimbursement Arrangements (ICHRAs).

Reviewing the Success of States’ Online SHOP Platforms

Recent advancements in state-run online SHOP platforms have shown success in multiple states.

However, barriers such as technical and user experience issues have previously limited SHOP’s effectiveness and led to some marketplaces shuttering.

Let’s explore how two states customized their online SHOP platforms to reinvigorate the small group experience and better serve employers and employees.

  • Connecticut: The state’s online SHOP platform underwent a transition away from the old legacy system, allowing for improved flexibility to implement new features without additional system overhauls. Most recently, Connecticut prioritized replicating the experience of the individual marketplace on the group platform. This includes features such as the ‘Pay Now’ functionality, which enables employees and employers to make their first payment immediately upon enrollment, ensuring prompt coverage activation.
  • Washington DC: This Exchange supports the enrollment needs for all D.C.’s small businesses, Members of Congress, and some Congressional staff. By considering the needs of a diverse group of enrollees, the state elected to build an online SHOP platform that promotes self-service.

Understanding the ICHRA Option

As states continue developing unique approaches to SHOP online platforms, another program continues to gain traction. For employers, ICHRAs offer a simplified way to offer coverage, greatly reducing administrative red tape and the burden of picking a health plan for their employees.

For employees, ICHRAs offer a broader choice of health plans including different provider networks and deductibles, as well as portability. When an employee leaves an employer, they can take their health plan with them, either by paying the full premium on their own or qualifying for an ACA premium tax credit.

A forward-thinking solution might lie in the integration of ICHRA capabilities into a SHOP marketplace. This progressive approach could serve dual purposes:

  • Assisting small employers who opt to offer Qualified Health Plans (QHPs) through SHOP by simplifying plan management and amplifying the range of choices available.
  • Supporting small employers seeking the greater flexibility offered by ICHRAs, including those who might otherwise be unable to contribute towards coverage. An integrated SHOP and ICHRA platform can provide a broader selection of QHPs across the entire individual market, thus facilitating more personalized options for their employees.

Maryland’s state marketplace recently expressed interest in providing ICHRA capabilities to its customers, reflecting a growing recognition of the value these offerings can bring.

Overcoming ICHRA Limitations with 1332 Waivers and Braiding of Funds

States are thinking outside the box to overcome affordability challenges.

Restrictions prevent many ICHRA recipients from receiving Advance Premium Tax Credits (APTCs). If Congress allows the extended American Rescue Plan (ARP) subsidies to expire next year, this limitation will amplify the affordability problem that hinders ICHRA’s appeal.

Beyond serving the immediate needs of small employers, this SHOP and ICHRA coupling could also pave the way for further innovation through Section 1332 Waivers, weaving together ACA subsidies and ICHRA contributions.

Under the IRS rule, if the employer provides their employees with enough ICHRA funds to buy a silver metal level individual health insurance plan, the employee is “firewalled” from receiving APTCs. Because the employer and employee funds used to buy coverage are already tax advantaged through the ICHRA, this rule is intended to avoid “double dipping.”

However, leveraging the power of ICHRA, SHOP, and 1332 Waivers, states can alter these rules to allow combining or “braiding” of funds from multiple sources—including employer contributions, employee contributions, premium credits, and other sources of funds to maximize affordability and flexibility.

States could seek a 1332 Waiver that allows the combination of employer and employee contributions through an ICHRA with a premium subsidy directed by the employer, the employee, or both. This premium subsidy would become available in the form of “pass through” funds, re-directed APTCs.

From the employer’s perspective, a premium credit would be available up to a specified limit with certain eligibility rules applied. Employees would then receive these funds—including both the qualifying employer contribution and the state premium credit—through an ICHRA to buy coverage.

This synergistic approach could lead to a comprehensive, versatile, and cost-effective health insurance solution for small businesses, addressing their unique requirements while maintaining consistency with state and federal regulations.

While this waiver might face hurdles regarding the ACA’s federal “deficit neutrality” requirement, with the right planning, these could be overcome.

Additionally, states could consider implementing their own state-funded small employer credit without a federal waiver, paid for through the surpluses many states presently have in their general funds. They could establish eligibility criteria for this credit – for instance, mandating that small employers must contribute at least $300 monthly for their employees to receive an additional $200 each month from the state.

By strategically integrating the strengths of ICHRA, SHOP, and 1332 Waivers, states have an opportunity to greatly amplify their small employer contributions and bolster affordability and choice. As states seek to expand access to health coverage among employees of small businesses, combining these innovative tools could prove to be a winning strategy.

About Softheon

Softheon enables SBMs to spend more time on their mission and less time managing multiple vendors and disjointed infrastructure.

Whether you’re looking to enhance legacy systems or establish new solutions, our modular technology can adapt to ever-changing state and federal policies. A close-knit partnership with CMS and 10 state agencies stems from our 20+ years of experience streamlining state offerings through flexible technology.

From protecting states from fraud, waste, and abuse through batch eligibility processing to running online SHOP and ICHRA platforms, Softheon offers solutions tailored to meet the needs of your state.