Under pressure from large health insurance companies, the Obama administration last week announced it would delay implementation of a key aspect of its signature health reform law that will provide affordable health insurance to small businesses and their employees.

Although the federal and some state governments must still set up Small Business Health Options Program (SHOP) exchanges to allow small business employees access to lower rates, the SHOP exchanges will not be required to offer a choice of plans to individual employees by January 1, 2014, as the Affordable Care Act (ACA) had contemplated. That mandate will be pushed back by one year.

Health insurer Aetna (2012 revenues: $36.5 billion), along with others, wrote the administration in December that “experience with Massachusetts has demonstrated that employee choice models are extremely cumbersome to establish and operate,” and urged the government to give insurers more time to prepare. Citing “operational challenges,” the administration granted their request.

John Arensmeyer of Small Business Majority, an advocacy group that supported passage of the ACA, called the delay of employee choice “a major letdown for small business owners and their employees,” who want “to be able to choose among multiple insurance carriers.” Arensmeyer cautioned that while the move is “unfortunate, and we’re disappointed…it’s not the end of the world. We’ve voiced our opposition, but we don’t want people to think they’re throwing the baby out with the bath water.”

The baby of which he speaks is likely the cost savings, estimated up to 18%, which small businesses and their employees should still reap—some day—from the SHOP exchanges, which will enhance their bargaining power by pooling their insurance purchases. Another factor limiting the damage is that the delay applies only to the 33 state exchanges that the federal government is setting up, not to the 17 state exchanges being established by the states themselves, which will still have the option to offer choices to their employees.

-Matt Bewig

To Learn More:

Small Firms’ Offer of Plan Choices Under Health Law Delayed (by Robert Pear, New York Times)

Calm down, Joe Klein: Reports of the Small Business Exchange’s Death are Greatly Exaggerated (by Sarah Kliff, Washington Post)