ICHRA compliance requirements

An ICHRA is a group health plan. That single fact drives most of what follows: ERISA applies, COBRA applies, nondiscrimination testing applies, and the PCORI fee applies. What follows is the full obligation set, each tied to its source.

The core rule lives in three parallel places — 26 CFR § 54.9802-4 (Treasury/IRS), 29 CFR § 2590.702-2 (DOL), and 45 CFR § 146.123 (HHS) — adopted in the final rule at 84 FR 28888 (June 20, 2019).

1. Employees must be enrolled in individual coverage

Every individual covered by the ICHRA must be enrolled in individual health insurance coverage, or in Medicare (Part A and B, or Part C), for each month they are covered.

What does not satisfy this: a spouse's or parent's group health plan, short-term limited-duration insurance, health care sharing ministry membership, TRICARE, or excepted-benefits-only coverage.

2. No group plan to the same class

An employer may not offer the same class of employees a choice between an ICHRA and a traditional group health plan. It is one or the other, per class. An employer may offer a group plan to one permitted class and an ICHRA to a different class.

3. The 11 permitted classes

Classes must be drawn from this list — an employer cannot invent its own:

1. Full-time employees
2. Part-time employees
3. Seasonal employees
4. Employees covered by a collective bargaining agreement
5. Employees in a waiting period
6. Foreign employees who work abroad with no US-source income
7. Salaried employees
8. Non-salaried (e.g. hourly) employees
9. Temporary employees of staffing firms
10. Employees in the same insurance rating area
11. A combination of two or more of the above

New hires may also be treated as a separate class from existing employees in the same category (the "new hire" sub-class), allowing an employer to move new employees to an ICHRA while grandfathering existing staff on a group plan.

4. Minimum class size — only when you split

If an employer offers a traditional group health plan to some classes and an ICHRA to others, minimum class size rules apply to the ICHRA classes:

• Fewer than 100: 10 employees
• 100 to 200: 10% of total employees
• More than 200: 20 employees

These rules apply only to certain classes (including salaried, non-salaried, full-time, part-time, and rating-area classes below the state level) and only when the employer is splitting between a group plan and an ICHRA. An employer offering an ICHRA to everyone has no minimum class size problem.

5. Same terms within a class

Every employee in a class must be offered the ICHRA on the same terms, with exactly two permitted variations:

• Age — the maximum allowance for the oldest participant may not exceed three times the allowance for the youngest. This mirrors the 3:1 age-rating band in the individual market.
• Family size — the allowance may increase with the number of dependents covered.

No other variation is permitted. Not by tenure, not by salary within the class, not by health status, not by role. See how much to reimburse.

6. The 90-day notice

The employer must provide a written notice to each eligible employee at least 90 days before the beginning of each plan year. For employees who become eligible mid-year (or newly hired), the notice is due no later than the date the employee's coverage under the ICHRA begins.

The notice must include, among other items:

• The ICHRA allowance amount
• That the employee must be enrolled in individual coverage or Medicare, and that coverage will be lost if enrollment lapses
• The right to opt out of and waive future reimbursements
• The effect of the ICHRA on premium tax credit eligibility, including that accepting an affordable ICHRA makes the employee ineligible for a PTC
• That the offer triggers a special enrollment period in the individual market
• Contact information and the substantiation procedure

The Departments published a model notice alongside the rule. Using it is not mandatory, but it is the safest path.

A missed notice is the most common ICHRA compliance failure, and it is unforgiving because the deadline is fixed relative to the plan year.

7. Opt-out right

Employees must be able to opt out of and waive future reimbursements from the ICHRA at least once annually, and on termination. Without a working opt-out, an employee whose ICHRA is unaffordable cannot access a premium tax credit — which is precisely what the opt-out exists to preserve.

8. Substantiation

The employer must have reasonable procedures to verify that participants are enrolled in qualifying coverage. Two distinct obligations:

• Annual substantiation — before the plan year begins (or before coverage starts), proof of enrollment in individual coverage or Medicare.
• Ongoing substantiation — with each request for reimbursement, an attestation or documentation that the individual remains enrolled for the month in question.

A written attestation from the employee is permitted unless the employer has actual knowledge to the contrary.

9. ERISA

The ICHRA itself is an ERISA plan. That means a written plan document, a Summary Plan Description, a named fiduciary, and a claims-and-appeals procedure.

The individual policies employees buy are generally not ERISA plans, provided the safe harbor at 29 CFR § 2510.3-1(l) is met — the employer must not endorse a particular carrier or plan, must not receive consideration in connection with the coverage, participation must be voluntary, and the employer must state clearly that the individual coverage is not employer-sponsored.

Steering employees toward a specific carrier is how employers accidentally pull individual policies into ERISA. Keep the selection genuinely the employee's.

10. COBRA

Because the ICHRA is a group health plan, a qualifying event triggers COBRA continuation rights in the ICHRA — not in the employee's individual policy, which they own and keep regardless. The COBRA premium is generally based on the ICHRA allowance. Note that the individual policy typically ends when the employee loses the ICHRA only if they stop paying it; the policy is theirs.

