Short answer: 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.
An Individual Coverage Health Reimbursement Arrangement (ICHRA) is an employer-funded arrangement, available since 2020 under a 2019 federal rule, that reimburses employees on a tax-free basis for individual-market health insurance premiums (on or off the Marketplace) plus, if the plan allows, other qualified medical expenses under IRC §213(d). It is available to employers of any size and has no maximum dollar limit.
Instead of choosing a single group plan, the employer sets a monthly allowance (which may vary by employee class and by age, within a 3:1 band). Employees buy the individual plan that fits them and are reimbursed up to their allowance. The employee must actually be enrolled in qualifying individual major-medical coverage or Medicare, and that enrollment is verified at least once a year and attested monthly; otherwise reimbursements stop.
ICHRAs allow up to 11 permissible employee classes (for example, full-time, part-time, seasonal, salaried, hourly, or by geographic rating area) so an employer can offer a group plan to some classes and an ICHRA to others, subject to minimum class-size rules when the two are mixed.
An ICHRA is an ERISA group health plan, so COBRA (for employers with 20+ employees), Form 5500 (at 100+ participants), ACA reporting (Forms 1094/1095), and PCORI fees apply. Offering an ICHRA also triggers a 60-day special enrollment period for the employee to buy individual coverage. If the allowance makes coverage “affordable,” the ICHRA satisfies the ACA employer mandate.
Sources
- Individual Coverage and Excepted Benefit HRA final rule, 84 FR 28888 (2019): 2019 HRA final rule
- IRS, HRA guidance under IRC §§105 and 106.
Content history
Originally published: June 16, 2026
Last reviewed: June 16, 2026