🔒Lamont proposes tax credit to expand small business health coverage options

The state legislature is considering a proposal from Gov. Ned Lamont to create a state tax credit that would encourage small businesses to offer health benefits via a newer reimbursement model. House Bill 5041, which was introduced by Lamont and referred to the legislature’s Human Services Committee, is among two dozen bills on the agenda for a public hearing to be held on Tuesday. The bill would establish a tax credit for small employers that adopt an Individual Coverage Health Reimbursement Arrangement, or ICHRA. The program, which was created by the Trump administration via executive order in 2019, allows businesses to reimburse employees for purchasing their own health insurance policies on the individual market rather than providing a conventional employer-sponsored plan. Under the governor’s proposal, eligible businesses could claim a credit against certain state taxes equal to the lesser of their total contributions to employees’ reimbursement arrangements or $1,000 per covered employee in a given year. To qualify, a business must employ fewer than 50 workers in Connecticut and adopt an ICHRA instead of offering a traditional group health insurance plan. The credit would apply to taxes imposed under Connecticut’s corporation, insurance company and pass-through entity taxes. The bill limits the total amount of tax credits that may be reserved statewide to $5 million per income year. The incentive also would be temporary. Employers could claim the credit only during the first year they offer an ICHRA and the following year. The credit would be nonrefundable, and any unused portion would expire rather than carry forward. Businesses seeking the credit would have to apply to the state Department of Revenue Services to reserve an allocation before claiming it. The application must estimate the amount the employer plans to contribute toward employees’ reimbursement arrangements in each of the two eligible years. The commissioner of DRS would approve applications on a first-come, first-served basis and notify applicants within 30 days. If approved, DRS would issue a certification letter reserving the amount of credit the business may claim. For businesses structured as partnerships, S corporations or certain limited liability companies, the credit could be claimed by partners, shareholders or owners rather than the business itself. If enacted, the measure would take effect upon passage and apply to income and taxable years beginning Jan. 1, 2026. The tax credit proposal comes as health insurance options for small businesses in Connecticut continues to shrink. Farmington-based ConnectiCare’s announced last summer that it would discontinue all of its self- and level-funded business in the state. That announcement came nearly three years after ConnectiCare, now owned by California-based Molina Healthcare, exited the state’s small group fully insured health insurance market, which has experienced a significant decline. In addition to ConnectiCare, Aetna, Cigna/Oscar Health and nonprofit Harvard Pilgrim HealthCare have all exited the state’s small group market since 2022. That’s left just two carriers — Anthem and UnitedHealthcare — providing fully insured plans to small employers, which has contributed to higher costs for companies with 50 or fewer workers, experts say. In an effort to provide some options, Access Health CT, the state’s Affordable Care Act health insurance exchange, last July debuted a new platform offering ICHRAs. Access Health has developed its own online platform to help small business owners decide if an ICHRA is the right fit for their employees. According to Peoplekeep.com, Indiana was the first state in the U.S. to offer an ICHRA tax credit, offering up to $400 per covered employee in the first year and $200 per covered employee in the second year. Connecticut joins three other states — Georgia, Ohio and Texas — that are considering or have considered bills to provide a tax credit. Lamont’s proposed credit of $1,000 per employee, however, is the largest proposed by any state. The Human Services Committee will begin its public hearing on 24 bills on Tuesday at 11 a.m. in Room 2A of the Legislative Office Building in Hartford.