An ICHRA allows employers to reimburse employees for individual health insurance premiums with flexible rules based on employee groups, while a traditional HRA is typically integrated with a group health plan and reimburses out-of-pocket medical expenses tied to that group coverage.
What both ICHRA and traditional HRAs have in common
Both are employer-funded reimbursement arrangements.
Both types of HRAs:
Are funded by the employer
Provide tax-free reimbursements (when rules are met)
Allow employees to get reimbursed for eligible healthcare costs
Do not require employees to use a single employer-owned insurance plan
However, how they are used is very different.
What is an ICHRA?
ICHRA reimburses individual insurance premiums
An Individual Coverage Health Reimbursement Arrangement (ICHRA):
Reimburses employees for individual health insurance premiums
Can also reimburse eligible medical expenses (depending on plan design)
Requires employees to have qualifying individual coverage or Medicare
Can be offered by employers of any size
Allows different reimbursement amounts for different employee classes (e.g., full-time vs part-time)
Key requirement
Employees must maintain:
ACA-compliant individual health insurance OR
Medicare coverage
Without qualifying coverage:
❌ Employees cannot participate
❌ Reimbursements are not allowed
What is a traditional HRA?
Traditional HRAs are typically tied to group health insurance
A traditional (integrated) HRA:
Is paired with an employer-sponsored group health plan
Reimburses employees for out-of-pocket medical costs like:
Copays
Deductibles
Coinsurance
Does not require employees to purchase individual marketplace plans
Works as a supplement to group insurance coverage
Key structure
Employees must be enrolled in the employer’s group health plan
Reimbursements are tied to expenses under that plan
Key differences between ICHRA and traditional HRA
1. Type of health coverage required
ICHRA → Individual insurance or Medicare required
Traditional HRA → Employer group health plan required
2. What expenses are reimbursed
ICHRA → Premiums (and sometimes medical expenses depending on design)
Traditional HRA → Out-of-pocket costs from group plan (copays, deductibles, etc.)
3. Employer flexibility
ICHRA → High flexibility (different employee classes, no federal funding cap)
Traditional HRA → Limited flexibility, tied to group plan structure
4. Employee choice
ICHRA → Employees choose their own insurance plan
Traditional HRA → Employees use employer-selected group plan
5. ACA compliance rules
ICHRA → Must meet ACA affordability rules for applicable employers
Traditional HRA → Generally not subject to ICHRA-style affordability testing
6. Portability of coverage
ICHRA → Coverage is fully owned by the employee
Traditional HRA → Coverage is tied to employment and group plan
When each option is typically used
Choose ICHRA when:
You want employees to choose their own insurance
You want to eliminate a one-size-fits-all group plan
You need flexible benefit design across employee types
You are a growing or distributed workforce
Choose a traditional HRA when:
You already offer a group health insurance plan
You want to help employees with out-of-pocket costs
You prefer a single standardized insurance option for employees
Important clarification
ICHRA is a type of HRA, but it is not a traditional integrated HRA.
“HRA” is an umbrella category
ICHRA is designed to replace or avoid group health insurance
Traditional HRAs are designed to support group health insurance