The SHOP Marketplace: What It Is, Why Almost No One Uses It, and the One Situation Where the Tax Credit Makes It Worth Evaluating

The Small Business Health Options Program, or SHOP, was supposed to be one of the ACA’s main tools for getting small employers to offer coverage. It never took off. In 2014, the Congressional Budget Office projected that 4 million people would be covered through SHOP by 2017. When CMS released a national count in 2017, the number was 232,698. Almost half of those were in two places: the District of Columbia, with 64,805 people, and Vermont, with 46,099. The federal SHOP, which served 33 states through HealthCare.gov, covered just 38,749. For comparison, the small group market outside SHOP covered an estimated 16.7 million workers in 2013. That gap is the honest summary of how SHOP has worked.

What SHOP Was Built to Do

SHOP is for small employers, generally those with 50 or fewer employees. It was designed to let them offer workers a choice of plans instead of picking one plan for everyone. It’s also the gateway to the federal Small Business Health Care Tax Credit. With narrow exceptions, an employer has to buy coverage through SHOP to claim it.

Why Enrollment Never Took Off

The problems showed up early. By 2015, SHOP was typically offering fewer and more expensive plans than the market outside it. Many small businesses stuck with existing policies, which could be cheaper because they didn’t have to cover all of the ACA’s essential health benefits yet. Website problems in several states also made SHOP harder to use than simply working with a broker or carrier directly.

In 2018, CMS scaled the federal SHOP back. HealthCare.gov stopped handling online enrollment, employee eligibility, and premium collection. Today, an employer in a federal-marketplace state gets an eligibility determination through HealthCare.gov, then enrolls through a SHOP-registered agent or broker or directly with a participating insurer. Employers can still offer a choice of plans. Without central billing, though, they have to coordinate payments with each insurer themselves. State-run SHOPs can operate differently. Employers in Hawaii can’t participate in SHOP or claim the credit for plan years after 2016.

The Tax Credit: What It’s Worth and Who Qualifies

For tax year 2025, an employer qualifies if it meets all three of these tests:

• Size: Fewer than 25 full-time equivalent employees (FTEs).

• Wages: Average annual wages under $67,000 per FTE.

• Contribution: The employer pays a uniform percentage, at least 50%, of the premium for each enrolled employee’s coverage.

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Owners, partners, more-than-2% S corporation shareholders, and their family members don’t count as employees for the credit.

The maximum credit is 50% of the employer’s premium contributions, or 35% for tax-exempt employers. It lasts for two consecutive tax years only. Few employers get the maximum, because the credit phases down in two ways. It shrinks once you have more than 10 FTEs, and again once average wages pass $33,300. It’s also capped based on the average small group premium in your rating area. Whatever credit you claim reduces your deduction for premiums by the same amount.

Here’s how the math actually works. Take a business with 15 FTEs and average wages of $42,000. It pays $400 per employee per month, or $72,000 a year.

• The starting credit is 50%, or $36,000.

• Having 5 FTEs over 10 cuts it by a third, about $12,000.

• Average wages $8,700 over the $33,300 threshold cut it by another 26%, about $9,400.

• The result is roughly $14,600 a year, or about $29,200 over two years if nothing changes.

Now take a smaller business: 8 FTEs, average wages of $30,000, paying the same $400 a month per employee. Its premiums total $38,400 a year. Neither reduction applies, so it gets the full 50%, or $19,200 a year. It’s a smaller business paying less in premiums, yet it gets a bigger credit.

When SHOP Makes Sense and When It Doesn’t

SHOP is worth evaluating when four things line up:

• The business has around 10 or fewer FTEs.

• Average wages are near or below $33,300.

• The owner is offering coverage for the first time.

• SHOP plans are actually available in the county. Check by entering the ZIP code in HealthCare.gov’s plans and prices tool.

In that case, the credit can cover a large share of the first two years of premiums.

Outside that profile, the credit shrinks fast, and SHOP’s narrower plan selection and extra paperwork weigh more heavily. Businesses with higher wages, more than about 15 FTEs, existing coverage, or no SHOP plans locally will usually do better comparing the regular small group market and level-funded plans.

One exception helps employers already in the program. If you start the credit through SHOP and SHOP plans later disappear from your county, IRS relief lets you finish the two-year period with outside coverage. It doesn’t let a new employer in a county without SHOP plans start the credit.

Alternatives Worth Comparing Against SHOP

An Individual Coverage HRA (ICHRA) lets an employer reimburse employees for individual health insurance instead of sponsoring a group plan. Employees pick plans that fit them, and the employer sets a fixed budget. There are two trade-offs:

• No tax credit. ICHRA reimbursements don’t qualify, because the credit requires a SHOP plan. For a small, low-wage business that qualifies for a meaningful credit, SHOP can come out ahead over two years.

• Employee subsidies. If the ICHRA counts as affordable for an employee, that employee loses eligibility for marketplace premium tax credits, even if they opt out of the ICHRA.

For everyone else, run the ICHRA numbers alongside any SHOP or small group quote.

Sources

1. CNBC. “Obamacare enrollment for small business on HealthCare.gov could end.” May 15, 2017. https://www.cnbc.com/2017/05/15/obamacare-enrollment-for-small-business-on-healthcare-gov-could-end.html

2. Healthcare Dive. “SHOP enrollment falls short of expectations.” November 4, 2015. https://www.healthcaredive.com/news/shop-enrollment-falls-short-of-expectations/408525/

3. Centers for Medicare & Medicaid Services. “Overview of Changes to SHOP Enrollment.” April 26, 2018. https://downloads.cms.gov/cciio/AB-OverviewSHOPChanges-Slides-April262018.pdf

4. HealthCare.gov. “Small Business Health Options Program.” https://www.healthcare.gov/small-businesses/

5. Internal Revenue Service. “Small Business Health Care Tax Credit and the SHOP Marketplace.” https://www.irs.gov/affordable-care-act/employers/small-business-health-care-tax-credit-and-the-shop-marketplace

6. Internal Revenue Service. “Instructions for Form 8941 (2025).” https://www.irs.gov/instructions/i8941

7. Internal Revenue Service. “IRS provides certain small employers with relief for the small business health care tax credit for 2017 and later years” (IR-2018-108). April 27, 2018. https://www.irs.gov/newsroom/irs-provides-certain-small-employers-with-relief-for-the-small-business-health-care-tax-credit-for-2017-and-later-years

8. Dickinson Wright. “New HRA Alternatives for Employers.” August 1, 2019. https://media.dwlaw.com/wp-content/uploads/2026/07/03153719/new-hra-alternatives-for-employers-1.pdf