Understanding Covered California for Small Business

Covered California for Small Business (SHOP on the federal exchange) provides coverage to businesses with less than 50 employees.

What Is Covered California for Small Business?

Under the Affordable Care Act (ACA), businesses and nonprofit organizations with less than 51 full-time employees are eligible to use the SHOP marketplace. In California, the SHOP marketplace is known as Covered California for Small Business and is intended for small businesses looking to provide quality, convenient, and affordable health and dental insurance for all their employees. Employers looking to purchase plans for their employees are not required to wait for the Open Enrollment period and can offer coverage to their employees at any time during the year. 

Many employers feel that finding plans to fit their budget and also meet their employees’ needs is too difficult, but Covered California for Small Business is a simple and user-friendly system. This marketplace allows employers to offer one or two plans for their employees to choose from including health and dental coverage, only health coverage, or only dental coverage. It also allows employers to determine the employee premium ratio and whether to offer coverage to their employees’ dependents and/or spouses. Lastly, Covered California for Small Business gives employers leeway in deciding the duration of their employees’ initial enrollment period and how long new hires must wait before opting in.

Four Levels of Healthcare Coverage

There are four levels of coverage available on Covered California for Small Business: Bronze, Silver, Gold, and Platinum ― and each of these levels offers multiple plan options. Employers are eligible to choose one or two levels of adjoining coverage (e.g., they can choose a Bronze and a Silver plan but not a Bronze and a Gold plan), and employees can then choose any plan within one of those two levels.

Essential Health Benefits

According to the ACA, all health insurance plans in the small-group markets are required to provide a list of comprehensive services that are collectively known as essential health benefits. 

These ten essential health benefits include:

  1. Ambulatory services
  2. Emergency services
  3. Hospitalization
  4. Maternity and newborn care
  5. Mental health services, including behavioral health treatment and substance abuse treatment
  6. Prescription drugs
  7. Rehabilitative services
  8. Lab services
  9. Preventive and wellness services and chronic disease management
  10. Pediatric services, including dental and vision

The Small Business Health Care Tax Credit

The small business health care tax credit is designed to help small businesses and tax-exempt organizations that employ lower income employees to maintain their existing coverage or offer new coverage to their employees for the first time. These employers are eligible to receive the credit if they meet each of the following three conditions:

  1. They employ fewer than 25 full-time employees
  2. Annual average wage per employee is less than $50,000
  3. They pay at least 50 percent or more of employees’ premium cost for health insurance coverage

Typically, businesses with less than 11 full-time employees whose average annual wages are $25,000 or less are eligible for the maximum credit of 35% of the employer’s eligible premium expenses. The maximum credit for tax-exempt employers is 25% of the employer’s eligible premium expenses. Lastly, coverage must be purchased through Covered California for the employer to be eligible to receive the small business health care tax credit.