This guide is for small business owners who are interested in the Small Business Health Options Program (SHOP). We’ll give you an overview of the SHOP Exchange, it’s benefits, drawbacks and explain what to expect from the program in the future.
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What is the SHOP Exchange?
Health care legislation in the last few years prompted the creation of The Health Insurance Marketplace – the Obamacare website where individuals can purchase health insurance policies. SHOP is a separate feature of the Marketplace provided for small business owners. It was designed to encourage small employers to offer health insurance by offering a convenient online platform, affordable rates and tax incentives.
SHOP technically launched in late 2013, but on paper only. Due to technical complications, the web platform was not available. Employers had to fill out paper applications and send them in for coverage. As a result, enrollment for 2014 was very low.
Starting this fall, however, the online features of SHOP will be available for the first time. You can still apply on paper, or go through a broker. But if all goes well this time around, the web platform will be the fastest and most efficient way to buy SHOP group health insurance.
Who can use SHOP?
Whether or not you’re eligible to use SHOP depends on your number of full time equivalent employees (FTEs). This is not the same as your number of full time employees. Rather, your number of FTEs includes the total hours worked by part time employees divided by 30.
In other words, if you have 10 part time employees who work 15 hours a week each, that would be 5 full time equivalent employees. Add that to your total number of full time employees (those working above 30 hours a week) and you’ll have your total number of FTEs. You can also use this calculator to determine your number of FTEs.
Those with fewer than 50 FTEs can sign up starting this Fall. By 2016, it’ll be open to businesses with up to 100 FTEs.
There are a few other requirements to use SHOP: Employers are required to offer the plan to all full time employees, which generally means those working 30 or more hours per week. Also, in many states, at least 70 percent of employees must enroll in your SHOP plan, not including those covered by a spouse’s plan. The requirement, however, is waived if you sign up between November 15 and December 15 each year.
How does the SHOP exchange work?
The Health Insurance Marketplace is an online vendor, much like Amazon or eBay. It gives employers (and to an extent, employees) the opportunity to browse through insurance plans, sorted by cost, levels of coverage, network types and more.
Accessing the Marketplace
You can access the SHOP Marketplace via healthcare.gov. Click “Get Insurance” and select the “Small Business” tab at the top. From there you’ll be prompted to select a state. Some states run their own Obamacare Exchanges and others use the federal service. If your state has it’s own service, you’ll be redirected to that website. Otherwise you’ll continue on healthcare.gov.
Once you’re in the right place you’ll enter in some basic information to create an account. Next, the system needs to confirm that you’re eligible for coverage. You’ll have to enter in some information about your business, including the number of employees and their hours.
Choosing A Health Insurance Plan Via SHOP
With your eligibility approved, you’ll move onto the Marketplace. Here plans are separated into four main levels – Bronze, Silver, Gold and Platinum. What these names refer to is basically how much your employees will have to pay out-of-pocket for their health bills versus how much the insurance company will cover (not including premium costs, which are usually split between you and your employees).
On a Bronze level plan, for example, your employees will pay about 40 percent of their medical expenses (not including premiums) while insurance pays 60 percent. On a Platinum plan, employees pay around 10 percent and insurance pays 90 percent.
However, as you would expect, it costs more for a platinum plan than a bronze plan. Often, the more “precious” the metal, the higher the premium, or monthly fee for coverage. Employers can pay anywhere from (0 to 100%) of the premium, although some states require you to pay a minimum percentage.
If you want to learn more about the different levels, you can read our guide on the types of Obamacare plans.
Employer Choice vs. Employee Choice
There’s two ways you can buy a group health plan on the SHOP marketplace. The first way is to purchase a single plan that covers your employees, much like the way group health insurance has traditionally functioned. This option is known as employer choice, since you’re the one choosing the policy.
The second way is to let employees choose their own policies. This option, known as the employee choice, works as follows: The employer chooses a policy level (i.e. bronze, silver, gold, platinum) that will be covered on the group health plan. Employees then browse the Marketplace and select individual policies WITHIN that level, thus giving them the freedom to choose a plan that best suits their needs. This addresses one of the weakness of traditional group health insurance – that employees were stuck with whatever plan their employer decided.
