To 'SHOP' or Not: Finding the Right Exchange Path

The Small Business Health Options Program (SHOP) is relaunching with improvements

By Ben Geyerhahn Oct 20, 2014
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All of the details, requirements, conflicting opinions and deadlines surrounding the Affordable Care Act (ACA) have been putting employers in a mind-numbing daze for months. As the deadline for the employer “shared responsibility” mandate nears, uncertainty remains in the air. It’s important for HR professionals to clarify details now so companies can make the best decisions for their employees while ensuring the financial stability of their organizations.

Employer Responsibilities

The employer-sponsored coverage requirements break down as follows:

  • Employers with more than 50 full-time employees are required to offer affordable coverage that meets “minimum value” or pay a tax called the Employer Shared Responsibility Payment. The mandate begins in January 2015 but will initially apply only to companies with 100 or more full-time employees. The mandate will be extended to companies with between 50 and 100 employees in January 2016.
  • Employers with fewer than 50 full-time employees do not have to provide insurance coverage but have the option of offering affordable coverage to their employees through the Small Business Health Options Program (SHOP) marketplace, which resides within the ACA’s federal or state-run exchanges. Businesses with fewer than 25 employees may be eligible for tax credits if they buy insurance through SHOP. In 2015, SHOP will expand availability to businesses with 100 or fewer employees.

Where SHOP Fell Short

Unlike the ACA's public exchanges where individuals can purchase coverage for themselves or their families, SHOP exchanges haven’t met expectations. Small business owners have had the option to apply for coverage through a limited number of state SHOP exchanges or by paper application for the federal exchange since October 2013, but a delay in the federal exchange SHOP website (set to launch in November 2014) curtailed enrollment.

Most smaller companies (approximately 64.8 percent) do not offer health insurance to employees, and although SHOP offers tax credits, they’re only available to businesses with a high percentage of low-income workers who would likely be eligible for Medicaid or significant subsidies on the individual exchanges. In these cases, a business may be doing its employees a disservice by offering health insurance, because providing employer-sponsored insurance prevents employees from receiving subsidies on the individual exchange.

Another problem is that companies have to be profitable or the tax credits they receive on the exchange have no use. Many limited liability corporations (designated as LLCs) are only marginally profitable, providing business owners with tax credits they can’t use.

SHOP also competes with the growing number of private exchanges, which are typically better at delivering benefits. Private exchanges boast multiple carriers, employee customization, employer-defined contributions, dedicated customer service, and far less administrative hassle—such as consolidated billing and the handling of COBRA. Many also offer subsidies to small companies with low-wage workers.

But while the SHOP exchange has had some setbacks, it’s still a good option for some small businesses. Knowing and understanding all of the options available is the surest way for HR benefit managers to find the right path for their companies.

What HR Needs to Know

After HR professionals understand where their company stands in the scope of employer-sponsored insurance, they should take the following steps to determine the best course of action:

  • Know the choices. Understanding the options insurance carriers provide can help guide HR toward the most sensible decision for their company. Look into what’s available on and off the exchanges, specifically if there are any exclusive products, deals or tax credits in either category. If this becomes an overwhelming task, consider seeking outside assistance.
  • Engage a reliable broker or benefits counselor. Hiring a broker or benefits counselor can help to navigate complicated decisions such as group versus individual insurance, or public versus private exchanges. An expert will know how well each state’s SHOP exchanges have performed and if any major problems have occurred, helping HR to identify the most cost-effective option, deliver information to employees and to guide staff through the application process.
  • Educate employees on Medicaid. Make sure Medicaid-eligible employees are aware that they have access to government-provided insurance, and assist them with enrollment (this service can be outsourced). Getting all Medicaid-eligible employees covered will lessen the company’s financial responsibility.
  • Talk penalties with employees. If a company provides group insurance, HR will need to advise employees that they won’t be eligible for subsidized coverage on the individual exchanges. If employees try to get insurance on their own, the company could face IRS audits and fines. In addition, employees would have to forfeit their subsidization.

Companies of every size now have more options for offering affordable health insurance to their workers. When employers and HR professionals understand the law, the options and the incentives available, they’ll uncover choices that are mutually beneficial to both the company and its employees.

Benjamin Geyerhahn is an entrepreneur, health care policy expert and member of New York Governor Andrew Cuomo’s Health Benefit Exchange Regional Advisory Committee. He is the founder and CEO ofBeneStream, which uses technology and a multilingual call center to guide employers and employees through the Medicaid enrollment process.

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