What is the Small Business Options Program (SHOP) Marketplace?

Traditional group health insurance covers almost 153 million Americans¹. But even though it’s popular, many small employers have difficulty offering a group health plan due to the cost and strict participation requirements. To make it easier for these employers to provide group health insurance, the Affordable Care Act (ACA) created the Small Business Options Program (SHOP) Marketplace.

The SHOP Marketplace helps small business owners compare and purchase a group health plan for their employees. You may also qualify for a tax credit to make your health insurance policy more affordable. However, there are eligibility requirements you must consider before using the marketplace.

This guide will explain everything you need to know about the SHOP Marketplace. We’ll also show you an alternative health benefit that’s more flexible and affordable for small employers—the health reimbursement arrangement (HRA).

In this blog post, you’ll learn:

• How the SHOP Marketplace works.
• How to qualify for the Small Business Health Care Tax Credit.
• Alternative health benefit options for small employers.

What is the SHOP Marketplace?

The SHOP Marketplace is a platform that helps small employers provide their eligible employees with affordable health and dental coverage. Like public exchanges for individual policies, SHOP plans must cover the ten essential health benefits. They can’t exclude coverage for treatments for pre-existing conditions.

SHOP plans are for employers with 1-50 full-time equivalent employees (FTEs). In some states, employers can have up to 100 FTEs. Employers with fewer than 25 workers may qualify for the Small Business Health Care Tax Credit to save money on their employees’ insurance premiums. Enrolling in a SHOP plan is generally the only way to claim the tax credit.

HealthCare.gov runs the federal SHOP Marketplace². However, some states have their own online platforms that employers can use to enroll in and manage their SHOP coverage.

How does the SHOP Marketplace work?

Small business owners must meet the following requirements to offer SHOP coverage:

1. You must have between one and 50 FTEs. If you only have one FTE, it must be someone other than the owner, the owner’s spouse or other family member, or a business partner.
   1. Employers may have up to 100 FTEs in California, Colorado, New York, and Vermont.
2. You must offer coverage to all your full-time employees. The federal government considers a full-time employee to be someone who works 30 or more hours per week.
   1. You don’t have to offer coverage to seasonal or part-time employees who work fewer than 30 hours per week. But you can include them if you choose.
3. Generally, you must meet a minimum participation rate of 70%. However, some states have different minimum participation rates. So, it’s essential to check your specific state requirements.
   1. If you start offering a SHOP plan between November 15 and December 15, you don't have to meet the minimum participation requirement.
4. If you’re using a particular state’s SHOP exchange, you must have an office or employee work site within that state.

Like the individual market, the Marketplace categorizes SHOP plans by metal levels—bronze, silver, gold, and platinum. Some SHOP health plans include dental coverage. If your chosen plan doesn’t include dental, you can add it for an extra fee. You can also enroll in dental coverage individually without selecting a health insurance plan.

To enroll in a SHOP plan, work with a SHOP-registered agent or broker or contact your health insurance company. You don't have to wait for the open enrollment period. If you need to make changes to your SHOP plan mid-year, contact your insurance agent, broker, or health insurer.

How does the SHOP Marketplace save small businesses money?

One of the SHOP Marketplace’s most significant advantages is the Small Business Health Care Tax Credit. Eligible employers who qualify for the tax credit can receive up to a 50% discount on their employees' premiums. Nonprofit employers can receive up to a 35% discount.

To qualify for the tax credit, you must meet all of the following requirements:

• You must have fewer than 25 FTEs
• Your average employee salary is $56,000 per year or less
• You must pay at least 50% of your full-time employees' premiums
• You must offer SHOP coverage to all of your full-time employees.

If you qualify, you can determine how much your tax credit will be using the Small Business Health Care Tax Credit estimator³. But generally, the tax credit will be greater for companies with fewer than ten employees who receive an average annual salary of $27,000 or less.

How can the SHOP Marketplace support employers with multiple business locations?

If you have a remote workforce that lives across the country or have a multi-state business, you can still use the SHOP Marketplace.

Here are a few scenarios where you can leverage the SHOP Marketplace:

1. For employers with employees in multiple states: Enroll in a SHOP plan where your primary company is located. You can either offer your full-time employees the same multi-state health plan or offer a different SHOP plan to your employees based on their location. You must verify your eligibility for each state where you offer coverage.
2. For employers with several businesses in the same state or multi-state businesses with the same EIN: You can only create one SHOP offer per EIN in each state. Count your FTEs from all your companies to determine your eligibility.
3. For employers with several businesses in the same state or multi-state businesses with different EINs: You must verify your SHOP eligibility for each EIN, count your FTEs from all your companies using controlled group rules, and create separate SHOP coverage offers. If you have remote workers, you can use your primary business address or use each employee’s location as a separate business location.

What are the pros and cons of the SHOP Marketplace?

Before deciding if a SHOP plan is right for your organization, reviewing the pros and cons is vital.

What is an alternative to the SHOP Marketplace for small businesses?

If you’re not interested in group health insurance coverage, consider offering an HRA. An HRA is an IRS-approved, employer-funded health benefit that reimburses employees tax-free for their health insurance premiums and qualified out-of-pocket medical expenses.

HRAs are an excellent solution for employers of all sizes, locations, and budgets. With an HRA, you set a monthly allowance that your employees can spend on medical care. Once employees make an approved purchase, you reimburse them tax-free up to their set allowance amount.

Here are a few reasons why HRAs can benefit small business owners:

• HRAs are employer-owned. Any unused funds stay with you if an employee leaves your company.
• They don’t require you to pre-fund an account. You only pay your employees after they make an eligible purchase.
• They don’t have minimum contribution limits.
• A stand-alone HRA doesn’t require you to have a group health plan.
• They don’t have annual rate increases or participation requirements.
• They allow your employees to choose the individual health plan that works best for them.

Due to their flexibility, offering an HRA instead of group health insurance is a great way to attract and retain employees without breaking your budget.

The following stand-alone HRAs can support small employers:

1. Qualified small employer HRA (QSEHRA): This type of HRA is for organizations with fewer than 50 full-time equivalent employees (FTEs) that don’t offer group health coverage. While it has no minimum contribution requirements, the IRS sets annual maximum contribution limits. Employees must have a qualified health plan that provides minimum essential coverage (MEC) to participate.
2. Individual coverage HRA (ICHRA): The ICHRA works like the QSEHRA but has greater flexibility. For example, it’s for organizations of all sizes, has no maximum contribution limits, and allows you to vary eligibility and allowances by employee classes. Only employees with a qualifying form of individual health insurance that provides MEC can participate in this type of HRA.

Conclusion

The SHOP Marketplace makes it easier for small business owners to secure a comprehensive group health plan. Employers who qualify for the Small Business Health Care Tax Credit can even receive a discount on their employee premiums. But, SHOP plans aren’t available in every state, and group health insurance may not support the needs of all your employees.

If you’re a small employer looking for an alternative to group health plans, PeopleKeep can help. With a personalized and flexible HRA, you can offer your employees more freedom over their healthcare—no matter your budget, company size, or location. We can help you manage your benefit in just a few minutes per month. Schedule a demo with an HRA specialist to learn more.

This blog article was originally published on July 30, 2013. It was last updated on September 18, 2024.

1. KFF's Health Insurance Coverage of Nonelderly table
2. SHOP Coverage for Employers
3. SHOP Tax Credit Estimator