Not every small business is a good fit for traditional group health insurance. The Individual Coverage Health Reimbursement Arrangement (ICHRA) is a newer alternative that gives employers more flexibility and employees more choice.
What Is an ICHRA?
An ICHRA allows employers to reimburse employees tax-free for individual health insurance premiums (purchased on or off the ACA marketplace) and qualifying medical expenses. Instead of selecting a group plan, employees choose their own coverage — and the employer sets a defined monthly reimbursement amount.
ICHRAs were created by a federal rule that took effect January 1, 2020, and have grown steadily as an alternative to traditional group coverage.
How It Works
- The employer sets a monthly tax-free reimbursement amount (e.g., $400/month)
- Employees purchase individual health insurance from the marketplace or directly from a carrier
- Employees submit proof of premiums and eligible expenses
- The employer reimburses them up to the set amount, tax-free
Advantages of ICHRAs
- Employer sets a fixed, predictable monthly cost — no surprise renewals
- Employees choose the plan that works best for them and their doctors
- Works for multi-state teams (each employee buys coverage in their state)
- No minimum employee participation requirements
- Employers can vary reimbursement amounts by employee class (full-time vs. part-time, salary bands, etc.)
Limitations to Know
- Employees with marketplace plans may not be eligible for ACA premium tax credits if the ICHRA is “affordable” under federal rules
- Requires HRA administration software or a third-party administrator
- Employees bear the responsibility of shopping for their own coverage
Is It Right for You?
ICHRAs work best for businesses that struggle to meet group plan participation requirements, have geographically dispersed teams, or want fully predictable benefit costs. They’re not the right fit for every employer.
Curious whether an ICHRA might work better than a group plan for your business? Let’s talk through the numbers.