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Unless you went on a three-hour cruise and ended up stranded on a deserted island for the last four years, you realize that the Affordable Care Act has made significant changes to the American healthcare system. Among the changes that directly impact small businesses is the creation of a series of exchanges where the owner can purchase insurance coverage for employees. The preferred moniker for these exchanges is the Small Business Health Options Program (SHOP) Marketplace.
Businesses (including non-profits) that have at least one but fewer than 51 full-time equivalent employees are eligible to offer insurance to their employees through the SHOP Marketplace. Note that the eligibility is stated in terms of “full-time equivalent,” not simply full-time employees. This means that you must aggregate hours worked by part-time employees to determine if your business is eligible. Fortunately, there is a calculator available on healthcare.gov.
There are other eligibility rules as well. For example, coverage must be offered to all full-time employees.(Part-timers count to determine whether your business is small enough to use the SHOP, but you do not need to offer insurance to them.) And, in most states, at least 70 percent of your eligible employees must actually purchase insurance through the SHOP program. However, if you enroll your business in the SHOP program between November 15 and December 15, you do not have to meet this percentage requirement. All the rules and restrictions on coverage and the steps in the enrollment process are spelled out in detail on healthcare.gov.
The idea behind the SHOP Marketplace is to level the insurance playing field for small businesses by pooling risk across multiple employers, in the same way that large corporations can pool risk across their insurance-eligible employees. In theory, this will result in better coverage for the employees at lower cost to the employers.
However, a Government Accounting Office (GAO) report released in mid-November revealed that the promise of the SHOP Marketplace has not been fully realized. The GAO found that the number of small businesses that have enrolled in SHOP is far lower than expected. The report cites several possibilities for this, including a lack of sufficient tax incentives, limited awareness and misconceptions about the availability of coverage through the SHOP marketplace, and technical issues related to the websites. Yet, the report indicated that many stakeholders in the process believed that the SHOP Marketplace can continue to grow.
While every state must have a SHOP Marketplace, a state can elect not to establish and operate its own SHOP. In those states, the federal government is required to establish and operate the SHOP for that state. In 2014, only 18 states decided to operate their own SHOPs. The federal government stepped in to run the SHOPs in the remaining 33 states. (For these purposes, Washington DC counts as a state, which brings the total to 51.) The federal SHOP was plagued by delays in the implementation of the website, lack of employee choice of plans and the absence of online enrollment. While the extent of true choice offered to employers (and therefore employees) remains to be seen, many technical glitches and online limitations have been addressed. Beginning this month, the online enrollment website is fully operational at healthcare.gov.
There is a federal tax credit available to help some small businesses offset the cost of providing insurance to their employees. This credit has been around since 2010, but, starting in 2014, the employer must provide insurance through the SHOP Marketplace to be eligible to claim it. However, in one of those (many) odd quirks of tax law, eligibility for the tax credit is limited to employers with fewer than 25 full-time equivalent employees. So, an employer with 26 full-time equivalent employees can arrange insurance through a SHOP, but cannot claim a credit for any of the premiums paid.
But for those small businesses who do qualify, the credit can be up to 50 percent (35 percent for non-profits) of the employer’s contribution toward the employee’s premiums. The maximum amount is reduced based on the number of employees and average salary. And, not surprising where taxes are involved, these computations can be somewhat complex. Fortunately, there is a SHOP Tax Credit calculator available which can give you an idea whether the amount of the credit will be worth the aggravation of the documentation required.
Although an employer can enroll in the SHOP Marketplace year-round, the employee enrollment percentage requirement is waived from November 15 through December 15. So, this is an excellent time to explore the nearly launched online enrollment and information website to see whether it makes sense for your business to SHOP for employee insurance.