What Is ICHRA? A Plain-English Guide to the Individual Coverage HRA

An Individual Coverage Health Reimbursement Arrangement (ICHRA) is an employer health benefit that reimburses employees, tax-free, for individual health insurance they buy on their own, instead of enrolling them in a company group health plan. The employer sets a monthly allowance, the employee chooses an ACA-compliant plan that fits them, and the employer reimburses the cost up to that allowance. The reimbursement is tax-free to the employee and tax-deductible to the employer.

ICHRA was created by federal regulations issued in 2019 and became available on January 1, 2020. It lets employers of any size fix their benefit cost while giving employees the full choice of the individual market.

The basics

The mechanics are simple: the employer sets a monthly allowance (which can vary by employee class and age), employees buy their own ACA-compliant individual plan, and the employer reimburses eligible premiums up to the allowance. Any employer can offer an ICHRA regardless of size, and can set different allowances for different permitted classes of employees, such as full-time, part-time, or workers in different regions.

Unlike a traditional group plan, the employer's cost is capped at the allowance and no longer rises with claims. And unlike QSEHRA, the earlier small-employer HRA, ICHRA has no company-size limit and no statutory contribution cap. For the full mechanics, contribution strategy, and compliance rules, see the Broker's Practical Guide to ICHRA and ICHRA Compliance Essentials.

When ICHRA makes sense

ICHRA tends to work best where individual-market premiums are competitive and the workforce is spread across locations, because premiums are set locally. Two employees of the same age can pay very different premiums depending on their ACA rating area, so geography is usually the first thing to check. Evaluating whether a plan is genuinely good value also means looking past premium to a plan's actuarial value and its provider network, not just its monthly cost.

Because those variables differ for every employee, the only reliable way to know whether ICHRA is the right move is to model it person by person. That is exactly what ICHRA Model does, and the underlying market data is available to explore on our Data page.

Frequently asked questions

Is ICHRA the same as a health stipend?

No. A health stipend is extra taxable income the employee can spend however they like, with no proof of coverage required. ICHRA reimbursements are tax-free, but only for individual health insurance premiums and qualifying medical expenses, and the employee must have qualifying individual coverage to receive them.

Does ICHRA replace group health insurance?

It is an alternative to a group plan, not an add-on. An employer cannot offer both an ICHRA and a traditional group health plan to the same class of employees. Employers can, however, offer a group plan to one class (for example, full-time staff) and an ICHRA to another (for example, part-time staff).

What size company can offer an ICHRA?

Any size. ICHRA is available to employers of all sizes, from a single-employee business to a large employer subject to the ACA employer mandate. This is one of the main differences from QSEHRA, which is limited to employers with fewer than 50 full-time-equivalent employees.

Can employees keep unused ICHRA money?

No. ICHRA funds are employer-owned and are only paid out as reimbursement for eligible expenses. Depending on plan design, unused amounts may carry over month to month or year to year, but employees never receive the balance as cash and cannot take it with them when they leave.