Small Business Health Options Program (SHOP): Qualifications, Benefits, and Enrollment
Key takeaways:
The Small Business Health Options Program (SHOP) is a health insurance marketplace that allows eligible small businesses and nonprofits — typically those with fewer than 50 full-time employees — to purchase group health and dental insurance for employees.
SHOP provides four different health plan categories that an employer can offer to employees: bronze, silver, gold, and platinum.
Each plan will have a monthly premium and out-of-pocket costs. Bronze plans have the lowest monthly premiums, but the highest out-of-pocket costs.
Small Business Health Options Program (SHOP) is a health insurance marketplace that provides small group coverage options to qualified small businesses and nonprofits. It allows private insurance companies to offer group insurance plans to small employers or employee organizations like a union.
SHOP was established under the Affordable Care Act (ACA) and includes essential benefits, such as for emergency services, pregnancy, prescription drugs, labs, and hospitalization.
The costs of health insurance can be significant for small businesses. For 2021, small firms contributed an average of $6,569 towards employee premiums for single coverage and $14,094 for family coverage premiums. SHOP can help eligible employers get lower costs on group plans for health insurance and claim tax credits.
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How does the Small Business Health Options Program work?
Small business employers can use SHOP to purchase group health insurance for employees. It’s an online health insurance exchange where eligible employers — typically those with 1 to 50 eligible employees — can select health and dental coverage options for employees. There are some states that allow eligible employers to participate in the SHOP marketplace if they have up to 100 full-time equivalent (FTE) employees, including:
Eligible employers can visit Healthcare.gov to enroll in SHOP plans through qualified parties. The website includes tools for eligibility, tax credit information, and an online directory to help you find qualified agents and brokers.
Employers may also visit their state health insurance exchange to view SHOP coverage options. If your state doesn’t have its own health insurance exchange, you can use the resources on Healthcare.gov.
What different plans are offered through SHOP?
The SHOP marketplace offers four different health plan categories that an employer can offer to employees: bronze, silver, gold, and platinum. Employers can choose to offer employers more than one health plan category, depending on the state rules. Each plan comes with different monthly premiums and out-of-pocket costs.
After employers have selected coverage options for the group insurance plan, employees can use SHOP to enroll in the best insurance plan for them.
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Healthcare.gov provides estimates to help you determine how much an insurance company will pay (based on plan category) for healthcare and what an employee will have to set aside for out-of-pocket costs.
| Plan category | Monthly premium | The insurance company pays | You pay |
|---|---|---|---|
| Bronze | Lowest cost | 60% | 40% |
| Silver | Moderate cost | 70% | 30% |
| Gold | High cost | 80% | 20% |
| Platinum | Highest cost | 90% | 10% |
How do you use SHOP?
You can offer SHOP insurance coverage any time during the year. Unlike other insurance plans, you don’t have to wait for an open enrollment period to start the process.
States have their own health insurance marketplace where employers can enroll in a SHOP plan. Employers can use the state website to determine eligibility and compare the plans available.
However, selecting a group plan can be complicated. Healthcare.gov has a directory for locating SHOP-registered agents or broker insurance professionals.
How does a business qualify for SHOP?
There are four main requirements that a business must meet to qualify for SHOP.
1. A business must be considered a small employer to qualify for SHOP
In many cases, a business must have 50 or fewer full-time or FTE employees. However, there are some states that allow you to have up to 100 eligible employees. Healthcare.gov offers an FTE employee calculator to help you determine if you qualify.
If the only employee of the business is the owner, then there is no eligibility for SHOP insurance. Instead, the small business owner can apply for health insurance through the individual ACA marketplace.
2. An employer must offer coverage to all full-time employees
All employees who work at least 30 hours a week would generally be considered eligible employees. Employers have the option to offer health insurance coverage to part-time employees, but they are not required to do so.
3. An employer must make sure that a minimum number of eligible employees are enrolled in the group health insurance plan
Usually, a minimum of 70% of eligible employees must enroll unless your state has different participation requirements. States like Louisiana and Texas have a 75% minimum participation rate, while Tennessee has a 50% participation rate. You can use the SHOP Minimum Participation Rate Calculator to determine how many of your employees must enroll in the plan.
4. A business must have an office or worksite for employees in the state whose SHOP plan you want to use
If you operate a business in more than one state, you can enroll in a SHOP plan in the state where your primary business site resides.
What are the health insurance requirements for small businesses?
The ACA does not require that small employers offer health insurance if they have 50 or fewer full-time or FTE employees. If a small business or nonprofit enrolls in a SHOP plan, they may qualify for the Small Business Health Care Tax Credit.
How does the Small Business Health Care Tax Credit work?
A tax credit is one way that small businesses can offset the costs of group health insurance plans. The Small Business Health Care Tax Credit could be worth up to 50% of the cost a qualified business pays for employees’ premiums. The credit value is up to 35% for non-profit employers.
A small business or non-profit must meet the following requirements to qualify for the Small Business Health Care Tax Credit:
The employer must have fewer than 25 FTE employees working for the company. A full-time employee works a minimum of 30 hours a week. You calculate FTE employees by adding the total hours worked per week and dividing this by 30. Healthcare.gov has an online calculator for this.
The average salary for employers cannot exceed the annual inflation-adjusted limit. The amount was $56,000 in 2021 and 2020.
The employer will need to pay at least 50% of the premium costs. For example, if an employee's monthly health insurance cost is $600, then the employer will need to pay at least $300.
The employer must offer health plan coverage to all full-time employees. Dependents and those who work less than 30 hours do not qualify.
The SHOP tax credit can be beneficial to small business owners during tax time. A tax credit allows for a dollar-for-dollar reduction in federal income taxes for the employer. For example, if your business owes $50,000 to the IRS and you get a tax credit for $20,000, then you will owe $30,000.
What happens if a small business doesn’t provide sufficient coverage?
Employers are not required to provide health insurance to employees unless they have more than 50 eligible employees. However, if your number of full-time or FTE employees go above the threshold, you must offer employees minimum essential coverage. If you don’t, you may have to make an employer shared responsibility payment to the IRS.
The bottom line
The Small Business Health Options Program (SHOP) can help small businesses and nonprofits provide group health and dental insurance plans to employees. Whether an employee chooses a bronze, silver, gold, or platinum option, the SHOP plans offer a cost-effective way to buy insurance that best fits an employee's needs.
Eligible employers can also benefit from a SHOP tax credit. The Small Business Health Care Tax Credit can be up to 50% of the costs paid for employees’ premiums.
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References
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