Your small business clients know that the health insurance exchanges set up under the Affordable Care Act (ACA) are coming—and soon—but they may not realize that they create significant benefits for employers in the form of dramatic cost savings above and beyond the current rules governing deductibility of premiums and eligibility for certain tax credits.
Beginning Nov. 1, small business clients will be eligible to sign up online for a specially created Small Business Health Options Program (the SHOP exchange), but clients are unlikely to have realized that the rules of the game have changed with the advent of SHOP.
(The exchange opened Tuesday, but because of technical problems, clients must sign up by mail or fax and full implementation of some features will be delayed.)
By signing up for the SHOP exchange, your small business clients can create a powerful employment benefit for their employees—in the form of dramatic tax savings—without any corresponding requirement that employers with fewer than 50 employees actually finance the employees’ health care.
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The SHOP Exchange Basics
Under the ACA, every state is required to establish a health insurance exchange that is specifically designated for small business use. The SHOP exchange allows small business clients with fewer than 50 full-time employees to sign up (eligibility requirements will expand in 2016 to allow clients with up to 100 employees to sign up).
The purpose of the SHOP exchange is to allow small business employees to access a variety of health insurance options (though it is predicted that only one option will initially be available, with expanded options not actually available until 2015). Further, by encouraging these employees to purchase health insurance, the SHOP exchange is meant to eventually decrease costs for employers who do choose to contribute to employee insurance costs.
Customer service representatives called “navigators” will be available to guide the employer and employee through the process of signing up for the exchange and navigating the various insurance options that will eventually be made available.
SHOP Exchange Changes the Rules
Under current rules, to derive any type of tax benefit from offering health insurance to employees, the employer is generally required to pay at least 50% of the premiums. In many cases, this requirement discourages employers from providing health insurance at all. Even under the ACA, many small businesses with fewer than fifty full-time employees are not actually required to provide health insurance.