What is an ICHRA?
An ICHRA is an individual coverage health reimbursement arrangement: instead of buying a group health plan, an employer gives each employee a fixed tax-free allowance to buy their own individual health insurance. Any size of employer can offer one and there is no cap on the contribution.
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The detail
The ICHRA was created by a 2019 final rule from the Departments of Treasury, Labor and Health and Human Services, and became available for plan years beginning on or after 1 January 2020.
Federal Register, Health Reimbursement Arrangements and Other Account-Based Group Health Plans
An employer of any size can offer an ICHRA, and there is no minimum or maximum contribution set by regulation. There is also no minimum participation requirement.
An employee must be enrolled in individual health insurance coverage or Medicare to participate, and the employer must obtain substantiation of that coverage each plan year.
For the 2026 plan year, an ICHRA offer is treated as affordable — and therefore satisfies the ACA employer mandate for an applicable large employer — if the employee’s cost for the lowest-cost silver plan after the allowance does not exceed 9.96% of household income.
An employer may vary the allowance across eleven permitted employee classes — such as full-time, part-time, seasonal, salaried, hourly and geographic rating area — but may not vary it within a class except by age and family size.
What this means for you
- Your healthcare cost becomes a number you choose rather than a renewal you receive. That is the main reason employers move: the annual increase stops being your problem and becomes a budgeting decision.
- An employee offered an ICHRA cannot also claim a premium tax credit on the exchange if the offer is affordable. For a low-wage workforce that may leave people worse off than declining to offer anything, and it is the first thing to model.
- You cannot offer the same class of employee both an ICHRA and a group health plan. You can offer a group plan to one class and an ICHRA to another — commonly a group plan for salaried staff and an ICHRA for remote or hourly staff.
- The administration is real. Substantiating individual coverage annually, handling the special enrolment period, and helping employees who have never bought their own insurance are all work, which is why most ICHRAs run on an administration platform.
Related questions
- Is an ICHRA cheaper than a group health plan?
- Often, but the honest answer is that it is more predictable rather than reliably cheaper. It usually wins for employers with a geographically spread workforce, a young population, or a small group facing a large renewal — and for anyone who values a fixed cost. It usually loses where the group plan is well-rated, where employees are older or in a market with a thin individual exchange, or where the workforce would qualify for substantial premium tax credits they would have to give up. It is worth modelling both against your actual census rather than deciding in principle.
- What happens to employees who already have a spouse’s plan?
- They cannot use the ICHRA for premiums, because the requirement is individual coverage rather than any coverage — a spouse’s group plan does not qualify. They must be allowed to opt out of the ICHRA, which matters because an ICHRA offer they cannot use would otherwise block them from a premium tax credit. Employers running an ICHRA alongside a spouse-heavy workforce should expect a meaningful opt-out rate and plan the communications around it.
- How is an ICHRA different from a QSEHRA?
- Three differences that decide it. Size: a QSEHRA is limited to employers with fewer than 50 full-time-equivalent employees, an ICHRA has no size limit. Cap: a QSEHRA is capped by statute and indexed annually, an ICHRA is uncapped. Group plan: a QSEHRA requires the employer to offer no group health plan at all, while an ICHRA can sit alongside a group plan for a different class of employee. If you are small, have no group plan, and want simplicity, the QSEHRA is usually the easier instrument.
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