Starting in fall 2013, Small Business Health Options Program (SHOP) marketplaces will offer a new way for small businesses to help their employees get health insurance.
But a recent decision by the U.S. Department of Health and Human Services means that employees getting health insurance through a SHOP exchange in 2014 might not have much variety: Most exchanges will offer just a single plan at first. However, beginning the following year, employees will be able to pick a plan that best matches their needs.
That means employers who wish to offer health plan choices might want to wait a year to use the SHOP exchanges, says Jeffrey Ingalls, president of the insurance and brokerage consulting firm The Stratford Financial Group, and author of the book "Healthcare Reform Made Easy."
"Starting in 2015, SHOP exchanges will be a real, definitive solution," Ingalls says.
What are SHOP exchanges?
SHOP exchanges are health insurance marketplaces in each state, created by the federal health care reform law, which will allow small businesses to offer group health insurance to their employees.
At first, states can limit the exchanges to employers with 50 or fewer employees, according to HealthCare.gov. Then, starting in 2016, employers with 100 or fewer employees also may participate.
However, it is possible for a business to be too small to use these exchanges. Self-employed business owners with no employees won't be able to use SHOP exchanges, but they can get their own coverage through their state's individual health insurance exchange, according to HealthCare.gov.
Once the SHOP exchanges are fully functional in 2015, employers will be able to compare levels of coverage and benefits, and decide which level(s) of coverage to offer, Ingalls says. Like the individual exchanges, the SHOP exchanges will have plans in four tiers.
• Platinum: covers about 90 percent of your health care costs.
• Gold: covers about 80 percent.
• Silver: covers about 70 percent.
• Bronze: covers about 60 percent.
Employers will be able to offer one level of coverage -- for example, silver -- or conjoining levels of coverage – for example, silver and bronze, so employees have multiple plan options, Ingalls says. Their employees will then be able to pick any plan in that tier.
"That's a real advantage because a lot of employers don't want to pick their employees' health insurance plan -- they'd rather the employee do it," Ingalls says.
The Obamacare employer mandate to provide health insurance doesn't apply to businesses with fewer than 50 employees, but many small employers still want to provide benefits, says Christina Merhar, marketing coordinator for Zane Benefits, which offers products that help small businesses provide employee benefits.
Small businesses know that offering health insurance helps them recruit and retain employees, she says.
3 pros of SHOP exchanges
Experts say the SHOP exchanges offer at least three big benefits for small-business owners:
1. Tax credits for some businesses.
Starting in 2014, getting insurance through the SHOP exchange will be the only way an eligible employer can get tax credits for up to half of the amount they pay toward employees' premiums, according to HealthCare.gov. To qualify for the credit, the employer must have no more than 25 full-time employees who make an average of about $50,000 a year or less. The employer also must pay at least 50 percent of employees' premium costs. Employers who want to find out of they qualify must consult the Internal Revenue Service, an accountant or a tax adviser, according to HealthCare.gov.
2. Simplifying health insurance administration.
The exchanges will offer a website with standardized health insurance plans and will also perform some of the administrative tasks that used to fall to employers, says Kevin Kuhlman, manager of legislative affairs for the National Federation of Independent Business. So, small businesses might be able to save money on administrative costs, he says.
3. Allows employers to limit costs.
Employers can easily use a defined contribution strategy -- in which they offer a fixed dollar amount toward each employee's premiums or qualifying medical costs -- in tandem with the SHOP exchange, Ingalls says.
SHOP exchanges also have benefits for employees, who might have more choice shopping in the SHOP exchange than they would get a non-SHOP group plan through the employer, Ingalls says.
The cons of SHOP exchanges
However, there are some downsides to SHOP exchanges, especially at first, experts say. Here are two major minuses:
1. Some business owners will be excluded.
SHOP exchanges might have some requirements that will shut out some small-business owners, Merhar says. For example, according to HealthCare.gov, many states will require that 70 percent of full-time employees must enroll in the company's SHOP plan.
And, to use the SHOP exchange, a business generally must offer health insurance to all full-time employees, defined as those who work 30 or more hours per week, according to Healthcare.gov.
2. Limited plan choices in the first year.
The delay of the employee choice provision until 2015 will severely reduce options in the SHOP exchanges next year in many states, Ingalls says. So, business owners who switch from traditional group health insurance to the SHOP exchange right away might be decreasing the number of choices they offer employees in 2014, Ingalls says.
In many states, he says: "You will only be able to pick one plan, so you'll have a one-size-fits-all solution."