An Individual Coverage Health Reimbursement Arrangement (ICHRA) is an employer-funded health benefit that allows employers to reimburse employees tax-free for individual health insurance premiums and eligible medical expenses, while employees choose their own health insurance plan.
What is an ICHRA?
ICHRA stands for “Individual Coverage Health Reimbursement Arrangement” and is a modern approach to employer-sponsored health benefits. It enables employers of all sizes to reimburse their employees tax-free for health insurance premiums and medical expenses, providing employees with flexibility in choosing their health coverage. Employees typically purchase their own individual health insurance policies through the marketplace and submit proof of coverage for reimbursement.
ICHRA is an employer-funded HRA that reimburses employees for medical premiums and expenses. Employees pay their individual insurance premiums and/or medical expenses (depending on how the employer designs the ICHRA) and then submits receipts for reimbursement from the employer. The employer establishes the reimbursement allowances per employee. Additionally, employees should note that the monthly rates displayed on the platform may include advanced premium tax credits, but they are not eligible for these credits while participating in an ICHRA. Employees are encouraged to compare plan prices without tax credits to make informed decisions. ICHRA allowances are defined on a monthly basis and vary depending on the employer's plan setup and the employee's coverage class. For example:
Single rate: Monthly allowance for employees only.
Couple rate: Monthly allowance for employees covering themselves and a spouse.
Kids rate: Monthly allowance for employees covering children only, without a spouse.
Family rate: Monthly allowance for employees covering themselves, a spouse, and children, or themselves and children only.
ICHRA allowances are a flexible way for employers to support employees in obtaining health coverage. By understanding the monthly allowance structure, the impact on plan selection, and the platform's support features, employees can make informed decisions and maximize their benefits. For further assistance, employees are encouraged to utilize the platform's resources and consult with enrollment specialists.
How does an ICHRA work?
ICHRA follows a simple flow:
Employer sets a monthly reimbursement amount
Employee shops for individual health insurance
Employee enrolls in a qualifying plan
Employee uploads proof of coverage
Employee submits eligible premiums or medical expenses
Employer reimburses the employee tax-free through the HRA platform
Reimbursements are limited to the employer-defined allowance.
Who is eligible for an ICHRA?
Employees must meet two core requirements:
Be offered participation in the employer’s ICHRA
Be enrolled in Minimum Essential Coverage (MEC) to receive tax-free reimbursements
Eligible MEC plans include:
ACA Marketplace plans
Off-exchange individual plans
Medicare
Medicaid
COBRA
Certain student health plans
Employees cannot receive reimbursements without valid MEC coverage.
How do employee classes work in ICHRA?
Employers can group employees into IRS-approved classes and offer different allowance amounts by class.
Common classes include:
Full-time employees
Part-time employees
Seasonal employees
Salaried or hourly employees
Employees in different geographic regions
Employees in waiting periods
Employees covered by collective bargaining agreements
Temporary or staffing employees
All employees within the same class must be treated consistently.
Can employers offer different benefits to different employees?
Yes. Employers can:
Offer different monthly allowances by employee class
Offer traditional group health insurance to some classes
Offer ICHRA to other classes
However, the same employee cannot be offered both options simultaneously.
How does affordability affect ICHRA and taxes?
Affordability determines whether employees can access Premium Tax Credits (PTC):
Affordable ICHRA → Employees cannot receive Premium Tax Credits
Unaffordable ICHRA → Employees may choose either:
ICHRA reimbursement, or
Premium Tax Credits (but not both)
Affordability is calculated using IRS rules based on the cost of a silver-level Marketplace plan and household income.
What expenses can be reimbursed?
ICHRA can reimburse:
Individual health insurance premiums
Medicare premiums (where applicable)
Eligible out-of-pocket medical expenses (depending on employer plan design)
Dental and vision expenses (if included in plan design)
Employees must submit receipts and documentation for all reimbursements.
What employees must do to participate
To use an ICHRA, employees must:
Enroll in a qualifying individual health insurance plan
Submit proof of coverage
Submit eligible expenses in the Take Command portal
Maintain active coverage for continued reimbursement
Without active coverage, reimbursements are paused.
Can ICHRA replace traditional group health insurance?
Yes. ICHRA is designed as an alternative to traditional group plans and allows employers to:
Control and predict healthcare costs
Offer flexible benefits across diverse workforces
Support remote, hourly, seasonal, or multi-state employees
Provide employees with more plan choice