What is ICHRA?
Individual Coverage Health Reimbursement Arrangement (ICHRA) is a modern health benefit solution that allows employers to reimburse employees tax-free for individual health insurance premiums and medical expenses.
Unlike traditional group health plans, ICHRA gives employees the freedom to choose their own health insurance plan while employers maintain predictable, fixed monthly costs.
Perfect for:
- Small businesses seeking cost-effective benefits
- Companies with remote or distributed teams
- Employers wanting to offer flexible benefits
Key Benefits of ICHRA
Cost Control
Set fixed monthly allowances per employee class. No unexpected premium increases or renewal surprises.
Employee Choice
Employees select the health plan that best fits their needs and keeps their doctors.
Tax Advantages
Reimbursements are tax-free for employees and tax-deductible for employers.
Easy Setup
Simple administration with less paperwork than traditional group plans.
Location Flexibility
Perfect for remote teams across multiple states with varying healthcare markets.
Scalable Solution
Grows with your business - works for companies with 1 to 1000+ employees.
How ICHRA Works
Employer Sets Allowances
You determine monthly reimbursement amounts based on employee classes (full-time, part-time, age, family size, etc.). You have complete control over your budget.
Employees Choose Coverage
Employees shop for and purchase individual health insurance plans that meet their specific needs. They can use the Health Insurance Marketplace or work directly with agents.
Submit Proof of Coverage
Employees provide proof of their health insurance coverage and submit receipts for premiums and eligible medical expenses.
Receive Tax-Free Reimbursement
You reimburse employees up to their allowance amount. Reimbursements are tax-free to employees and tax-deductible for your business.
ICHRA vs Traditional Group Health Insurance
| Feature | ICHRA | Traditional Group Plan |
|---|---|---|
| Cost Predictability | Fixed monthly allowances | Variable premiums, annual increases |
| Employee Choice | Full plan selection freedom | Limited to employer-selected plans |
| Setup Complexity | Simple, minimal paperwork | Complex enrollment process |
| Multi-State Teams | Easy to manage | Challenging, may need multiple plans |
| Minimum Participation | None required | Often 70% or more |
| Portability | Employees keep their plan | Coverage ends with employment |
Frequently Asked Questions
What expenses can be reimbursed through ICHRA?
ICHRA can reimburse individual health insurance premiums (including those purchased on the Health Insurance Marketplace), Medicare premiums, and out-of-pocket medical expenses as defined by IRS Section 213(d).
Can I offer different allowances to different employees?
Yes! You can create different allowance amounts based on employee classes such as full-time vs. part-time, geographic location, age, family size, or length of employment. However, all employees within the same class must receive the same allowance.
Is there a minimum company size to offer ICHRA?
No! ICHRA is available to employers of all sizes, from sole proprietors with one employee to large corporations. This makes it an ideal solution for small businesses that couldn't afford traditional group plans.
Can employees use ICHRA with Marketplace subsidies?
If your ICHRA offer is considered "affordable" under ACA guidelines, employees cannot receive premium tax credits on the Marketplace. However, they can decline the ICHRA and purchase coverage with subsidies if eligible.
What happens to unused ICHRA funds?
Unused ICHRA allowances do not roll over to the next month and are not paid out to employees. You only pay for what employees actually claim, which helps control costs.
Ready to Explore ICHRA for Your Business?
Our employee benefits specialists will help you determine if ICHRA is the right fit for your company and guide you through the setup process.