Does Connecticut's new ICHRA tax credit actually pencil out? We did the math.

Every time a state rolls out a new ICHRA tax credit, the headline number sounds like good news. Connecticut's is no exception: small employers can now claim up to $1,000 per covered employee for offering a CHOICE Arrangement (formerly known as ICHRA) instead of a traditional group plan.

Please note, that when Connecticut passed their tax credit, the program was still referred to as ICHRA. On September 3rd, 2026, CMS announced a name change from ICHRA to CHOICE Arrangement. We will use both names in this post.

But a handful of ICHRA practitioners have started pushing back on how these credits get talked about. Their argument: a flat annual dollar figure sounds meaningful until you convert it into the monthly terms that actually drive a renewal decision, and stack it against the real monthly costs of making the switch. When that math gets run on some states' credits, the "free money" barely dents what an employer is actually facing.

So we ran it for Connecticut. The short version: unlike some of the credits getting criticized elsewhere, Connecticut's numbers hold up, and for a specific, identifiable reason worth understanding before you bring this to a client.

1. What the credit actually is

Connecticut's ICHRA tax credit (PA 26-76, § 85) took effect for tax years beginning January 1, 2026. To qualify, a small business:

• Cannot employ more than 50 people in Connecticut at the time it applies for the credit (this is the point-in-time test the law uses; it does not appear to be reassessed later in the two-year window, though the underlying statutory text is worth confirming before this is stated definitively to a client)

• Must offer an ICHRA, through Access Health CT, instead of a traditional group health plan

The credit itself is the lesser of (1) the business's actual ICHRA contributions for the year or (2) $1,000 per covered employee. It's available for two tax years, the first year the CHOICE Arrangement is offered and the year after, and unlike some other states' versions, it doesn't step down in year two. It's nonrefundable, and any unused portion expires at year end rather than carrying forward. The statewide pool is capped at $5 million a year, awarded first-come, first-served once an employer applies to and is approved by the Department of Revenue Services Commissioner.

There's no separate minimum contribution an employer has to hit to qualify. The dollar figure only shows up on the credit calculation side: the credit tracks whatever the employer actually contributes, up to the $1,000 ceiling. A client contributing a modest amount is still eligible, it just shapes how much of the $1,000 they can claim.

2. What $1,000 a year actually means per month

Benefits people don't think in annual numbers, they think in PEPM (per employee per month), because that's how premiums, ICHRA administration, and broker fees are actually billed.

$1,000 a year works out to $83.33 PEPM.

That's the number that matters for comparison purposes. Not because the state pays it monthly, it doesn't, it's a lump-sum credit at tax time, but because it needs to be measured against the real monthly costs a business takes on when it switches from group coverage to a CHOICE Arrangement (fka ICHRA).

3. What that $83.33 has to compete against

Three things move against an employer every month when they make the switch:

• The rate gap. Individual-market and small-group premiums don't rise at the same pace year to year. If individual coverage is getting more expensive faster than group coverage, that gap eats into the credit before anything else does.

• ICHRA administration. Running a CHOICE Arrangement has an ongoing monthly cost.

• Broker or consultant support. Ongoing service for the employer and its employees has a monthly cost too.

If those three add up to more than $83.33, the credit doesn't fully offset the switch, the client may still come out ahead on cost overall, but the credit isn't the reason why.

4. Why Connecticut's math is different

This is the part that's easy to miss if you only skim the headline credit amount.

Connecticut's insurers have filed preliminary 2027 rate requests with the state: an average 16.2% increase in the individual market and an average 17.8% increase in the small-group market. That means the rate gap is running in the opposite direction from what's driven concern in other states. Instead of individual coverage getting more expensive faster than group coverage, in Connecticut it's the group side asking for the bigger increase.

Running the same math on a $600 PEPM premium, using illustrative admin and broker costs:

Note: the rate percentages above are insurer-requested, not yet finalized. Connecticut's Insurance Department has a history of reducing these requests before final approval, with a public hearing scheduled for late August ahead of final 2027 rates. The $30 admin and $25 broker figures used in the table are illustrative placeholders, not Take Command's own data. Run this math with a client's actual numbers before treating it as a recommendation.

Directionally, though, Connecticut is one of the few states so far where the rate trend, the credit size, and the two-year duration are all working in the same direction.

5. One more advantage small employers have: flat contributions

Employers with 50 or fewer full-time employees aren't subject to the ACA's employer mandate, so they don't have to structure CHOICE Arrangement (fka ICHRA) contributions to hit an affordability safe harbor the way a larger employer would. In practice, that means a small employer can offer every employee the same flat-dollar contribution regardless of age, rather than age-rating contributions upward to keep the plan affordable for older employees. That keeps the math above clean and predictable. It's worth flagging to clients as a genuine simplicity advantage, and it's also a reason to look more closely at workforces with a wide age range, where a flat contribution might still leave older employees facing a bigger gap even without a legal affordability requirement forcing the issue.

6. Where this is a strong fit, and where it needs a closer look

Likely a strong fit: a Connecticut employer under 50 employees, currently on a small-group plan facing a steep renewal, with a workforce that skews younger or has a fairly narrow age range. A flat contribution is simple to administer, the rate trend is currently working in their favor, and the credit covers two full years at its full value.

Worth modeling carefully before recommending: an employer with a notably older workforce (individual-market premiums can vary more by age than group premiums do, so a flat contribution may not go as far for older employees), or an employer whose existing broker and admin costs run well above the illustrative $55 PEPM used here.

One distinction worth keeping separate in the client conversation: this math tells you whether the credit clears the bar, not whether ICHRA does. Those are two different questions. An employer whose numbers show the credit falling short of covering the added costs may still be a strong CHOICE Arrangement candidate on the merits, better cost control, more plan choice for employees, an exit from a shrinking small-group carrier market, independent of whatever the credit is worth. The credit is one input into the decision, not the decision itself. Don't let a client walk away from an HRA just because the credit alone doesn't carry the whole cost difference, and don't let a client adopt CHOICE Arrangement on the strength of the credit alone without checking the rest of the picture.

7. What consultants should actually do with this

• Confirm the client's Connecticut headcount is at or under 50 at the time they apply

• Confirm they're prepared to offer the CHOICE Arrangement through Access Health CT

• Model their specific renewal history rather than relying on the statewide average rate filings

• Get real, current admin and broker cost figures rather than the illustrative ones used here

• Apply early. The $5 million statewide cap is first-come, first-served

• Remember the credit is nonrefundable. A client with limited state tax liability may not be able to use the full amount

For clients whose numbers are worth modeling out in full, Take Command's design team can help put real figures behind the conversation. Submit a design request

References

• Connecticut General Assembly. Public Act 26-76, § 85. Effective upon passage, applicable to income and tax years beginning on or after January 1, 2026.

• Connecticut Office of Legislative Research. Major Public Acts, 2026 Legislative Session (2026-R-0071). May 18, 2026.

• Connecticut Insurance Department. 2027 individual and small-group market rate filings. Preliminary, subject to public hearing and final approval before 2027 open enrollment.

• Connecticut Department of Revenue Services. ICHRA tax credit application process.