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ICHRA explained: how employers reimburse individual health plans
An Individual Coverage HRA lets you set a monthly health budget and reimburse employees, tax free, for the individual plans they choose.
How an ICHRA works
An Individual Coverage Health Reimbursement Arrangement, or ICHRA, became available for plan years starting in 2020. Instead of buying one group plan for everyone, you:
- Set a monthly allowance for each class of employees.
- Give employees written notice of the allowance and how it affects premium tax credits.
- Let each employee buy an individual plan, on or off the marketplace.
- Reimburse their premiums, and other medical costs if you choose, up to the allowance.
Reimbursements are tax free to the employee and deductible for the business, as long as the arrangement follows the rules.
The rules employers follow
- Employees need individual coverage. Only employees enrolled in individual health insurance or Medicare can be reimbursed.
- Classes, not individuals. You can set different allowances for classes such as full-time, part-time, seasonal, salaried, hourly, or employees in different rating areas. Everyone in a class gets the same terms, though amounts can rise with age and family size.
- One offer per class. A class can get an ICHRA or a group plan, never both.
- Notice in advance. Employees generally get written notice at least 90 days before the plan year starts. New hires get it by the day they become eligible.
- Affordability matters. If the ICHRA counts as affordable, an employee who accepts it cannot also take marketplace premium tax credits. If it is not affordable, the employee can opt out and keep the credits.
ICHRA, QSEHRA or a group plan
| ICHRA | QSEHRA | Group plan | |
|---|---|---|---|
| Company size | Any size | Fewer than 50 full-time equivalents | Any size |
| Who picks the plan | Each employee | Each employee | The employer |
| Allowance cap | None | Annual limit set by the IRS | Not applicable |
| Different amounts by employee class | Yes | No | Limited |
| Can sit alongside a group plan | Yes, for different classes | No | Not applicable |
| Counts toward the employer mandate | Yes, if affordable | No | Yes, if affordable |
Who an ICHRA fits
- Teams spread across states. Each employee buys a local plan, so you skip the hunt for one carrier network that covers everyone.
- Owners who want a fixed budget. You set the allowance, so renewal increases do not land on you automatically.
- Younger or mixed teams. Individual plans can cost less than a group plan for some age mixes, especially where marketplace competition is strong.
- Companies with a mix of worker types. Classes let you cover part-time or seasonal staff differently from full-time staff.
When a group plan still wins
An ICHRA is not always cheaper. In areas with few individual carriers or narrow networks, a group plan can buy better coverage for the same money. Older teams can also pay more on the individual market. Employees who want one shared plan and a single carrier may prefer a group plan too.
The only way to know is to price both. We can quote a group plan and model an ICHRA for your team side by side.
QSEHRA, the smaller cousin
A Qualified Small Employer HRA works much like an ICHRA, with tighter limits. It is only for employers with fewer than 50 full-time equivalents that offer no group health plan. The IRS sets a yearly cap on reimbursements, and every eligible employee gets the same terms, with room to vary by age and family size. Employees must have health coverage that meets ACA rules to get reimbursed.
Common questions
Can I offer an ICHRA and a group plan at the same time?
Yes, but not to the same class of employees. You could offer a group plan to full-time staff in one state and an ICHRA to staff in another, as long as each class gets only one of the two.
Do employees have to buy a plan to get reimbursed?
Yes. Employees must be enrolled in individual health insurance or Medicare to receive ICHRA reimbursements. You verify that coverage before paying out.
Can an ICHRA satisfy the employer mandate?
It can. An applicable large employer that offers an affordable ICHRA to enough full-time employees can meet the mandate the same way a group plan would.
What happens to unused ICHRA money?
It stays with the employer. You only pay out what employees spend on eligible premiums and expenses, up to the allowance you set.
Do I need a vendor to run an ICHRA?
Not by law, but most employers use one. ICHRA platforms handle the plan documents, notices, coverage checks and reimbursements, which keeps you inside the rules.
Price an ICHRA against a group plan
Tell us about your team. We will quote a group plan and model an ICHRA so you see both before you decide.
- Free, with no obligation to buy
- Small group, level-funded and ICHRA options compared
- A licensed agent on our team handles your request