36: The Health Insurance SHOP Marketplace

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Small employers may qualify for federal tax credits toward group medical insurance purchased from healthcare.gov.

In the last two episodes, 34 and 35, we learned about health insurance terms and how to use the benefit. In episode 20 on the Affordable Care Act, we learned a little bit about the federal government’s SHOP Marketplace. So, on this episode, I want to take a deeper dive into the SHOP and give you a good understanding of what’s available.

SHOP stands for Small Business Health Options Program. The SHOP is available in 31 states. For everyone else, your state has their own marketplace.

What is it?

The SHOP is for small employers, those with 1 to 50 employees. However, state marketplaces may allow up to 100 employee groups to participate.

To use the SHOP, you must have an office or an employee worksite in a state who uses the SHOP. Otherwise, you have to use your state’s version.

Either way, you can buy health and dental insurance from both.

Advantages: 

The SHOP allows you to browse, compare and apply for health and dental plans online at anytime throughout the year. You can decide which plans to offer and how much you want to contribute. You can offer more than one plan at a time (within the same coverage category) and you’ll only receive one bill and make one payment each month.  Also, the only way to get the federal tax credit, if you qualify, is through either the SHOP or your State’s exchange.

Requirements:

To qualify, you must offer coverage to all your full-time employees which are those workers who average 30 or more hours per week. And, at least 70% of them have to enroll in your plan, or have coverage from another source – like coverage though a spouse, another employer or a government program.  Let’s say you have 10 full-time employees – 7 need to either enroll or have other coverage. If 3 of them have other coverage, then you need 4 employees to enroll.

If you don’t meet these requirements, you can still enroll in a SHOP plan but you have to do it between November 15 and December 15, for a coverage effective date of January 1st.

Federal tax credit:

Now, if you have 25 or less FTEs and the average annual wage is $50k or less, and you pay 50% or more of the employee only premium, then you qualify for the Small Business Health Care Tax Credit.

The tax credit is worth between 35% and 50% of your contribution toward your employees’ premium. To get the max credit though, you need less than 10 employees with an average annual wage of $25,000 or less.

And, the credit is only available to you for two years. After that, you are on your own. You’re still eligible for the tax credit even if you buy coverage from a state exchange.

What’s available?

The SHOP offers 4 different health plan categories, bronze, silver, gold and platinum.

The bronze plan has lower premiums and pays less of the costs. In other words, the deductibles, co-payments, maximum out of pocket and co-insurance is higher.  And the platinum plan has higher premium but pays more of the costs. Elementary, right? According to healthcare.gov, on average, the bronze plan covers 60% of you medical costs whereas the platinum plan covers 90%.

A 10 employee company in Arizona has 16 options to choose from, with premium ranging between $306.10 to $512.90, for employee only coverage. There are 2 bronze, 7 silver, 6 gold and 1 platinum options, based on the hypothetical census I used. You can offer as many plans as you want within the same coverage category. So, for example, you could offer both bronze plans or all 6 gold plans.

Probably the best illustration of the difference is the birth of a baby. Under the bronze plan this will cost you $6,600.  Under the Platinum plan it will cost you $1,580. That’s a big difference! Granted the premium difference is $2,482 so the real delta is $2,538….still, that’s not chump change.

Your employer contribution toward your employee’s premium can be either a fixed percentage or what’s called a reference plan contribution. The reference plan contribution amount is established by choosing one of the plans you offer and designating that as the reference plan and then applying the contribution percentage. Then no matter which plan the employee chooses, the contribution amount is the same.

Let’s say the reference plan premium is $200 and you are going to pay 50%. The reference plan contribution is therefore $100. If an employee signs up for a plan that costs $150, then you pay $100 and the employee pays $50. If the employee signs up for a plan that costs $300, then you pay $100 and the employee pays $200.

Getting coverage:

To purchase coverage on the SHOP you can do it yourself or use a SHOP registered agent or broker.

And finally, you’ll find some nifty tools on healthcare.gov – the Full-time Equivalent Calculate to help you determine if you are a small employer and eligible for the SHOP. A minimum participation calculator to help you see if you meet the participation requirement, and a tax credit calculator to figure out if you’re eligible for the Small Business Health Care Tax Credit.

I have to say that shopping for a plan on healthcare.gov i.e. the SHOP, is very easy. The filter options are nice and all the plan details are there for you which makes it easy to compare plans. Although for $2.1 billion, I’d expect a lot more! That’s right, $2.1 billion just for the development of healthcare.gov, that according to a report by Bloomberg Finance, L.P.

Conclusion:

  • If you have less than 50 FTE employees you can shop the SHOP for medical and dental insurance for your employees.
  • 70% of your full time employees must either enroll or have other coverage in place. If you can’t meet this threshold then you can enroll between November 15th and December 15th for a January 1st effective date.
  • If you have 25 or less FTEs and the average annual wage is $50k or less, and you pay 50% or more of the employee only premium cost, then you qualify for the Small Business Health Care Tax Credit.
  • You can offer as many plans as you want within the same category, and;
  • Your employer contribution toward your employee’s premium can be either a fixed percentage or a reference plan contribution.

About the author, Thomas

I have 20 of years insurance industry experience in C-level management, focusing on all aspects of workers compensation, risk management, loss control, employee benefits, HR, payroll and professional employer organization (“PEO”) operations. Currently, I am the owner and CEO of Humanly HR, and founder and host of SmallBiz Brainiac; a podcast providing employer intelligence to small business owners.

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