How The SHOP Exchange Works For Small Businesses

SHOP stands for “Small Business Health Options Program.” It’s the small business section of the Obamacare health insurance marketplace, where employers of fewer than 100 full time employees (FTEs) can purchase health insurance coverage for their employees. The SHOP exchange was created by the Affordable Care Act (ACA) of 2010.

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In this article, we are going to explain what you need to know about the SHOP Exchange so that you can make a conscientious decision if it is right for your business. We will cover:

Why Was SHOP created?
Who Can Use the SHOP Exchange?
How Does the SHOP Exchange Work? (including state-specific rules)
Are Small Businesses Really Using SHOP?
Should My Business Use SHOP? Pros & Cons
What Are my Options Aside from SHOP?
SHOP FAQs for Small Business Owners

Want a broader overview of how to provide health insurance for your employees? Read our Guide to Providing Health Insurance.

Why Was SHOP Created?

Before Obamacare was passed in 2010, there were primarily 3 options for small business owners regarding health insurance:

Don’t offer any health insurance (which makes it hard to recruit and retain talent);
Provide a group health insurance plan, which can be really expensive (and would need to be done through a broker or Professional Employer Organization); or
Ask employees to purchase their own coverage (and perhaps pay a higher salary to keep them happy)

The SHOP Exchange was created to solve a typical business problem – there was a lot of demand for health insurance for small businesses, and no one was really providing an affordable option.

Who Can Use the SHOP Exchange?

As of 2016, to qualify to use the SHOP exchange, you need to meet all of the following requirements:

Have fewer than 100 full time employees (FTEs). This is new for 2016 – the healthcare.gov site still says fewer than 50 FTEs.
Use the SHOP office that is nearest to your primary office site (i.e. if you are in Chicago, you cannot use the Los Angeles SHOP).
Must offer coverage to all of your full-time employees–generally those working 30 or more hours per week (on average).
In several states, at least 70% of your full-time employees must enroll in your SHOP plan (we’ll go more into these special requirements in our state table).

How Does the SHOP Exchange Work?

The SHOP is an online vendor, much like Amazon or eBay. It gives small businesses the opportunity to browse through insurance plans, sorted by cost, levels of coverage, network types, and more. In a nutshell, SHOP, though run by the government, links the small business owner to private health insurance plans.

Individuals/families can also purchase SHOP on their own and not through you as their employer – here’s how.

It’s free to request a quote for different health insurance plans on SHOP.

By using your designated SHOP’s online application, on your own or with the help of a SHOP-licensed agent, broker, or other assister, you can compare price, coverage, and quality of plans in a way that’s easy to understand.

State-Run SHOP Exchanges

18 states plus the District of Columbia run their own SHOP Exchange sites: California, Colorado, Connecticut, District of Columbia, Hawaii, Idaho, Kentucky, Maryland, Massachusetts, Minnesota, Mississippi, Nevada, New Mexico, New York, Oregon, Rhode Island, Utah, Vermont, and Washington.

Each of these states has its own unique SHOP site and, like most aspects of health insurance, the coverage and quality of coverage offered by SHOP varies greatly from state to state. States might also have varying eligibility requirements, like the percentage of enrolled employees, so carefully read the rules in your state to make sure you qualify (or talk to a SHOP-licensed broker in your state). We’ve summarized the rules in the table below.

Businesses located in all other states can use the federally run SHOP.

