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The Small Business Health Options Program: What Businesses Need to Know

Priyanka Prakash, JD

Senior Staff Writer at Fundera
Priyanka Prakash is a senior staff writer at Fundera, specializing in small business finance, credit, law, and insurance. She has a law degree from the University of Washington and a bachelor's degree from U.C. Berkeley in communications and political science. Priyanka's work has been featured in Inc., Fast Company, CNBC, and other top publications. Prior to joining Fundera, Priyanka was managing editor at a small business resource site and in-house counsel at a Y Combinator tech startup.
Email: priyanka@fundera.com.
Editorial Note: Fundera exists to help you make better business decisions. That’s why we make sure our editorial integrity isn’t influenced by our own business. The opinions, analyses, reviews, or recommendations in this article are those of our editorial team alone.

The Small Business Health Options Program (SHOP) was created under the 2010 Patient Protection and Affordable Care Act. The program helps business owners offer health and dental insurance to their employees. In most states, businesses with one to 50 employees (one to 100 employees in a few states) are eligible to access insurance through SHOP.

Offering small business health insurance to your employees is a great way to keep your employees happy and to stand out from competitors. Out of more than 50 potential benefits that you could offer to your employees, a Glassdoor survey found health insurance to be most highly correlated with employee satisfaction. This is especially important for small businesses which might not be able to compete as well on salary with larger companies.

You can typically enroll in the SHOP marketplace at any time of year, so now is as good a time as any to begin offering your employees health insurance. Let’s take a closer look at what the Small Business Health Options Program is, why you should be using it, and how you can enroll in a health plan.

What Is the Small Business Health Options Program (SHOP)?

In 2010, President Obama signed the Patient Protection and Affordable Care Act into law—which you might know by its nickname, Obamacare.

The objective of the law was to increase health care coverage, lower health care costs, and make the industry more transparent, accessible, and fair. The law established the Small Business Health Options Program, also known as the SHOP exchange or SHOP marketplace, to help small businesses obtain medical and dental health insurance for themselves and their employees.

The SHOP Program is a single, simple point-of-service that small business owners can use to look for insurance plans, compare rates and coverage terms, and purchase insurance. It’s an easy-to-use marketplace that breaks plans down into straightforward categories, lets you compare your options, and gives you the ability to include your employees in the process.

In the majority of states, you can access the SHOP marketplace through the federal government website, Healthcare.gov. A few states have their own websites that you have to use to access information and obtain coverage. These states are California, Colorado, Connecticut, Idaho, Maryland, Massachusetts, Minnesota, New York, Rhode Island, Vermont, Washington, and Washington, D.C.

small business health options program

Reasons to Offer Health Insurance

After passage of the Affordable Care Act, some businesses must offer health insurance. If you have 50 or more full-time employees or the equivalent, you’ll either have to offer affordable health insurance or pay a tax penalty. This is called the employer mandate, and it requires you not just to offer health insurance, but to offer insurance that’s deemed affordable for employees.

If you have fewer than 50 full-time employees, then you’re not required to offer health insurance. However, in many cases, the long-term benefits of offering health insurance outweigh the cost and time involved in making coverage available.

Here are the advantages of offering health insurance:

  • Productivity – Healthy employees are productive employees—and sick employees, well, aren’t. Employees who don’t have health insurance are less likely to visit the doctor or get medication, prolonging their sicknesses and hurting your bottom line.
  • Job satisfaction – Healthy employees are happy employees, too. Health insurance is a tangible way to show your employees that their well being is important to you, too. In fact, studies show that health insurance increases feelings of loyalty and decreases turnover.
  • Recruiting and retaining talent – When people are looking for new jobs, health insurance is high on their “must-haves” list… especially if they have spouses or children. If you want to appear professional in order to attract the best of the best, then health insurance is a must-have for your business.

On top of these benefits, some small businesses can qualify for the Small Business Health Care Tax Credit. These credits reduce the cost of health insurance, saving your business money each month while increasing your value to your employees and customers at the same time.

Now that you know the merits of small business health insurance, let’s break down the big benefits of the Small Business Health Options Program.

small business health options program

Healthcare.gov

Benefits of the Small Business Health Options Program

There are multiple ways to obtain small business health insurance. You can hire a broker, directly contact health insurance companies, go through a professional employer organization (PEO), or use the SHOP marketplace.

Here’s a list of advantages to using the Small Business Health Options Program marketplace:

Let’s take a look:

1. Search through private plans.

If you were worried that a government marketplace of small business health insurance would only offer government-funded insurance plans—there’s no need to stress.

With the Small Business Health Options Program, you can actually browse a list of private plans potentially available to your small business, depending on which state you do business. This means you can compare different types of plans and get a competitive deal, which is exactly what you want in health insurance.

