SHOP 101: The Health Insurance Exchange for Small Businesses

On November 15, a new online exchange for the Small Business Health Options Program (SHOP) will go live on HealthCare.gov. The new portal (at www.healthcare.gov/small-businesses/) will allow small businesses owners to compare and enroll in health insurance plans online. Prior to the launch of the new portal, enrollment in SHOP exchanges was only available through an insurance broker.

SHOP may be beneficial for many small business owners that would like to provide health insurance. Here are the answers to some frequently asked questions about the program.

What is SHOP?

SHOP, the Small Business Health Options Program, is a small-group health insurance exchange that provides a marketplace for small businesses with fewer than 50 employees. Plans are classified into four levels of coverage–Bronze, Silver, Gold, and Platinum–with corresponding deductibles, copayments, and limits for out-of-pocket costs. Business owners may cover themselves with the same health insurance they offer employees. Through the Employee Choice Program, businesses are also able to offer multiple plans to their employees (see below).

Which states are using the federal SHOP exchange?

Thirty-one states have SHOP exchanges run by the federal government. Business owners in states that are running their own exchanges will be directed to the appropriate portal from Healthcare.gov.

What businesses qualify to enroll in the SHOP exchange?

Any business with 50 or fewer full-time equivalent (FTE) employees may enroll in SHOP plans. That metric includes all employees working more than 30 hours a week (full-time) as well as the number of “equivalent full-time workers” represented by the total hours worked by part-time employees. Businesses with more than 50 FTE employees cannot use SHOP currently, but by January 1, 2016, all SHOP exchanges will be open to businesses with 100 or fewer FTE employees. 

This calculator can help you determine if your business qualifies.

Businesses with more than 50 FTEs may be required to provide insurance in 2015 or 2016, depending on their size. Healthcare.gov has more information.

Do I need to offer insurance to all of my employees to participate in SHOP?

Businesses must offer insurance to all employees that work 30 or more hours a week to participate in the SHOP exchange. In most states, to remain eligible for policies sold in SHOP, more than 70 percent of employees must then enroll in the business’s health insurance plan (this does not include employees who already have coverage from another employer or the federal government). The 70-percent requirement is waived during a special enrollment period from November 15 through December 15.

Can SHOP help small businesses spend less on health insurance?

By purchasing insurance through SHOP, businesses are joining a larger risk pool, which may decrease their health insurance costs. One study from the University of Chicago found that the health insurance offered on the SHOP marketplaces is approximately 7 percent cheaper on average than equivalent plans from outside the exchange. For the median health care plan, the difference could amount to $220 in annual savings per employee. In addition, tax credits (see below) are available for some smaller businesses, which may further reduce the cost. 

Do businesses have to enroll in November?

No, unlike the individual exchange, small businesses can enroll in a plan at any time. Coverage for businesses that enroll by the 15th of any month will begin the following month. Businesses can currently enroll through an insurance broker with a paper application. Once the website is launched, applications must be made online.

Businesses that want to avoid the 70 percent employee take-up requirement must enroll in the SHOP exchanges during the November 15 to December 15 enrollment period.

Can my business continue to use brokers to buy coverage after the new portal is launched?

Yes. Businesses may use a broker to help them purchase insurance on the exchange, as long as the broker has registered with the SHOP marketplace. Brokers may be able to offer additional guidance about what insurance would best fit each business’s needs. ACA Navigators call also help small businesses owners and their employees with SHOP enrollment. Both brokers and Navigators are free for your business to use.

What states are participating in the Employee Choice Program?

The employee choice program allows employers to offer multiple health insurance plans, from which employees may choose. After the business owner registers and sets their contribution, employees can use the SHOP portal to select among different health insurance plans and enroll in their preferred choice. In 2015, two-thirds of the states will offer employee choice; the rest will adopt the program in 2016.

Do businesses have to use the SHOP exchange to qualify for small business tax credits?

Yes. Businesses with 25 FTE employees or fewer with average wages less than $50,000 that pay over half the cost of their employee’s premiums may qualify for tax credits. The tax credits can be worth up to 50 percent of the business’s share of health insurance premiums. Smaller firms with lower wages receive greater benefits. To get the tax credit, businesses must purchase health insurance through the exchange. The tax credit is non-refundable (except for non-profits) but can be applied to the prior year’s income taxes or any income taxes in the following 20 years.

You can calculate your business’s expected tax credit using this tool.

Can a business use SHOP if it has employees in different states?

Yes, employees are located in different states can still be part of the SHOP program. The business owner should enroll in the SHOP program in the company’s home state. Out-of-state employees are treated the same as in-state employees.

What if I hire additional workers after I purchase SHOP insurance and exceed the company size threshold?

Once a business is enrolled in SHOP, it does not lose eligibility if it hires additional workers later in the year, even if it exceeds the 50 FTE threshold

Do businesses that are eligible for SHOP have to provide health insurance?

Businesses with 50 employees or fewer are not required to purchase health insurance, but they have the option to do so through SHOP. About 96 percent of businesses in the U.S. are not required to provide insurance.