SHOP is designed to help small businesses provide and pay for employee health care. Learn when SHOP is a good option and how tax credits can improve affordability.
Health insurance is one of the most important benefits to employees, second only to compensation, according to research conducted by the Employee Benefits Research Institute.1
While many small businesses may want to provide their employees with health care coverage, the reality is that it is expensive, with annual premiums for single employees starting at around $4,500.2 Recognizing this, the U.S. government introduced a program to help small businesses both provide and pay for employee health care.
Known as SHOP, The Small Business Health Options Program is for companies with 50 or fewer full-time equivalent (FTE) employees. (Some states have expanded the maximum number of FTEs to 100.) FTEs are not individual employees, but a calculation of how many workers together equal a full-time employee working 30 hours a week or more. Using 30 hours as the full-time cut-off, three employees who each work 10 hours a week, for example, equal 1 FTE. Businesses can calculate their FTEs with the SHOP FTE calculator (link opens in new window).
Using the SHOP Marketplace, business owners can browse available health care plans and select one that is the best fit for its employees and budget. Keep in mind that while both part-time and full-time employee hours are counted to determine the total number of FTEs, SHOP only requires that companies offer insurance coverage to full-time employees.
Businesses with fewer than 25 FTEs and an average employee salary of $50,000 or less may qualify for the Small Business Health Care Tax Credit. If the business provides group health insurance coverage through the SHOP Marketplace and pays at least 50 percent of employee premiums, the business can receive a tax deduction worth up to 50 percent of the employer premium contributions.
This tax credit is greatest for organizations with fewer than 10 FTEs who have average salaries of $25,000 or less, and declines as the number of FTEs and average salary increases. To determine if your company qualifies, consult your accountant for up-to-date financials and employment figures and then complete the tax credit estimator (link opens in new window) at Healthcare.gov.
With SHOP, organizations meeting minimum participation requirements can start offering health insurance through SHOP at the beginning of any month. Once an employer sets up a SHOP account and selects an insurance plan for the company, employees can be added to the policy as soon as the first of the following month.
Does your company meet the minimum participation requirements? SHOP requires that 70 percent of employees have health coverage (either through SHOP or on their own, such as through a spouse’s plan). If fewer than 70 percent do, any new hires will have to wait until the open enrollment window, which runs from November 15 through December 15. During this period employees can enroll without meeting a minimum participation requirement.
SHOP is a good option for small business owners who are comfortable using online tools and resources, since the entire process — qualifying, reviewing available insurance plans, and making a selection — is done online via the SHOP website.
SHOP may not work well for firms that have locations and employees based in multiple states (multiple locations within the same state isn’t an issue). Why? A company must meet all the requirements for each state’s SHOP Marketplace. Depending on the FTEs at each location, the business may or may not qualify for tax credits in every state.
While SHOP is a federally facilitated national marketplace, some states, such as New York, have their own statewide health insurance markets. A smart approach starts by previewing plans and prices for your state and the level of coverage your business can afford to offer employees before committing.
1 “Views on Employment-based Health Benefits: Findings from the 2015 Health and Voluntary Workplace Benefits Survey”; EBRI; March 2016. https://www.ebri.org/publications/notes/index.cfm?fa=notesDisp&content_id=3334 (link opens in new window)
2 “State Average Premiums for the Small Group Market”; Small Business Majority; 2016. http://healthcoverageguide.org/helpful-tools/charts/state-average-premiums-for-the-small-group-market/ (link opens in new window)
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