Recent tax credits for CHOICE Arrangements in several states are encouraging employers to adopt health reimbursement arrangements, signaling a shift in health benefits offerings.
CHOICE Arrangements, formerly known as Individual Coverage Health Reimbursement Arrangements (ICHRA), are gaining traction as a significant player in employer healthcare benefits. Following a rebranding that took effect on September 3, 2026, by the Centers for Medicare & Medicaid Services and the U.S. Small Business Administration, CHOICE Arrangement became the official name, although many in the industry will likely continue using ICHRA for now.
This rebranding coincides with a notable trend: state governments are incentivizing employers to adopt CHOICE Arrangements through tax credits. Currently, three states—Indiana, Mississippi, and Connecticut—have formalized tax credits aimed at encouraging the transition from traditional group health plans to CHOICE Arrangements. Moreover, legislation supporting similar credits is progressing in several additional states.
Current State of ICHRA Tax Credits
As it stands, Indiana was the first to implement tax credits for ICHRA adoption, laying the groundwork for what other states have since followed. Indiana's tax credit provides a per-employee benefit specifically for small employers transitioning from group plans.
Mississippi followed suit in April 2026, with a credit structure mirroring Indiana’s. Key points of the Mississippi tax credit include:
- Employers with fewer than 50 employees can claim up to $400 per covered employee in the first year and $200 in the second year.
- The ICHRA contributions by employers must match or exceed their prior spending on group plans.
- The credit is capped at $1 million annually, awarded on a first-come, first-served basis.
- Unused credit balances can carry forward for up to ten years.
Connecticut became the third state to enact such legislation in May 2026, offering a more robust credit to small employers. The Connecticut tax credit highlights include:
- Employers with 50 or fewer employees can claim credits of up to $1,000 per covered employee annually.
- The credit can be applied to corporate business, insurance, and state income taxes.
- This program has a cap of $5 million each year and functions on a first-come, first-served basis.
- To redeem credits, employers must do so within the first two years of offering an ICHRA.
Legislative Momentum in Other States
While only three states have formal credits currently, the legislative movements indicate a growing interest in CHOICE Arrangements
Several states have ongoing proposals or bills to establish similar tax credits:
- Ohio: House Bill 133, passed unanimously by the House in June 2025, proposes a $400 nonrefundable credit per employee for businesses with two to 50 employees contributing at least $400 per employee to an ICHRA. The bill is now in the Senate.
- Pennsylvania: House Bill 2550, which passed the House with significant bipartisan support, aims to create a credit to assist small employers funding employee premiums through the state’s insurance marketplace.
- New Hampshire: Senate Bill 635 has made headway, passing the Senate Ways and Means Committee, but it is currently tabled in the full Senate.
Additionally, several states have introduced similar bills that have not yet advanced:
- Arizona: House Bill 2694 proposes a credit for employers with one to 50 employees contributing at least $400 per employee starting in tax years after 2026. It remains in committee.
- Georgia: A bill proposing declining credits for small employers based on employee count has stalled in the House.
- Texas: Senate Bill 1949, which sought to establish a franchise tax credit for small employers adopting ICHRAs, died in committee during the 2025 legislative session.
While some bills may not advance in a given session, historical patterns indicate that renewed advocacy can lead to future legislative success. Indiana's and Mississippi's initial proposals faced hurdles before gaining traction, suggesting that ongoing dialogue may soon expand this trend.
Drivers Behind State ICHRA Tax Credits
Several factors are motivating states to introduce financial incentives for CHOICE Arrangement adoption:
- Shrinking Small Group Markets: Many insurers are withdrawing from or raising rates in the small group market, making group coverage less accessible for smaller employers. CHOICE Arrangements offer a practical alternative, and state tax credits can mitigate transition costs.
- Proven Track Record: Since its introduction in 2020, ICHRA adoption has steadily increased, with over 500,000 individuals covered under these arrangements by 2026. This success provides states a level of confidence in promoting legislation tied to a model that is already gaining traction.
- Political Appeal: Defined contribution health benefits generally garner support across party lines, attracting both fiscal conservatives and those focused on expanding coverage access. Connecticut’s recent legislation emerged as part of a larger affordability initiative supported by advocacy groups.
- Stalled Federal Efforts: With federal proposals to expand CHOICE Arrangements faltering, states have proactively sought to implement their own solutions rather than remain inactive.
Implications of State ICHRA Financial Incentives for Employers
The current state-level tax credits primarily target small employers, especially those with fewer than 50 employees. However, larger organizations should also take note of these developments for several reasons:
Policy Direction: The creation of financial incentives generally signals long-term legislative support for a specific benefits model. The investments in tax credits suggest that lawmakers view CHOICE Arrangements as a permanent fixture in the health benefits arena.
Improved Administrative Structure: Launching statewide credit programs requires clear guidelines on various aspects of CHOICE Arrangement administration such as contributions and eligibility. States like Indiana have already released official guidance, benefitting not just small businesses but larger corporate structures as well.
Enhancing Strategic Conversations: The existence of state-level incentives adds a layer of relevance to discussions about shifting away from traditional group coverage. Larger employers might reference these developments in internal discussions to strengthen their cases for exploring CHOICE Arrangements.
Future Expansion of Eligibility: Current proposals focus on smaller organizations, but future legislative efforts could broaden eligibility criteria. This potential shifts the landscape; employers should stay informed and prepared for changes that may better align with their organizational sizes.
Signs of CHOICE Arrangement's Future Direction
The recent movements at the state level convey a growing structural support behind CHOICE Arrangements, indicating a strong future trajectory for these types of benefits. A few noteworthy trends emerge:
Convergence of Incentive Models: States adopting CHOICE Arrangement tax credits appear to favor a common structural approach, which suggests that further states might replicate established frameworks rather than create new, unique models.
Potential Federal Pressure: With an increasing number of state incentives, a patchwork of regulations may drive discussions for federal standardization to better serve employers operating across state lines.
Growth Beyond Marketing: The name change to CHOICE Arrangement signifies a shift that reflects significant growth, not merely a rebranding effort. The rebranding was driven by genuine increases in adoption rates and ongoing discussions around expanding these benefits further.
Positioning for Future Opportunities: Employers gaining a solid understanding of CHOICE Arrangements today will be well-prepared for any shifts, including emerging tax credits and additional guidance as more legislative actions unfold.
The Bottom Line
With Indiana, Mississippi, and Connecticut leading the charge in providing tax credits that promote CHOICE Arrangements, the landscape is evolving rapidly. While the current tax incentives cater primarily to small employers, the underlying shifts could resonate across the entire market, influencing organizations of all sizes. As legislative momentum builds and new developments under the CHOICE Arrangement model arise, businesses that stay informed will be in a prime position to capitalize on new opportunities.
References
Indy Chamber – "New tax credit available for Indiana small businesses that offer ICHRAs"
Bloomberg Tax – "Mississippi Authorizes Income Tax Credit for Certain Employers"
CT Mirror – "Lamont pushes health insurance tax credits for CT small businesses"
Pennsylvania House of Representatives – Rep. Mazzocco statement on HB 2550
