Nobody’s SHOPping

When the health reform law was signed, the only provision that was retroactive – meaning that it went into effect before March 23, 2010 – was the small employer tax credit. Companies that qualified could actually claim the credit back to January 1, 2010.

At the time, the IRS sent out 4 million postcards to small businesses that might qualify for the credit. To qualify, a company must have 25 or fewer employees and average wages of $50,000 or less, though the biggest credit goes to companies with 10 or fewer employees and average incomes up to $25,000. And, beginning in 2014, companies that want to claim the tax credit must enroll through the SHOP exchange set up by the state or federal government.

Part of the reason for that last requirement was to get some initial, much-needed membership in the SHOP, which stands for Small employer Health Options Program. To be viable, these small business exchanges must hit critical mass, and incentivizing small employers with a tax credit seemed like a good way to hit the enrollment numbers. Unfortunately, it doesn’t appear to be working.

A recent report from the Government Accountability Office (GAO) shows that, in the 18 states that set up their own exchange sites, only 12,000 small businesses with a total of 78,000 workers enrolled in the SHOP. That’s far short of the administration’s goal, though the specific target hasn’t been stated publicly.

In states that opted for the Federal Exchange, the SHOP’s online enrollment option went live this past weekend, so we’ll see how it goes, but many are expecting similar results. What this seems to indicate is that a lot of small employers – those with very small workforces and fairly low wages – aren’t taking advantage of the tax credit, probably because they either dropped their coverage or weren’t offering coverage to begin with.

For brokers, this is useful information. If you’ll brush up on the rules for the small employer tax credit, which you can do on the IRS website, and if you have an individual enrollment option, which you can get through HPA, then you should be set when approaching small employers. If you find a group that meets the size and income requirements, find out if they’re currently offering coverage.

If they are offering coverage, they may do well do drop it. Their employees have fairly low incomes and would likely qualify for a significant tax credit in the individual market. If they want to continue their group plan, then they should probably be taking advantage of the small group tax credit, and if their agent didn’t tell them about it you may be able to get an AOR letter.

If they’re not offering coverage, even better. You don’t have to convince them to do anything other than to let you talk with their employees. You already know that they have low incomes and don’t have group health coverage, so many of them will likely qualify for a premium tax credit. A lot of companies fall in this category, so targeting these employers could keep you busy for the entire open enrollment period.

To read more about the under-performing SHOP program, click here. To learn more about how to use this information to your advantage, click here.

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