11. Nondiscrimination

IRC § 105(h) nondiscrimination rules apply to self-insured group health plans, which an ICHRA is. Testing covers eligibility and benefits, and a failure makes reimbursements taxable to highly compensated individuals — not to everyone. The class and same-terms rules do most of the work here, but they do not replace the test.

12. PCORI fee

An ICHRA is a self-insured group health plan for the Patient-Centered Outcomes Research Institute fee. The employer files IRS Form 720 annually (due July 31 for the preceding plan year) and pays the per-covered-life fee.

The rate is $3.84 per covered life for plan years ending on or after October 1, 2025 and before October 1, 2026 (IRS Notice 2025-61; indexed annually). The fee applies to plan years ending before October 1, 2029.

13. ACA reporting

• ALEs (generally 50+ full-time equivalents) file Forms 1094-C and 1095-C, using the ICHRA-specific offer-of-coverage codes on line 14 and reporting the employee's required contribution on line 15.
• Non-ALEs offering an ICHRA report on Forms 1094-B and 1095-B, because the ICHRA is self-insured MEC.

There is no ICHRA equivalent of the QSEHRA's W-2 box 12 code FF.

14. HIPAA

The ICHRA handles protected health information, so the employer is subject to HIPAA privacy and security obligations with respect to the plan: safeguards, a privacy notice, business associate agreements with any administrator, and appropriate separation between plan administration and general employment functions.

15. Medicare Secondary Payer

MSP rules restrict an employer from offering a financial incentive for a Medicare-eligible employee to drop or not enroll in employer-sponsored coverage. Employers with 20 or more employees should review ICHRA design against MSP before reimbursing Medicare premiums.

The checklist

1. Written plan document + SPD — Before the plan year
2. 90-day written notice to every eligible employee — ≥ 90 days before each plan year
3. Annual enrollment substantiation — Before coverage begins
4. Per-reimbursement substantiation — Each claim
5. Annual opt-out opportunity — Each plan year, plus on termination
6. Classes drawn only from the 11 permitted — Plan design
7. Minimum class size, if splitting with a group plan — Plan design
8. Same terms within class; age ≤ 3:1, family size only — Plan design
9. § 105(h) nondiscrimination testing — Annually
10. COBRA notices and administration — On qualifying events
11. PCORI fee — Form 720 — Annually, by July 31
12. 1095-C (ALE) or 1095-B (non-ALE) — Annual ACA reporting cycle
13. HIPAA safeguards, privacy notice, BAAs — Ongoing
14. ERISA safe harbor maintained — no carrier steering — Ongoing

Primary sources

• 26 CFR § 54.9802-4 · 29 CFR § 2590.702-2 · 45 CFR § 146.123 — the ICHRA rule
• 84 FR 28888 (June 20, 2019) — final rule and preamble, including the model notice
• 29 CFR § 2510.3-1(l) — ERISA safe harbor for individual coverage
• IRC § 105(h) — nondiscrimination for self-insured plans
• IRC § 4980H — employer shared responsibility
• IRS Form 720 instructions — PCORI fee
• IRS Publication 15-B — Employer's Tax Guide to Fringe Benefits
• IRS Notice 2013-54 — market reform guidance
• 42 CFR Part 411 Subpart F — Medicare Secondary Payer

FAQ

When is the ICHRA notice due? At least 90 days before the beginning of each plan year. For employees who become eligible mid-year, no later than the date their ICHRA coverage begins.

What happens if an employer misses the 90-day notice? The notice is a condition of the arrangement, not a formality. A missed or late notice puts the ICHRA's compliance in question and can affect employees' ability to make an informed premium tax credit decision. Employers who miss it should get advice promptly rather than proceed quietly.

Is an ICHRA subject to COBRA? Yes. An ICHRA is a group health plan, so a qualifying event triggers COBRA rights in the ICHRA itself. The employee's individual policy belongs to them and is unaffected.

Does an ICHRA have to be offered to every employee? No. It must be offered on the same terms to everyone within a permitted class, but an employer may exclude entire classes or offer them a group plan instead — subject to minimum class size rules.

Can an employer help employees pick a plan? Carefully. Under the ERISA safe harbor the employer must not endorse a particular carrier or plan or receive consideration in connection with the coverage. Providing neutral shopping tools is different from steering, and the distinction matters.

Do employees have to prove they are enrolled every month? There must be substantiation with each reimbursement request that the individual remains enrolled for that month. An employee attestation is generally acceptable absent contrary knowledge.

SimplyHRA handles the compliance mechanics of an ICHRA: plan documents, the 90-day notice, enrollment substantiation, and reimbursement records. Schedule a consultation.

This article is general information, not tax, legal, or benefits advice. Compliance obligations depend on your specific facts, entity type, and state. Confirm current-year figures against the primary sources cited above and consult your own advisers.