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TL;DR:
The number of small businesses that offer healthcare to their employees has declined in the last 30 years, due in part to the rising cost of coverage
Indiana offers small businesses (up to 50 employees) that implement an ICHRA a tax credit of up to $400 per employee in the first year and $200 per employee in the second year
Indiana is the first state to offer an ICHRA-specific tax credit, but others may follow suit
Indiana made history by being the first state to offer a healthcare tax credit to small businesses that implement Individual Coverage Health Reimbursement Arrangements (ICHRAs).
Through the passage of House Bill 1004, the state began offering the healthcare tax credit on January 1, 2024. How can this healthcare tax credit help small businesses in Indiana, and how might it signal a more significant shift in ICHRAs and premium tax credits nationally?
Understanding ICHRAs
First, a quick primer on Individual Coverage Health Reimbursement Arrangements (ICHRAs). ICHRAs are available nationwide. ICHRAs help employers reimburse employees tax-free for individual health insurance premiums and qualified medical expenses.
Compared to traditional plans, ICHRAs offer flexibility. Employees can select the plan that best fits their needs and budget. For employers, ICHRAs can offer more predictable healthcare costs and simplified administration.
Indiana’s ICHRA tax credit
Indiana’s ICHRA is available to small businesses with less than 50 full-time employees.
The healthcare tax credit is up to $400 per employee during the first year a business enrolls in ICHRA. Employers offering an ICHRA for a second year can receive credits of up to $200 per employee. Under the law, both ICHRA and QSEHRA are eligible for the tax credit.
Theoretically, this could translate to significant savings for a small business. For example, a business with 49 employees could receive a $19,600 tax credit in the first year and $9,800 in the second.
The healthcare tax credit is available to employers offering an ICHRA and meeting IRS standards.
To claim the tax credit, businesses must report to the Department of Insurance every three years following the allowance of a credit. According to the law, the report should indicate whether the business continued to offer an HRA. Additionally, if the company continues to provide the HRA, it must report the amount claimed.
Representative Craig Snow brought the tax credit to Indiana’s state house, revealing that over half a million small businesses in the state couldn’t afford to provide health insurance to their employees.
This healthcare tax credit could impact both small businesses and employees. For small businesses, it helps offset the skyrocketing costs associated with providing employee healthcare benefits. For employees, an ICHRA can offer healthcare coverage that fits their needs, with financial assistance from employers.
While Indiana is still the only state offering a tax credit for ICHRA, others are not far behind. Texas has been exploring legislative incentives for small businesses to adopt ICHRA, and as we monitor the success of Indiana’s credit, other states may follow suit.
The future of ICHRA tax credits across the US
Indiana’s legislature was responding to a statewide issue and a national challenge. According to the Employee Benefit Research Institute (EBRI), the number of small businesses (25 to 99 employees) offering healthcare fell from 81 to 77 percent in the last three decades. The projected cost of healthcare in 2025 jumped 8% from 2024, and actual healthcare costs have grown a cumulative 50% since 2017, according to Business Group on Health.
Indiana’s healthcare tax credit is an attempt to reduce the costs of care and boost the number of small businesses offering coverage. Federal policymakers are exploring similar solutions.
On February 11, 2025, the United States House Committee on Ways & Means held a hearing on “Modernizing American Health Care: Creating Healthy Options and Better Incentives.” Hosted by the Ways & Means Health Subcommittee, this public hearing welcomed comments from healthcare experts, small business owners, and physicians to shed light on the challenges facing employers and employees concerning prioritizing health and well-being.
Topics included early detection of chronic disease, Health Savings Accounts (HSAs), preventive care, and ICHRAs.
Witness Marcie Strouse, a small business owner and partner at Capitol Benefits, advocated strongly for federal ICHRA tax credits in her testimony:
“[...] to realize ICHRAs' full potential, we need to simplify regulations, expand these arrangements, and ensure employees have access to a wide range of affordable plan option."
Congress should consider targeted incentives- such as a tax credit for small businesses offering ICHRAs to encourage private investment in employee health coverage. As modeled by the state of Indiana, this approach would reduce reliance on government spending, expand access to flexible coverage, and ensure small businesses remain competitive in offering benefits that attract and retain talent.”
Indiana’s tax credit is making waves nationally, with advocates speaking about its benefits on a federal level.
What this means for benefits professionals
Indiana’s ICHRA tax credit signals a change in the benefits landscape. While ICHRAs are relatively new, companies are adopting the solution rapidly. As they gain popularity, it may be worth considering if an ICHRA fits your budget and workforce needs.
If cost control and employee flexibility are a priority, it’s time to try ICHRA. Schedule a demo with Thatch today for personalized guidance and customized support for your company’s ICHRA journey.

Emma Diehl is an award-winning writer and content strategist with years of experience researching, writing, and covering healthcare industry news. She's passionate about helping readers discover the right information to help them make informed decisions.
Connect with EmmaThis article is for general educational purposes and is not legal advice. The opinions shared here belong to the author and are not official statements from Thatch. For legal and tax questions, please feel free to consult with a qualified professional.