What Is an Individual Coverage Health Reimbursement Arrangement (ICHRA)?

What is an ICHRA?

An Individual Coverage Health Reimbursement Arrangement (ICHRA) is a type of Health Reimbursement Arrangement (HRA) that allows employers to help employees pay for health insurance without sponsoring a traditional group health plan.

Employers decide how much money to contribute, and employees choose an individual health insurance policy that best meets their needs.

If an employee meets the program's requirements, reimbursements for eligible expenses are generally tax-free.

ICHRAs became available beginning in 2020 under federal regulations issued by the Departments of the Treasury, Labor, and Health and Human Services.

How does an ICHRA work?

An employer establishes an ICHRA and determines:

• Which classes of employees are eligible.
• The monthly or annual reimbursement amount.
• Which medical expenses are eligible for reimbursement.

Employees who participate must generally:

1. Enroll in qualifying individual health insurance coverage.
2. Submit proof of eligible premiums or medical expenses.
3. Receive reimbursement up to the employer's approved allowance.

Unlike a health savings account (HSA), ICHRA funds remain under the employer's control and are not owned by the employee.

Who can use an ICHRA?

Any employer may choose to offer an ICHRA if it complies with applicable federal rules.

Employees generally must:

• Be offered the ICHRA by their employer.
• Be enrolled in qualifying individual health insurance coverage for each month they participate.
• Meet any eligibility requirements established by the employer.

Employers may offer different reimbursement amounts to different classes of employees, provided they comply with federal nondiscrimination and classification rules.

What expenses can an ICHRA reimburse?

Depending on how the employer designs the plan, reimbursements may include:

• Individual health insurance premiums.
• Medicare premiums (for eligible participants).
• Deductibles.
• Copayments.
• Coinsurance.
• Other qualified medical expenses described in IRS Publication 502.

Every employer determines which expenses are eligible under its plan, consistent with federal requirements.

ICHRA vs. traditional group health insurance

Both provide health coverage, but they work differently.

Traditional group health plan

• Employer selects the health insurance policy.
• Employees enroll in the employer's group plan.
• Coverage is generally the same for all employees enrolled in the plan.

ICHRA

• Employer provides a reimbursement allowance.
• Employees purchase their own qualifying individual health insurance.
• Employees may have more flexibility when selecting a plan that fits their needs.

ICHRA vs. QSEHRA

These two reimbursement arrangements are often confused.

ICHRA

• Available to employers of any size.
• May be offered instead of a traditional group health plan for eligible employee classes.
• No federal maximum employer contribution.

QSEHRA

• Available only to eligible small employers.
• Employers cannot offer both a group health plan and a QSEHRA.
• Annual reimbursement limits are established by federal law and adjusted periodically.

Choosing between the two depends on the employer's size, workforce, and benefits strategy.

Why this matters

Many employers want to help employees pay for healthcare without managing a traditional group health plan. An ICHRA offers another way to provide health benefits while allowing employees to choose individual health insurance that fits their medical needs and budget.