Ok, the Affordable Care Act (aka “Health Care Reform”) has a section devoted to what is called the Small Business Health Options Program (“SHOP”) [editor’s note:  I do not make this stuff up!].  This acronym refers to a certain type of state health insurance exchange.  The Affordable Care Act requires states to create two different types of health care exchanges – one of which is for “small businesses” (defined as 100 employees or less) to purchase health insurance for their employees.  (The other exchange is the primary subject of litigation and debate – the individual person exchange – and we will ignore that exchange for the time being (i.e. this blog entry)).

Bottom line:  It has been hard for small businesses, meaning those with few employees (10 to 300 employees) to offer health insurance to their employees because the administration of a health plan for a small number of people, combined with the costs associated with those employees with higher-risks (in other words, those employees who know they will require health care insurance as opposed to those who do not think they will) creates difficulties in the availability of plans that employers and their employees can afford.  SHOP attempts to provide easier entry into the insurance plan market for small employees by keeping plans less expensive.  Each state is required by law to establish a SHOP exchange by October 2013.  The SHOP health plan insurance exchange can be a non-profit, a new independent government authority, or even a part of the state’s executive branch.

How could this possibly work?  Well, the SHOP exchange will oversee premiums by setting a “modified community rating” – meaning that the “pool” of businesses in the exchange all will pay the same rate for insurance, on the whole.  Where under the current status quo, if one or two employees of a small business had high medical bills, the small business would be subject to higher rates for all employees, under the provisions of SHOP all small businesses in the same small group “pool” should pay the same rate for their employees’ insurance.  I suppose one could say that the pool gets larger even though the business remains “small.”

Challenges do exist. The most obvious is that the SHOP exchange needs the participation of a sufficient number of small businesses to create a large enough pool.  Will enough want to go for a swim?

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