When California business owners start looking for health benefits for their employees, one of the first decisions they need to make is where to get this coverage from. You have options, including Covered California for Small Business, also known as the Small Business Health Options Program or SHOP health insurance in California. Another option is to purchase private small group coverage directly from a carrier such as Blue Cross Blue Shield.
Many employers aren’t sure which option to pick or which is the best fit. Some may think that buying through the SHOP exchange is going to be cheaper, while others worry that Covered California will have extra hurdles or limits.
SHOP and off-exchange private insurance options each have their own advantages. You’re going to want to look at your average wages, benefit objectives, employee demographics, and payroll size. So let’s take a look at which option might be the best for you. JC Lewis is here to help you work through these options and decide which one is right for you.
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Comparing SHOP vs. Off-Exchange Small Group Plans
To help you determine which option might be best, let’s take a look at them side by side. Under California law, both the exchange (SHOP) and off-exchange small group plans have to follow the standard Affordable Care Act requirements. However, while this means certain things such as essential health benefits will be the same across all plans, how those plans provide coverage, tax credits, and administration of the plan may vary.
| Comparison Criteria | Covered California SHOP (Exchange) | Private Small Group Plans (Off-Exchange) |
|---|---|---|
| Best For | Small businesses with under 25 FTEs and average wages under $62,000 who want to take advantage of federal tax credit savings, or employers wanting single-bill multi-carrier options. | Employers who want to offer wide provider network access, multiple carrier choices, custom plan design tiering, and specialized contribution setups. |
| Tax Credits | Only eligible businesses purchasing coverage through SHOP can qualify for the Small Business Health Care Tax Credit (worth up to 50% of premium contributions for up to 2 consecutive years). |
Private off-exchange plans do not qualify for the federal Small Business Health Care Tax Credit, regardless of business size or employee wage profile. |
| Carrier Choice | Participating California SHOP carriers (such as Kaiser Permanente, Blue Shield of California, Sharp Health Plan, and Health Net); uses a single purchasing portal. | All licensed commercial carriers in California (including Anthem Blue Cross, Blue Shield, Kaiser Permanente, UnitedHealthcare, Cigna, and Aetna). |
| Contribution Flexibility | You select a reference plan and contribution level (example: paying 50% of a designated Silver plan); employees select from available plans offered by selected carriers. | Highly customizable contribution strategies across multiple tiers, dual-choice setups, and specialized HSA/HRA funding structures. |
| Administrative Complexity | You receive one consolidated monthly invoice even if employees select different insurance carriers under the SHOP menu. | Single-carrier billing. Administering plans across multiple carriers requires third-party consolidation or individual billing setups. |
| Renewal Considerations | Renewal pricing follows standard ACA small group rates; plan menus and carrier areas are reviewed annually by the exchange. | Direct carrier renewal negotiation; potential flexibility to switch carriers, modify networks, or adjust plan designs at annual renewal. |
| Broker Role | Independent licensed brokers assist with SHOP enrollment, tax credit pre-qualification, employee onboarding, and administrative management at no extra fee. | Independent licensed brokers evaluate private market options, negotiate plans, manage implementation, and handle ongoing service at no extra fee. |
 
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Key Decision Factors for Employers
1. The Small Business Health Care Tax Credit
For small employers who qualify, the federal tax credit available through SHOP is a great financial advantage. You must meet these three criteria in order to qualify:
- Have fewer than 25 full-time equivalent (FTE) employees. Note that an FTE employee isn’t necessarily one who works 40 hours a week.
- Pay average annual wages below a specific yearly threshold. For 2026, this amount was $68,200.
- Contribute at least 50% of employee-only premiums for all enrolled employees. Note this does NOT include premiums for spouses or dependents. You are not required to pay any spouse/dependent premiums.
If you meet these three criteria, you may receive a credit for as much as 50% of your contributions for up to two consecutive tax years. If you qualify, using SHOP for at least two years is a clear financial benefit.
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2. Network Selection and Provider Access
While there are a good number of options on SHOP, not every commercial carrier or network participates in Covered California’s small business exchange. If your employees want a PPO with a broad network so they can see specific specialists or use certain in-network care facilities, SHOP may not be the right fit. Off-exchange plans often allow businesses to make use of HMOs, regional networks, and PPO options that may not be available on the exchange.
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3. Consolidated Billing vs. Plan Customization
One of the best administrative features SHOP offers is consolidated billing. You can offer plans from multiple carriers but only receive and pay a single invoice every month. It makes tracking costs much easier.
On the other hand, the off-exchange option is great when you want to create a custom benefits tier, such as pairing a High-Deductible Health Plan with a Health Reimbursement Arrangement, or when you want to work with a preferred carrier to offer a really strong plan.
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4. Pricing Equity: On-Exchange vs. Off-Exchange Rates
One misconception California business owners may have is that health insurance premiums for the exact same plan are always going to be cheaper on the Covered California exchange than on the private market. They are not. In fact, the base rates for identical plans, rating regions, and carriers are legally required to be identical both on and off the exchange. However, prices can differ due to network composition, specific plan teirs selected, and tax credits.
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The Role of an Independent Broker
You may think you have to choose between Covered California or working with an insurance broker. However, you really should do both. Independent health insurance brokers are certified by CCSB and are licensed to work with major commercial carriers. Working with a broker doesn’t cost you anything extra – carrier premiums are the same whether you enroll directly, go through the exchange, or work with a broker.
A knowledgeable insurance broker is your objective advisor. They will help you determine if you qualify for SHOP tax credits and help you analyze off-exchange plans so you don’t miss out on a better option.
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Find the Right Health Plan Path for Your Team
Navigating small business health insurance in California doesn’t have to be guess work or compromise. Whether SHOP or private plans make more sense for your business depends on your employee preferences, your budget, and your long-term goals. Before you select coverage or need to renew, reach out to JC Lewis to discuss your needs and get help determining which plan is right for you. We’ve helped California employers with insurance since 1979, and we’re ready to get to work for you.
