Note: This article is for general education only and must be verified by a licensed agent. It doesn’t determine eligibility, benefits, or costs, and it isn’t tax or legal advice. ACA/ICHRA rules can change; consult official guidance and a licensed advisor.
What is an ICHRA and why it’s trending
An Individual Coverage Health Reimbursement Arrangement (ICHRA) is an employer-funded, tax-free health benefit that reimburses employees for individual health insurance premiums and eligible medical expenses. Instead of choosing one group plan for everyone, the company sets a contribution amount and each employee selects the individual policy that fits their needs. In short: ICHRA gives employees choice and gives employers cost control, with compliance responsibilities similar to a group health plan.
According to a 2023 analysis by Health System Tracker, the adoption of Individual Coverage HRAs (ICHRAs) has steadily increased among mid-sized employers as companies seek more flexible and predictable health benefit models.
How it works
The company defines a contribution strategy (which can vary by employee class) and sets enrollment dates.
- Employees shop for individual coverage on or off the Marketplace, enroll, and submit proof of coverage; the employer reimburses up to the defined allowance.
- The plan administrator verifies ongoing eligible coverage and manages reimbursements and records. Starting an ICHRA can trigger a Special Enrollment Period so employees can enroll in their individual plans outside of Open Enrollment.
Advantages vs. traditional group plans
For the employer
• Predictable budget: you decide the monthly allowance by class.
• Addicionally, you’ll face Fewer renewal headaches and no minimum participation hurdles typical of some group plans.
• Finally, Less plan design burden and less exposure to claims volatility.
How does an ICHRA work for employers and employees?
• More options and portability: they choose the policy that fits them and can often keep it if they change jobs.
• Tax advantage: reimbursements are not treated as taxable wages when compliant.
Compliance essentials
• Employee classes: You can offer ICHRA to specific classes (e.g., full-time, part-time, seasonal, by location). Everyone in a class must be treated consistently. You can offer ICHRA to one class and a traditional group plan to another, but not both to the same individual.
• Plan documents and notices: Maintain written plan materials, required disclosures, and deliver an ICHRA notice (commonly around 90 days before the plan starts).
• Proof of coverage: Collect and retain documentation that each participant has eligible individual coverage. Protect privacy and handle records securely.
• Interaction with Marketplace financial help:
– If your ICHRA is considered affordable, the employee generally can’t take APTC.
– If it’s not affordable and the employee opts out, they may be able to seek APTC if otherwise eligible.
– An employee who accepts ICHRA cannot claim APTC for the same time period.
Always have a licensed advisor review affordability and eligibility specifics.
How to implement it in your company
• First, set your timeline 30–45 days before the benefit start date, set your timeline.
• Next, Set up the company profile and designate an administrator.
• Then, Define contribution amounts by class and your enrollment window.
• After that, Prepare and deliver the ICHRA notice with key details (eligibility, allowance, timelines).
• Once complete, Gather or upload the employee census and invite employees to enroll.
• Finally, Establish a clear reimbursement process and document retention practices.
When an ICHRA makes sense
• ideal for distributed teams across multiple states or a wide range of employee needs.
• Companies aiming to stabilize health-benefit spending while staying competitive.
• Employers struggling with group plan participation minimums or facing volatile annual renewals.
Best practices for a healthy ICHRA
• To begin, standardize policies and documentation (plan docs, notices, verification logs, appeals).
• Also, offer a simple help channel for employees and remind them they can opt out annually.
• Moreover, train HR to educate employees without steering them to a specific plan or carrier.
• Finally, revisit your contribution strategy at least once a year to maintain competitiveness and compliance.
FAQs About ICHRAs
1. Is an ICHRA the same as an HRA?
No. An ICHRA is a newer type of Health Reimbursement Arrangement specifically tied to individual insurance coverage.
2. Can part-time or remote employees be eligible?
Yes. Employers can define eligibility by class—such as full-time, part-time, or location-based.
3. What documentation must employers keep?
Proof of eligible coverage, plan documents, employee notices, and reimbursement records.
4. Do employees lose their ICHRA if they leave the company?
They lose access to the employer’s reimbursement, but they can usually keep their individual policy since it’s in their name.
5. Is ICHRA compliance complex?
It requires setup precision and ongoing verification, but with a solid administrator or broker, it’s manageable and scalable.
This article is educational and does not confirm eligibility or dollar amounts. ICHRA design, affordability, and its interaction with Marketplace financial help must be evaluated by a licensed agent and, when appropriate, your tax/legal advisors.
Would you like a licensed advisor to walk you through how an ICHRA could work for your organization?