Employee choice is an innovative feature, but it will only be available in about half the states in 2015. We’ll explain more on that, as well as other limitations, later in the article.
Once you’ve chosen the coverage you’ll select how much of the premium you want to pay. Employers can pay anywhere from (0 to 100%) of the premium on the federal exchange, although some states require you to pay a minimum percentage. Now it’s up to your employees whether or not they want to enroll.
The marketplace offers tools for you to draw up an employee roster. If you enter their email addresses, the marketplace will notify employees automatically with plan details and steps to enroll or decline coverage. Otherwise you can manually distribute offer letters.
Employees will have to enter in some personal information, including home address, tobacco use and whether or not they have any dependants who will be on the plan. Then they’ll be given an overview of the plan, including a personalized calculation of it’s costs. Finally, employees can decide whether to accept or decline coverage.
What is the status of SHOP right now?
SHOP has been available in paper form since late 2013. This year, however, marks the launch of the online SHOP marketplace. Small businesses with fewer than 50 full time equivalent employees can start using the web service in November. In another year it’ll be open to businesses with fewer than 100 FTEs.
The employee choice feature will be available in some states but not others. Currently about half the states will be offering it, including California, New York, Texas and Florida. The rest plan to introduce employee choice next year.
Weighing the pros and cons
- Tax Credit: One of the key benefits of the SHOP is that certain small businesses can receive a tax credit of up to 50% of their health care spending. However, there’s some issues with eligibility which we’ll explain below. To qualify for tax credits, you must have fewer than 25 employees and their average salary must be lower than $50,000. Also, you have to be paying at least 50 percent of your employee’s premiums. Use this calculator to estimate the tax credit you could receive.
- Can Use Pre-Tax Dollars: Your employees can pay their portion of the premium on a pre-tax basis meaning it’s not subject to income tax or payroll tax. To do this, however, you have to set up a Section 125 plan with the IRS, which requires some paperwork and one-time filing fee of around $100.
- Wider Options: The employee choice feature gives SHOP a major advantage over traditional group plans. Employees can choose a plan that suits their personal needs. Unfortunately employee choice won’t be available nationwide until next year.
- Lower Prices: The exchange model, which the SHOP Marketplace and private exchanges are based upon, increases transparency and competition among health insurance companies. As a result, we should eventually see lower health care prices. It may be a few years, however, before the changes are significant.
- New Platform: SHOP got off to a rocky start in 2013. If that’s any indication, there could be bugs and/or other difficulties in the web platform.
- Limited Choices (For Now): Insurance companies are still being added to the Marketplace. It could take a few years to get a good variety of companies signed on.
- Limited Features (For Now): Employee choice is a key feature, but unfortunately it won’t be available in many states until next year.
- Your Employees Can’t Get Subsidies: One of the major advantages of the individual Obamacare Marketplace is that low and middle-income workers can receive subsidized health care costs. There’s a clause, however, that prevents employees from getting this subsidy if a group plan was available from their employer. Keep this in as you browse for health plans and decide how much of the premiums you’ll pay – make sure your benefits are actually benefitting your employees.
- Tax Credit Issues: Although the tax credit is available to employers with fewer than 25 employees with an average salary below $50,000, the savings are calculated on a sliding scale. They diminish as soon as you have more than 10 employees and/or their average salary is higher than $25,000. As a result, many businesses who thought they would benefit found their tax credit was negligible.
Applying for the tax credit also requires a significant amount of paperwork. Along with over employee information, businesses have to figure out the number of hours each employee worked that year. It can take an estimated 2 to 8 hours to gather all the necessary information to apply for the credit, according to the Government Accountability Office.
The Take Away
While SHOP has many promising features, it could be a few years before it truly blossoms. As employee choice becomes standardized and as more insurance companies are added to the exchange, SHOP will become a very strong option for small employers. Furthermore, the Obama Administration has expressed interest in expanding eligibility for tax credits so a larger number of businesses can take advantage.
In the meantime, the viability of SHOP depends on your location. Check this list or check your state website to see if employee choice will be available to you this year. Then, check here for premium estimates in your area.
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