Options for a Business Owner Denied Group Coverage Under Obamacare

Question: My company applied to the Small Business Health Options Program (SHOP) to get insurance for myself and my spouse, but it was denied. I own a single-member LLC taxed as an S corp. The representative who responded to my application said that because I am the only employee of the S corp, my company doesn’t qualify for the SHOP. Is this correct? What alternatives do I have?

Answer: It’s true that if your company has no employees other than yourself, you can’t buy insurance through a SHOP exchange—or through any group health plan, for that matter. Group insurance is designed for employers who want to provide insurance as a company benefit for their workers. Even though you work in the company, you and your spouse are considered company owners, not employees.

Also, insurance providers in the group market typically have participation guidelines that require a certain number or percentage of employees to enroll in a group health plan before coverage will be issued, says John DiVito, president of Flexible Benefit, a Web-based insurance company. If you don’t employ any individuals whose income you report on a W-2 form at the end of the year, you won’t meet participation requirements. Contract workers and freelancers don’t count.

That means you’re considered self-employed for insurance purposes. You and your spouse can shop for coverage through the individual marketplaces set up under the Affordable Care Act, says Garrett Fenton, an attorney specializing in employee benefits at Miller & Chevalier. Here’s a good definition of self-employment and how the individual marketplaces work.

Most individuals qualify for marketplace coverage. (You can check to see which marketplace you can use at this website.) “You have to meet citizenship and residency requirements, and you can’t be incarcerated, but other than that, it’s pretty straightforward,” Fenton says. “Insurance companies can’t [charge you more] based on pre-existing health conditions. They can’t rate you based on your health status.” They can only vary premiums based on age (within limits set by the law), what market you live in, and whether you use tobacco, he says.

Although your business won’t be eligible for tax credits because you can’t purchase from a SHOP exchange, you and your spouse may qualify for subsidies to help you pay your insurance premiums, depending on your household income.

In the long run, you may be better off purchasing individual coverage, which is already rolling out around the country. In contrast, the federal SHOP exchange has been delayed for a year, and only a few states have been approved to implement SHOP exchanges of their own.

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