An Individual Coverage Health Reimbursement Arrangement (ICHRA) lets employers fund employee health coverage without sponsoring a traditional group plan. Here's how the pieces fit together.
Employer selects one or a few plan designs. All eligible employees enroll in the same carrier's offerings. Premiums are shared by group risk pooling, and renewal pricing is driven by the group's claims experience.
Employer sets a fixed monthly reimbursement amount by employee class. Each employee shops the individual market and picks their own plan. The employer's cost is fixed regardless of what employees choose or how claims run.
ICHRA rules allow employers to divide their workforce into classes using IRS-permitted criteria — full-time vs. part-time status, salaried vs. hourly, geographic location (by rating area), and a few others — and set a different contribution amount for each class, or offer ICHRA to some classes while keeping a traditional group plan for others.
| Permitted class criteria | Example use |
|---|---|
| Full-time vs. part-time | Fund ICHRA for full-time staff; exclude part-time/seasonal from eligibility |
| Salaried vs. hourly | Different contribution tiers for management vs. hourly staff |
| Geographic (rating area) | Multi-location employers set contributions that reflect local plan costs |
| Seasonal employees | Define seasonal staff as a separate class with its own (or no) contribution |
Like any HRA, ICHRA requires a formal plan document and, generally, an ERISA wrap if the employer is subject to ERISA.
Contribution amounts must be applied uniformly within a class, and ACA affordability calculations matter for employers subject to the employer mandate.
Employees generally must receive notice of the ICHRA offer at least 90 days before the plan year begins, with specific required disclosures.
Individual Coverage Health Reimbursement Arrangement. It's a type of HRA created by federal rules that took effect in 2020, allowing employers to reimburse employees tax-free for individual health insurance premiums instead of offering a traditional group plan.
The two differ in several concrete ways. QSEHRA is limited to employers with fewer than 50 full-time employees and has annual contribution caps set by the IRS, and an employer offering QSEHRA can't also offer a group health plan. ICHRA has no employer size limit and no federal cap on contribution amounts, allows contribution levels to vary by employee class, and can be offered to some employee classes while a traditional group plan is offered to others — but it comes with more detailed class and affordability rules to administer correctly.
Yes — this is one of ICHRA's defining features. Employers can define employee classes (for example, full-time vs. part-time, salaried vs. hourly, or by location) and offer different contribution amounts, or ICHRA to some classes and a traditional group plan to others, as long as the classes are defined using IRS-permitted criteria and applied consistently.
No. Reimbursements made through a properly documented ICHRA for substantiated individual health insurance premiums are excluded from the employee's taxable income, similar to how employer contributions to a group plan are treated.
Yes. Employer contributions to a properly documented ICHRA are generally deductible as an ordinary business expense, the same as premiums paid toward a traditional group health plan. Contributions also aren't subject to payroll taxes (Social Security and Medicare/FICA) for either the employer or the employee, since they're treated as an accident and health plan benefit under IRC Section 106 rather than as wages.
An employee must be enrolled in individual health insurance (through the ACA marketplace or off-exchange) or Medicare to receive ICHRA reimbursements. Employers typically need to confirm enrollment before reimbursements begin.
Not by law, but in practice the large majority of ICHRA plans run on a calendar year starting January 1st. That's because individual marketplace plans are sold on their own annual open enrollment window (typically November through mid-January), so a January 1st ICHRA effective date lines up cleanly with when employees can shop without needing a special enrollment period. A new ICHRA offer does trigger a special enrollment period on its own, so a mid-year start is technically possible — it's just less common because it's more complex to administer.