2. Easily sort between types of plans.

There are four categories of health insurance plans on the Small Business Health Options Program marketplace:

  • Bronze – Insurer pays 60% of the premiums, and you pay 40%
  • Silver – Insurer pays 70% of the premiums, and you pay 30% 
  • Gold – Insurer pays 80% of the premiums, and you pay 20%
  • Platinum – Insurer pays 90% of the premiums, and you pay 40%

The types of metals don’t have anything with a plan’s quality but instead relate to the health care cost split between you and your insurance company. With a Bronze plan, you pay 40% of your health costs and the company pays 60%, but with a Platinum plan, you pay only 10%.

That doesn’t mean Platinums are better, though! Bronze plans involve the lowest premiums (or recurring monthly costs) but the highest copays (payments on a per-claim basis), while Platinum plans are the exact opposite. So it really depends on what you need, not how “good” of a plan you want. All plans also include certain essential health benefits.

Check out the Small Business Health Options Program’s analysis of when these plans are best used here. This system makes it easy for you to filter out the types of plans you don’t want or can’t afford, and save time by focusing on what’s important: the actual coverage specifics.

3. You don’t need to wait for open enrollment.

With the Small Business Health Options Program, you can join any time. There’s no need to wait for an open enrollment period or pass some sort of waiting period until you can purchase insurance and offer health care protection to your employees.

This cuts out a massively inconvenient part of the typical health insurance process and gives you a lot more power to search for insurance precisely when you know your business can withstand the added expense.

4. Settle on one plan… or offer your employees the choice.

With the Small Business Health Options Program, you have two choicesEither you can find and pick the health insurance plan that fits your business’s financial situation best, or you can leave the choice to your employees.

Even if you hand the plan-picking decision over to your employees, that doesn’t mean you can’t budget out the same way—because no matter which plans your employees pick, you can still dictate how much money you’re able to put towards their health insurance.

You can do this by picking the category of plans they can search through or the insurers whose plans they can pick from. The second choice offers good flexibility for businesses with a diverse set of employees. A relatively healthy employee could opt for a low-cost, low-coverage plan, while an employee with a preexisting condition or a dependent might decide on a pricier plan for its wider safety net. But either way, both employees receive the same contribution towards their plans from your small business.  

5. Choose whether to cover your employees’ dependents.

In an ideal world, your employees’ health insurance would extend to their spouses and children if they needed it.

While that would be a great benefit to offer, it’s not always possible with a small business budget. Extending coverage past your employees might need to wait until your next stage of growth—but no matter what, you always have the option with the Small Business Health Options Program.

6. Choose between health or dental, or opt for both.

Similarly, the choice to offer plans that cover health, dental, or both is in your hands as well.

On the Small Business Health Options Program marketplace, some insurance plans come with dental coverage—so your monthly premium payment includes both health and dental care.

But you can also purchase stand-alone health insurance plans or stand-alone dental insurance plans, if you don’t want to provide both or if you want a different dental package.

Ask your employees what they want, and if you’re especially strapped for cash but still want to offer health insurance, then consider postponing dental coverage for now.

7. Decide how much to contribute to employee premiums.

This is one of the big advantages of going with the Small Business Health Options Program: You get to offer health insurance on your own terms.

Running a small business often involves dealing with tight cash flow, and you might not feel comfortable spending money each month on insurance that you could otherwise spend on your product or equipment.

But because we definitely convinced you earlier about how important small business health insurance can be, there’s a good chance you’re feeling a bit stressed out.

Don’t worry. You get to choose how much to put toward your employees’ monthly premiums, based on what their health needs are and what your business can reasonably spend each month.

If your savings are limited, it’s absolutely possible to give employees a barebones coverage plan for now. Know your budget, and you have nothing to be concerned about.

8. Decide how long their enrollment periods are.

Although you don’t have to wait around for an open enrollment period of some sort in order to sign up for the Small Business Health Options Program, you can choose when your employees can sign up and change their plans, as well as how long new employees have to wait before registering for health insurance.

This is to help you budget your health insurance expenses and keep all the paperwork tidy. If you’re a seasonal business, for example, your ideal employee enrollment periods are probably different than if you operated year-round.

9. Settle everything online.

The Small Business Health Options Program lets you do everything online, when and where it’s most convenient for you. Its simple, straightforward, and informative website guides you through the right steps and helps you wind up with a health insurance plan you’re satisfied with—no hassle involved.

You can browse available plans, compare plans, enroll, manage coverage, and pay your insurance premiums from the Healthcare.gov website or your state’s SHOP marketplace website.

10. Use an agent or broker, or do everything yourself.

The Small Business Health Options Program makes it easy to partner with a broker or agent—or to brave the world of health insurance on your own, if you prefer.

SHOP-registered agents and brokers can help you search for, pick, apply for, pay, and update the best small business health insurance plans on the marketplace, without charging an extra fee.

You simply need to either find a registered broker or agent, or ask your current one to register themselves (it’s easy!) and then authorize them to represent your business on the marketplace.

And if you don’t have a broker or agent but you definitely want one, the Small Business Health Options Program has a list of registered SHOP brokers broken down by zip code.