State SHOP Exchange Sites and Requirements

State & Link to Website	Special Requirements?
California	To be eligible, your business needs to have at least one but no more than 100 full time employees; at least one employee that is not the owner or spouse receives a W-2; and the majority of your eligible employees live in California.
Colorado	To be eligible, your business needs to have at least one but no more than 100 full time employees.
Connecticut	Your business can only have up to 50 full time employees, and the business must be located in Connecticut.
D.C.	Your business can only have up to 50 full time employees.
Hawaii	Business must employ 1 to 50 full-time equivalent employees, will offer all full-time employees coverage through SHOP, and has its principal business address in Hawaii.
Idaho	Business can have up to 50 full time employees and both small businesses and nonprofits can get group health plans through here.
Kentucky	Your business can only have up to 50 full time employees.
Maryland	Your business can only have up to 50 full time employees.
Massachusetts	Your business can only have up to 50 full time employees; they also require some proof of funds for startups of less than 6 months of doing business.
Minnesota	Your business needs to have its primary office in Minnesota, have at least 1 common-law employee, must offer the health insurance to all full time employees, and employ 50 or fewer full time employees. Detailed list of requirements can be found here.
Mississippi	Your business can only have up to 50 full time employees.
Nevada	Your business can only have up to 50 full time employees.
New Mexico	Unclear on requirements from website; not listed.
New York	Your business needs to have a physical business address within New York State; have 100 or fewer full time employees, including at least one common-law employee enrolled in coverage; and will offer coverage to all eligible employees who work 30+ hours per week.
Oregon	Requirements are listed here and mirror the federal government’s requirement.
Rhode Island	Business are eligible if they have 50 or fewer full time employees; offer the SHOP Exchange coverage to all full-time employees; and have a principal business address or a primary worksite in Rhode Island.
Utah	Businesses must meet the following criteria: must have at least 1-50 eligible full time employees and at least 50% of enrolling employees must live in Utah. The business must also have at least 75% of eligible employees enroll in the program or have other coverage through a spouse/parent, government program, or individual policy. Employers must also have a 125 Premium Only Plan.
Vermont	Vermont SHOP still directs employers to go to private providers. Learn more at the link to the left.
Washington (state)	Businesses are eligible if they are located in Washington State or have employees based in the state; offer coverage to all full-time employees; and your business has between 1-50 employees.

Are Small Businesses Really Using SHOP?

The answer is sort of – it depends on where you are located.

Though no one thought SHOP would catch on like wildfire, SHOP has had a lackluster takeoff.

For example, as of October 2015, 5 state-run SHOP exchanges – Idaho, Kentucky, Maryland, Minnesota and Washington — had sold plans to fewer than 200 employers, showing SHOP’s lack of popularity. New York and California have the highest SHOP enrollments. Together, these two states’ SHOPs cover 6,500 employers and nearly 50,000 people; however, when you think of how large the populations are in California and New York, this is still a very small fraction of people total.

(Source: Kaiser Health News).

Should My Business Use SHOP? Pros & Cons

There are multiple advantages to using SHOP from the perspective of cost, tax, and ease of use:

Pros of Using the SHOP Exchange

Cost-Related Advantages:

Depending on which state you are in, you may be able to save big on premiums by using SHOP. In some states, SHOP plans are much cheaper than those you can find on the private market through an ordinary broker or professional employer organization (PEO) like JustWorks– definitely check to see if yours is one of them! While we couldn’t find exact data on which states have the best SHOPs, we do have an article about health insurance costs in general.
It’s free to request a quote for a health plan on SHOP.
You can use your current broker, work with any SHOP-registered broker, or handle everything yourself, as a small business owner.

Tax Advantages:

You may qualify for a small business health care tax credit worth up to 50% of your premium costs if you purchase a plan through SHOP.
You can still deduct from your taxes the rest of your premium costs not covered by the tax credit (However, your average employee salary needs to be less than $50,000 per year).
Employees don’t have to pay income taxes on any portion of health insurance premiums that they pay for.

Ease of Use Advantages:

You can compare health plans online on the SHOP Exchange on an apples-to-apples basis, which helps you make a decision that’s right for your business.
The SHOP Marketplace offers high-quality plans from private insurance companies.
You can handle everything online, from applying to changing your plan, making it convenient for you as the business owner.
SHOP allows for choices with some flexibility. You can:

- Offer your employees one plan, or let them choose from multiple plans (more to come on this, called employee choice).
- Offer only health coverage, health, and dental coverage, or only dental coverage (vision coverage cannot be purchased through the SHOP Exchange).
- Choose how much you pay toward your employees’ premiums.
- Choose who you offer coverage to – the employee only, or if you will cover spouses or dependents.
- Decide how long new employees must wait before joining the plan (although this cannot exceed 90 days by law).

