An Individual Coverage HRA lets an employer of any size reimburse employees tax-free for individual-market premiums and medical costs instead of offering a group plan. Employees must enroll in qualifying individual coverage, and different classes of employees can receive different allowances.
Sending the notice late, letting some employees choose between the group plan and the ICHRA, building classes that are not permitted or are too small, paying claims without proof of coverage, endorsing a particular individual carrier, and assuming one allowance is affordable for everyone.
Take the monthly premium for the lowest-cost silver plan for self-only coverage in the employee’s home rating area, subtract the monthly self-only allowance, and compare what is left with one-twelfth of household income times the required contribution percentage: 9.96% for 2026 and 10.22% for 2027.
Before the ICHRA’s start date. Gaining access to an ICHRA opens an individual-market special enrollment period that begins 60 days before the HRA can first take effect; a plan chosen before that date starts the first of the following month, or on the start date itself when the ICHRA starts on the first of a month.
In two steps: before the plan year starts (or by the date the HRA starts for someone who joins later), they show that they and each covered dependent are or will be enrolled in individual coverage or Medicare; then, with every reimbursement request, they confirm the coverage was still in force for the month the expense was incurred.
Yes. The new-hire rule lets an employer offer an ICHRA to employees in a class who are hired on or after a set future date, while employees hired earlier keep the group plan. No one in either set gets to choose between the two.
When an employer offers its group plan to one class and an ICHRA to another, the ICHRA class (if it is full-time, part-time, salaried, non-salaried or a rating-area class) must have at least 10 employees for an employer with fewer than 100, 10% of headcount rounded down for 100 to 200, or 20 for more than 200.
Everyone in a class must get the same terms, but the allowance may go up with age (the oldest no more than three times the youngest) and with the number of covered dependents, as long as the same schedule applies to everyone in the class. Different classes can get different amounts.
Generally yes. A private employer’s ICHRA is an ERISA group health plan, so it needs a written plan document and SPD and carries its own reporting, COBRA and fee duties, even though the individual policies employees buy are not part of the ERISA plan.
At least 90 calendar days before every plan year. A worker who becomes eligible later gets it no later than the day the HRA can first take effect for them, and a business first set up fewer than 120 days before its first HRA plan year can give it by the effective date for that first year only.
Confirm the classes, set the allowances, test affordability, adopt the plan document and hire an administrator, give the notice at least 90 days before the plan year, collect opt-outs, have employees buy individual coverage in their special enrollment window, and substantiate coverage before the first reimbursement.
An ICHRA tends to fit an employer facing steep group renewals, one offering health benefits for the first time, or one with employees spread across several states or markets. It fits poorly where the individual plans in employees’ counties do not include the doctors and drugs they need, or where the employer really wants to keep its group plan for the same employees.
Yes. CMS now calls the individual coverage HRA (ICHRA) a “CHOICE Arrangement.” Only the name changed; the federal rules for classes, notices, affordability and substantiation are the same.
Any size employer can offer an ICHRA. Employees (and reimbursed dependents) must have qualifying individual coverage or Medicare, and the employer can’t offer the same class of employees both an ICHRA and a traditional group plan.
The employee picks an individual plan (on the ACA marketplace or off-exchange) or Medicare, enrolls in it, and then submits proof to get reimbursed up to the employer’s ICHRA allowance. A new ICHRA offer triggers a special enrollment period to buy a plan.
No. To use ICHRA funds you must be enrolled in qualifying individual coverage or Medicare. Coverage under a spouse’s group plan doesn’t qualify, so you couldn’t be reimbursed through the ICHRA while on that plan.
An ICHRA reimburses employees tax-free for individual health coverage and counts as an offer of coverage for the employer mandate. A health stipend is just taxable extra pay; simpler, but taxed for both sides and not a compliant offer of coverage.
A taxable health stipend is simple; extra taxable cash employees can use for coverage, but it’s taxed for both sides and doesn’t satisfy the employer mandate. An ICHRA reimburses individual coverage tax-free and can satisfy the mandate, so it’s usually the better structured option.
No. Unlike a QSEHRA, an ICHRA has no maximum contribution limit; employers set the allowance, which can vary by employee class and by age or family size.
An ICHRA lets an employer of any size reimburse employees tax-free for individual-market health insurance premiums (and often other medical costs) instead of offering a traditional group plan. Employees must be enrolled in qualifying individual coverage or Medicare, verified monthly.
If the HRA offer is “affordable,” it blocks the premium tax credit: the employee takes the HRA instead. If it’s unaffordable, the employee may opt out and keep the PTC. A QSEHRA also reduces the PTC dollar-for-dollar, while an ICHRA is all-or-nothing.
A QSEHRA is only for employers with fewer than 50 FTEs and no group plan, has statutory dollar caps, and is not an ERISA plan (no COBRA). An ICHRA is for employers of any size, has no dollar cap, allows up to 11 employee classes, can run alongside a group plan for other classes, and IS an ERISA group health plan.
ICHRA lets employers give workers a defined, tax-free dollar amount to buy their own individual coverage instead of running a group plan. Adoption has grown about 1,000% since 2020, recently roughly +34% a year among larger employers and +52% among smaller ones, pushed by steep group renewals and the end of enhanced subsidies.