Individual Coverage Health Reimbursement Arrangement
What is an ICHRA?
An ICHRA (Individual Coverage Health Reimbursement Arrangement) is an employer-funded health benefit that lets businesses reimburse employees, on a tax-advantaged basis, for individual health insurance premiums and other eligible medical expenses. Introduced in the United States on January 1, 2020, ICHRAs offer an alternative to traditional group health insurance plans
How Does an ICHRA Work?
ICHRA is an employer-funded benefit that lets you set a predictable budget while making tax-free contributions for employees and claiming tax deductions for your business when filed correctly. There are no payroll taxes for employers and no taxable income for employees on these reimbursements.
The Challenge with Traditional Group Health Plans
Many employers turn to group health insurance to control costs and provide effective coverage. But for many new or growing businesses, finding an affordable group plan can be difficult. Traditional group plans often require at least 20 enrolled employees and can come with steep renewal increases, making them hard to sustain over time. An ICHRA solves these challenges by offering a more flexible, cost-effective alternative to traditional group health insurance, while still delivering strong benefits for your team.
How Does an ICHRA Benefit My Employees?
ICHRA gives both employers and employees more flexibility. Instead of employees shouldering rising healthcare costs, they choose their own individual health plan and get reimbursed by their employer on a tax-free basis. This helps employees find affordable, customizable coverage that fits their needs and may qualify them for lower premiums or subsidies, depending on their income and plan affordability. They can choose from a range of trusted insurance carriers and easily switch plans when needed. When employees select an in-network plan, they can usually keep their current doctor.
Does ICHRA Cover Part-Time Employees?
Yes. An ICHRA can be offered to different types of employees, including part-time workers. You can group employees into specific classes and set different contribution amounts for each one. This makes it easy to offer higher contributions to certain groups and tailor your benefits to your team’s unique needs. ICHRA can also work alongside COBRA for eligible employees.
Setting Contribution Amounts and Allowances
There is no required minimum or maximum contribution amount. To get started, you’ll first define employee classes so you can decide how much to contribute to each group. Classes can be based on factors like age, family size, or employee type. As the employer, you can choose to contribute using one of the following options:
Flat Amount – Every employee receives the same contribution, regardless of age or number of dependents.
Family-Tiered – Employees with dependents receive a higher contribution.
Age-Banded – Contribution amounts vary based on an employee’s age (for example, older employees or those with certain disabilities may receive higher allowances).
Combo – A customized combination of the options above, tailored to your team’s needs.
Have a Question?
We can help. Our team will work with you to understand your goals, explore your options, and find the solution that fits your needs—without breaking the bank.