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:
Hours Worked: Eligibility for ICHRA plans is typically determined by the group and should align with standard group benefit eligibility guidelines. Employee exemption status (exempt or non-exempt) does not affect eligibility. Employees on leave without pay (LWOP) are subject to the same eligibility standards as active employees.
Full-Time Definition: Under the Affordable Care Act (ACA), a full-time employee is defined as working 30 or more hours per week. Employers may define full-time as 30 or 40 hours for ICHRA purposes, but to comply with the ACA employer mandate, the threshold must be at least 30 hours.
Be offered participation in the employer’s ICHRA
Be offered participation in the employer’s ICHRA.
Be enrolled in Minimum Essential Coverage (MEC) to receive tax-free reimbursements. Note that Medicaid does not qualify for ICHRA, and premiums cannot be reimbursed while enrolled in Medicaid.
Eligible MEC plans include: To qualify for ICHRA reimbursement, you must be enrolled in an eligible individual health insurance plan. An "individual plan" refers to coverage purchased directly on the individual market in your name. This does not include coverage obtained through an employer (including a spouse’s employer), an association, or a government program.
ACA Marketplace plans
Off-exchange individual plans
Medicare
COBRA
Certain student health plans
Note: Non-ACA-compliant plans, such as Golden Rule (UnitedHealthcare) individual plans, do not qualify for ICHRA reimbursement. While these plans may be reimbursable under other arrangements like QSEHRA if they meet Minimum Essential Coverage requirements, they are not eligible under ICHRA.
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 (if they meet the full-time hours threshold, they are treated as full-time regardless of seasonal designation)
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. Employers can define eligibility thresholds for classes, such as setting full-time at 32 or more hours per week and part-time below 32 hours, but these definitions must comply with ACA standards and be applied consistently within each class.
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:
Health insurance premiums
Qualified medical expenses, including:
Doctor visits
Copays
Prescriptions
Medical equipment
Dental procedures
Vision expenses (e.g., contacts and glasses)
Orthodontics
Employees must submit receipts and documentation for all reimbursements.For comprehensive guidance on eligibility, reimbursable expenses, and general plan rules, employees should refer to the ICHRA Summary Plan Description (SPD).
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.Note: You can select an eligible individual plan for ICHRA reimbursement during the health insurance open enrollment period or, if applicable, a special enrollment period. Enrollment windows are determined by the marketplace and may vary by state or qualifying events.
Without active coverage, reimbursements are paused. New hires should ensure all required documents are submitted promptly to avoid delays in reimbursement eligibility.
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
New Hire Enrollment and Policy Communication
Steps for New Hires to Elect ICHRA Coverage
Verify Eligibility: Ensure you are enrolled in a qualifying individual or family health insurance plan (on or off the exchange) or Medicare. If transitioning off Medicaid, update your status to avoid dual coverage.
Enroll in ICHRA: Once eligible, proceed with ICHRA enrollment through your employer’s program.
Documentation and Compliance Processes
Document Submission: After being added to the employer’s ICHRA program, upload the required documentation to the admin account.
Review Process: The compliance team will review the submitted documents. If they meet the requirements, you will become eligible for reimbursements.
Handling Policy Updates and Communication
Providing Policies to New Hires:
If the ICHRA policy is under revision, provide the current (old) policy until the updates are finalized.
Once the revised policy is officially in effect, share the updated version with employees.
Including Policies in Offer Letters:
If drafting an offer letter before the employee’s start date, include the revised ICHRA policy. This ensures compliance with the requirement to provide notice on or before the first day of eligibility and gives the employee time to review the policy.
Can a single-employee company offer ICHRA?
Yes. Employers of any size, including those with only one employee, can offer an ICHRA. The employee must be enrolled in individual health insurance or Medicare that provides minimum essential coverage (MEC) to participate.
What happens if a full-time employee’s hours drop below the eligibility threshold?
If a full-time employee’s hours drop below the eligibility threshold, their participation should be terminated in the system using the Termination option. Employees who later meet eligibility requirements may regain access to reimbursements.
How are seasonal employees treated for eligibility?
If a seasonal employee meets the full-time hours threshold, they are treated as full-time for eligibility purposes. The seasonal designation does not override hours-based definitions.
What happens with $0 placeholders during ICHRA renewal?
During ICHRA renewal, $0 values in non-Single tiers reflect default placeholders. "Single" is the base allowance, and tier-specific configurations (e.g., Employee + Spouse) must be explicitly set. The renewal wizard applies a uniform placeholder until classes and tiers are configured.
What are LWOP employees' eligibility standards?
Employees on leave without pay (LWOP) are subject to the same eligibility standards as active employees.
Can I enroll in ICHRA if I am on Medicaid?
No. Medicaid does not qualify for ICHRA, and premiums cannot be reimbursed while enrolled in Medicaid. Transition off Medicaid and enroll in a qualifying health plan to become eligible.