Cons of Using the SHOP Exchange

Cost-Related Disadvantages:

Costs are inconsistent across states and even within states (i.e. Buffalo, NY, might be different than NYC), which is confusing. In some areas, SHOP is the cheapest option. In others, a broker or PEO is less expensive.
You might have to change brokers in order to be SHOP-compliant (if you already use a broker).
SHOP is not available through any PEOs, so if you are committed by a contract to a PEO, you cannot switch over until your contract is up.

Tax Disadvantages:

There aren’t really any tax disadvantages, except you as the business owner can only get the federal tax credit if you meet specific parameters. The tax credit is only eligible for very small businesses who also offer very low salaries.

Ease of Use Disadvantages:

SHOP is new and a bit technically challenged, both at the national and state levels – don’t expect fancy apps like a PEO would offer or consistency in web service.
SHOP is not going to have 24/7 customer service or live chat like some PEOs have – make sure your employees are aware of how to get customer service help and are able to get their needs met (which will depend on where you are).

What Are My Options for Providing Health Insurance Aside From SHOP?

If you don’t like the options you find on SHOP or you just want to shop around (no bad pun intended!), you’ll want to explore other options. The basic options for providing health insurance to your business are:

A broker, or agent, who is also a licensed insurance salesperson in your state
A Professional Employer Organization (PEO) like JustWorks, which is an outsourced human resources/ benefits service provider
The SHOP marketplace/a SHOP-specific broker, which is what this article is about

Here is an overview of the basics and the general pros and cons of each:

Small Business Partners for Providing Health Insurance

Who Provides Insurance	Definition	Cost to Employer	Advantages	Disadvantages
Broker	Also known as agents, brokers provide a direct link to health insurance companies.	Service fees plus commissions - get a full picture up front of what a monthly bill might be.	Face to face support, someone who can walk your employees through the sign up in person	Small businesses can get pushed to the side as larger clients need the broker’s time.
PEO (Like JustWorks)	A professional employer organization (PEO) lets employers outsource employee management tasks, such as providing employee benefits.	For each employee, about 1-2% of their annual salary	Reputable; provides other services bundled in; guaranteed compliance	Less personal contact; might require customer support help.
SHOP Exchange	The federal government’s marketplace for small businesses to purchase health insurance.	Depends on your state and size; it can be super affordable in some places and expensive in others.	Compliance; may be lower cost depending on location	Customer service issues; new system, still working out bugs

Unfortunately, there is no best answer as to which option is going to be best for everyone. Not only can the pros and cons vary by state, but your options will also vary by your exact location.

If you want to read more about how to provide health insurance through a broker or PEO like JustWorks, check out our Guide to Providing Health Insurance or our PEO buyer’s guide.

SHOP FAQs for Small Business Owners

What is employee choice? I’ve heard that a few times now.

The SHOP Exchange passed a ruling for what is called “employee choice”; as of recently in 2016, this means that employees whose employers use SHOP as their health insurance provider can choose a plan on SHOP that is the same value of whatever the employer has committed to pay for.

However, it appears that this will not go live until 2017 and not every state will participate. And remember, even with a choice, the options are only as strong as the network in your state.

There is more information on employee choice and the states who are partaking here and here.

Can the business owner cover him or herself and spouse and dependents under SHOP?

In a short answer, yes, the business owner can cover him or herself and his or her family/spouse under SHOP in a few ways.

If you are providing SHOP insurance to your employees, in order to get the tax credit, you must use the same insurance plan as the employees.
If you do not provide insurance and need benefits, you can go to the SHOP marketplace for individuals, which you can find here.

Where can I find a SHOP-registered broker?

You can search for a SHOP broker by putting your zip code in here, and then names and locations will be provided for SHOP-registered brokers near you.

Where to go for more resources?

Some more resources on SHOP can be found here, which is the direct site for employers, and here, which is the government’s article on why small business owners should use SHOP. You can also check out our own article on how small businesses can provide health insurance.

The Bottom Line

The SHOP Exchange is a work in progress, just like the entire healthcare and insurance industry. Checking to see if SHOP is a good option for your business is easy and free, so it’s a good idea to try it and get a quote.

Have you tried SHOP? If so, what state are you in and what was your experience? Let us know in the comments.

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