An ICHRA can be offered by employers of any size, but successful implementation requires careful planning around employee eligibility, reimbursement design, compliance requirements, employee communications, and ongoing administration.
What is an ICHRA?
An ICHRA reimburses employees for individual health insurance
Instead of sponsoring a traditional group health plan, employers provide a tax-advantaged allowance that employees can use for qualifying individual health insurance premiums and, if permitted by the plan design, eligible medical expenses. Employees choose their own health insurance coverage while employers maintain control over their healthcare budget.
What decisions must employers make when setting up an ICHRA?
Employers must establish the core plan design
Before launching an ICHRA, employers should determine:
Which employees are eligible
Whether employee classes will be used
How much reimbursement allowance to offer
Whether reimbursements will include premiums only or premiums and medical expenses
The effective date of the plan
Any waiting periods that will apply
How new hires will become eligible for participation
These decisions become part of the plan's governing documents and administration process.
How do employee classes affect an ICHRA?
Employers can offer different benefits to different employee groups
ICHRA allows employers to create employee classes, such as:
Full-time employees
Part-time employees
Seasonal employees
Salaried employees
Hourly employees
Employees working in different geographic locations
Each class may receive different reimbursement amounts if the plan is designed according to ICHRA regulations.
Not applicable
If all employees receive the same benefit, employee classes are not required.
How much should employers contribute?
Employers choose their own reimbursement budget
There is no annual minimum or maximum employer contribution requirement under ICHRA.
When determining allowance amounts, employers should consider:
Budget goals
Employee demographics
Local insurance costs
Recruiting and retention objectives
Affordability requirements (for applicable large employers)
Employers can generally vary contributions by age and family size within regulatory guidelines.
What compliance requirements should employers consider?
ICHRA plans have important regulatory obligations
Common compliance considerations include:
Written plan documents
Employee notices
ACA affordability requirements (for applicable large employers)
Verification of qualifying individual coverage
HIPAA privacy requirements
ERISA requirements
Required reporting obligations
Failure to properly administer these requirements can create compliance risks.
Do employees need qualifying health insurance?
Yes
Employees must be enrolled in qualifying individual health insurance coverage or eligible Medicare coverage to participate in an ICHRA.
Employees without qualifying coverage cannot receive tax-free ICHRA reimbursements.
Not eligible
The following coverage types generally do not satisfy ICHRA participation requirements:
Medicaid
Health care sharing ministries
Short-term medical plans
Employer-sponsored group coverage from another employer
How should employers communicate the benefit?
Employee education is critical to a successful rollout
Unlike traditional group health insurance, employees select their own health plans.
Employers should ensure employees understand:
How the ICHRA works
How much reimbursement is available
How to shop for coverage
Enrollment deadlines
Documentation requirements
How reimbursement requests are submitted
Clear communication often improves employee adoption and satisfaction.
What ongoing administration is required?
Employers must actively manage the plan
After implementation, employers typically need to:
Add newly eligible employees
Remove terminated employees
Monitor eligibility changes
Review reimbursement reports
Update contribution amounts when necessary
Complete annual renewals
Maintain required records
Many employers use an HRA administrator to handle compliance, enrollment support, and reimbursement administration.
What should Applicable Large Employers (ALEs) consider?
Affordability becomes especially important
Applicable Large Employers must consider whether their ICHRA offer satisfies ACA affordability requirements.
An affordable ICHRA offer may affect employees' eligibility for Premium Tax Credits through the Marketplace and can impact employer ACA compliance obligations.
Not applicable
If your organization is not an Applicable Large Employer (ALE), ACA employer mandate affordability calculations generally do not apply.
Common implementation mistakes
Avoid these issues during setup
Common challenges include:
Setting allowance amounts without evaluating affordability
Failing to communicate enrollment deadlines
Misclassifying employees into incorrect classes
Not verifying qualifying coverage
Delaying employee onboarding
Incomplete plan documentation
Addressing these issues early can reduce administrative work later.