How Much Should an Employer Reimburse for ICHRA?

Employers setting up an Individual Coverage HRA (ICHRA) often struggle with one core question: how much should they reimburse? Unlike traditional group plans with set premiums, ICHRAs give businesses complete control over their health benefit spending.

CHOICE (Custom Health Option and Individual Care Expense) Arrangement is the current name for what was previously referred to as an ICHRA (Individual Coverage Health Reimbursement Arrangement). This page uses both terms.

There is no federal minimum or maximum contribution limit for an ICHRA. Employers can offer as little or as much as their budget allows. However, several strategic and legal factors should guide the reimbursement amount.

1. Budget Considerations

The primary advantage of an ICHRA is budget predictability. Employers define a fixed monthly allowance per employee, eliminating surprise renewal increases. Typical employer contributions range from $200 to $600+ per employee per month, depending on company size, geography, and industry competitiveness.

2. Employee Classes

Under IRS rules, employers can offer different reimbursement amounts to different classes of employees, provided all employees within a class receive the same allowance on the same terms. Recognized classes include:

• Full-time employees
• Part-time employees
• Seasonal employees
• Salaried vs. hourly workers
• Geographic rating areas
• Employees in a waiting period

Allowances may also be scaled by age, using a ratio of up to 3:1 between the oldest and youngest employee.

3. ACA Affordability (For ALEs)

Applicable Large Employers (ALEs) -- those with 50 or more full-time equivalent employees -- must offer affordable coverage that provides minimum value to avoid employer shared responsibility penalties under Section 4980H.

For an ICHRA to be considered affordable, the remaining employee-paid portion of the lowest-cost Silver plan on the local exchange cannot exceed the affordability percentage of the employee's household income (or an approved safe harbor: W-2, Rate of Pay, or Federal Poverty Line). In 2026, the ACA affordability threshold is 9.96% of household income (and 10.22% for plan years beginning in 2027, per IRS Rev. Proc. 2026-26).

4. Cost of Living and Local Plan Rates

Healthcare costs vary dramatically by geographic region. A $300 monthly allowance might cover 70% of an individual premium in one state but less than 40% in another. Employers operating across multiple locations should examine local benchmark Silver plan rates when establishing geographic allowances.

Conclusion

Finding the right reimbursement amount requires balancing cost predictability with employee satisfaction and ACA compliance. SimplyHRA simplifies this process with plan design modeling tools and automated compliance tracking.

Schedule a demo to see how SimplyHRA helps businesses design competitive, compliant ICHRA plans.