What is ICHRA?

The Individual Coverage Health Reimbursement Arrangement, explained simply.

The Basics

ICHRA (Individual Coverage Health Reimbursement Arrangement) is a type of health benefit that allows employers of any size to reimburse employees tax-free for individual health insurance premiums and qualified medical expenses.

Instead of choosing and managing a one-size-fits-all group health plan, the employer sets a monthly allowance. Employees then choose their own individual health coverage from the marketplace or directly from carriers — and get reimbursed.

How It Works

• Employer sets a budget — Define monthly allowances by employee class (full-time, part-time, salaried, geographic area, etc.)
• Employees shop for coverage — Choose from marketplace plans (Healthcare.gov or state exchange) or off-exchange individual plans
• Employer reimburses tax-free — Employees submit proof of coverage and premiums. Reimbursements are tax-free for both parties.
• Compliance is built in — IRS Section 105, IRC 213(d), and ACA rules govern what's eligible and how it's reported

Who Can Use ICHRA?

Any employer, from 1 employee to 10,000+. There is no minimum or maximum size requirement. ICHRA is available to:

• Small businesses that can't afford group health
• Mid-size companies looking for cost predictability
• Large enterprises with diverse, distributed workforces
• Organizations with part-time, seasonal, or geographically distributed employees

Key Benefits

For Employers

• Predictable costs — Set a fixed monthly budget with no surprise renewals
• 10-35% savings vs. traditional group health plans
• No minimum contribution — Offer what works for your budget
• Class-based flexibility — Different allowances for different employee types
• No carrier negotiations — Employees deal directly with insurers

For Employees

• Real choice — Pick the plan that fits their doctors, prescriptions, and family
• Portability — The plan is theirs, not tied to the employer
• Tax-free reimbursement — Premiums reimbursed pre-tax
• Access to subsidies — May opt out of ICHRA and keep marketplace subsidies if more advantageous

ICHRA vs. Traditional Group Health

Traditional group plans lock employers into carrier-dictated premiums that increase unpredictably each year. ICHRA flips the model:

• Cost: Group = $9,000+/employee with annual increases. ICHRA = You set the budget.
• Choice: Group = 1-3 plan options. ICHRA = Entire individual market.
• Control: Group = Carrier dictates terms. ICHRA = Employer sets the rules.
• Admin: Group = Manual, paper-heavy. ICHRA with Icarus = AI-automated.

Legal Framework

ICHRA was established by a joint rule from the IRS, DOL, and HHS, effective January 1, 2020. It is governed by:

• IRS Section 105 — Employer-funded health benefits
• IRC Section 213(d) — Qualifying medical expenses
• ACA affordability standards — For Applicable Large Employers (ALEs)
• ERISA — Plan document and notice requirements