The ACA and SHOP

The health reform package known as the Affordable Care Act or “Obamacare” is scheduled to begin full scale implementation in 2014. This will effect up to 20 million individuals who will become eligible for medical insurance coverage through the expansion of government programs such as Medicaid. In addition to the extensive measures taken to broaden access to publicly provided coverage is the establishment of state insurance exchanges for both individuals and small businesses.  These present the potential for greater consumer choice and the ability to receive a comprehensive level of medical benefits at a subsidized price.  Additionally the ACA introduces several strategies to address the historical difficulty of small firms to provide medical benefits to their employees due to prohibitively high costs.


A primary component of the affordable care act specifically for use by small businesses is known as the Small Business Health Options Program (SHOP). Similar to state insurance exchanges that will offer government subsidized and regulated individual insurance plans SHOP provides a competitive marketplace for companies with 50 or less employees to acquire coverage. A key feature of this program is the opportunity for businesses to qualify for significant tax credits of up to 50% of their total premium costs. Small businesses with less than 50 employees are also exempted from the general requirement to provide a minimum level of health insurance coverage by 2017. The eligibility requirements for a maximum tax credit include employing 25 or under full-time employees, with an average salary of $50,000, and employer coverage of at least 50% of premiums.

The Congressional Budget Office (CBO) projects that as many as 4 million small businesses may qualify for either partial or maximum tax credits once the SHOP program becomes fully implemented in 2016. In addition the CBO expects at least $40 billion in tax credits will be awarded to small businesses over the next ten years. These estimates are supported by a report published by the Urban Institute projecting a 6% increase in the number of businesses with 100 or less employees who will be able to offer insurance coverage as a result of provisions such as SHOP within the Affordable Care Act. This increase in access will likely be due in part to the projected 7.6% drop in per capita costs to small businesses and larger numbers of employees purchasing subsidized insurance coverage through a state exchange.

Insurance companies operating in state exchanges must provide minimum level of health benefits

It is important to note that both the individual and SHOP exchanges will operate under strict guidelines with regard to the services that must be covered by participating insurance providers. There are ten medical services identified by the ACA as essential health benefits. These include ambulatory patient services, emergency services, hospitalization, maternity and newborn care, hospitalization, mental health and substance use disorder services, prescription drugs, rehabilitative and habilitative services and devices, laboratory services, preventive and wellness and chronic disease management, and pediatric services. This provides a reasonable amount of assurance for consumers and businesses that measures have been taken to preserve quality of care in an era when insurance companies may have greater incentive to restrict services covered under policies offered in state insurance exchanges.