Depending on how much time and energy you’re willing to sink into the health insurance search on your own, it could make sense to find a broker or agent right away, or to try out the SHOP marketplace solo before deciding.

11. You can qualify for the Small Business Health Care Tax Credit.

If you have fewer than 25 full-time employees (or the equivalent), and they make an average of $50,000 or less, then you can qualify for the Small Business Health Options Program’s health care tax credit.

This credit is worth up to 50% of all costs and expenses you’ll be putting money toward for your employees’ health insurance premiums. That’s a huge deal for small businesses.

Note that, to qualify, you need to cover at least 50% of your employees’ premiums for all full-time employees, but you don’t need to offer coverage to their dependents or part-time employees (those who work 30 or fewer hours each week).

The smaller, the better, when it comes to SHOP marketplace tax credits. For example, if you have fewer than 10 employees, making $25,000 or less each year on average, then you might qualify for an even larger credit.

SHOP tax credit estimator

Healthcare.gov

Small Business Health Options Program: Enroll in 6 Steps

Getting started with the Small Business Health Options Program is relatively straightforward. You’ll first need to gather some demographics and information about your workforce, and then you visit the website to actually compare plans and enroll.

Follow these six steps to use the Small Business Health Options Program:

1. See If You Qualify

There are four basic qualifications you have to meet in order to offer plans through the Small Business Health Options Program to your employees:

  • 50 or fewer full-time employees or the equivalent. A handful of states will let businesses with 100 or fewer full-time employees register with their SHOP marketplace.
  • All full-time employees onboard. You have to offer coverage to all of your full-time employees to qualify. Covering part-time employees (who work 30 hours or under each week) isn’t a must, but it’s also an option.
  • At least 70% enrollment from eligible full-time employees. This can differ by state (check the rules here), so keep an eye out. Here’s a handy minimum participation rate calculator. Note that an employee isn’t considered to reject your offer if they already have their own health insurance! Also, businesses who don’t meet this requirement can still enroll between November 15 and December 15 each year.
  • Work in the state whose SHOP marketplace you want to use. Each state has its own—but we’ll cover that in the next step.

As you can see, there’s plenty of wiggle room for your small business to qualify for the Small Business Health Options Program. The major sticking point is the size of your business.

2. Check Your State

If you qualify, simply check the Small Business Health Options Program homepage to see if your state has a state-specific marketplace. From there, searching for the plans you want is a pretty straightforward process, and the SHOP website will walk you through it.

You have to operate in a state in order to make use of its health insurance plans. If you operate in multiple states, you can either choose a single plan for all employees or create different accounts for each state in which you operate, and pick plans on a state-by-state basis.

Plus, if you own different businesses (whether they’re in the same or different states), you can register multiple accounts for each one. Every business’s employees have different health care needs, and this lets you save money by catering insurance plans to each unique situation.

3. Get an Estimate

Based on your answers to a few questions, the Small Business Health Options Program can give you an overview of the plans that will likely be available to you—and their prices.

You can do this without creating an account or signing up for anything at all, so you’ve got nothing to lose. Get an estimate to see what sorts of plans your business can afford, and discuss some possibilities with your fellow owners or employees before signing up.

4. Calculate Your Tax Credit

We talked about the Small Business Health Options Program tax credit for extra small businesses already—but now’s the time to see what you would actually qualify for.

Fill out the SHOP marketplace’s six-question tax credit calculator to see just how much you could save.

5. Create an Account

If you’ve filled out the calculator, you should get prompted to create an account. If not, simply create an account from your state’s Small Business Health Options Program homepage.

Once you’ve filled in some basic information, you get access to your state’s small business health insurance plans.

6. Apply for a Plan

Finally, pick the plan that works best for you, and apply! Applying and enrolling involves gathering some documents, estimating your income, and setting up payments. Check out the SHOP website’s tips and tricks page for a brief overview.

This isn’t the end of your relationship with the Small Business Health Options Program—like we talked about, you’ll still use the SHOP website to manage your premium payments and employee enrollment periods—but you’re done with the heavy lifting!  

The Small Business Health Options Program: The Bottom Line

Hopefully this guide has given you a pretty thorough understanding of why the Small Business Health Options Program is a great way to find, apply for, and manage the small business health insurance you need.

Remember to communicate with your employees about their health care expectations and requirements, and don’t be afraid to use a broker or agent if you’re strapped for time! Let someone else handle health insurance paperwork for you while you focus on the rest of your small business ownership responsibilities.

Priyanka Prakash, JD

Senior Staff Writer at Fundera
Priyanka Prakash is a senior staff writer at Fundera, specializing in small business finance, credit, law, and insurance. She has a law degree from the University of Washington and a bachelor's degree from U.C. Berkeley in communications and political science. Priyanka's work has been featured in Inc., Fast Company, CNBC, and other top publications. Prior to joining Fundera, Priyanka was managing editor at a small business resource site and in-house counsel at a Y Combinator tech startup.
Email: priyanka@fundera.com.

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