ICHRA Updates 2026: Rules, Affordability and Employer To-Dos

TLDR

The most important ICHRA updates for 2026 include a new ACA affordability percentage of 9.96%, expanded HSA eligibility for bronze and catastrophic plans, and the expiration of enhanced Marketplace premium tax credits after 2025. The 2027 affordability percentage is already confirmed at 10.22%. Employers offering an ICHRA need to recalculate allowances, pull current lowest-cost Silver plan data, update employee notices, and communicate premium tax credit rules before each plan year.

ICHRA updates are the annual rule, affordability, reporting, and tax changes that affect how employers design and administer Individual Coverage Health Reimbursement Arrangements. These updates are not just regulatory news. They are a yearly operating checklist that determines allowance design, employee affordability, Marketplace subsidy eligibility, notice language, reporting codes, and the employee plan-shopping experience.

An Individual Coverage HRA lets employers reimburse employees tax-free for individual health insurance premiums and, if the plan allows, other qualified medical expenses. HealthCare.gov describes an ICHRA as a way for employers to provide reimbursements without offering traditional group health coverage. Unlike a taxable stipend, an ICHRA is a formal health plan structure with rules for eligibility, substantiation, notices, and tax-free treatment.

The most critical ICHRA updates for current and upcoming plan years involve the ACA affordability percentage, CMS lowest-cost Silver plan data, HSA compatibility rules, and Marketplace premium tax credit changes. Here is what changed, who is affected, and what employers need to do now.

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Latest ICHRA Updates: Quick Reference

What “ICHRA Updates” Really Means

The phrase covers several categories of annual changes that employers cannot afford to ignore.

Affordability percentage changes. The IRS publishes a new required contribution percentage each year. This percentage determines whether an ICHRA offer is “affordable” for ACA purposes.

LCSP benchmark updates. CMS publishes lowest-cost Silver plan premium data that employers use to test affordability by employee location and age.

Tax and HSA rule changes. Congress or the IRS occasionally changes how health plans interact with HSAs, affecting which individual-market plans employees might pair with tax-advantaged savings.

Marketplace subsidy changes. Premium tax credit rules shift based on legislation, directly affecting employees who must choose between an ICHRA and Marketplace subsidies.

Compliance and reporting updates. Notice deadlines, ACA reporting codes, and documentation standards can change from year to year.

Practitioners on Reddit frequently distinguish ICHRAs from taxable stipends. In r/smallbusiness threads, commenters repeatedly note that HRAs are non-taxable but administratively more formal than a simple payroll addition. That formality is exactly why staying current on ICHRA updates matters: the rules change, and non-compliance has consequences.

2026 ACA Affordability Percentage: 9.96%

This is the single most important ICHRA update for the current plan year. IRS Rev. Proc. 2025-25 sets the 2026 rate at 9.96%, up from 9.02% in 2025.

The increase generally gives employers more room to satisfy affordability requirements. Employees can be required to contribute a larger share of income before coverage is considered unaffordable. But this does not mean employers can skip recalculation. LCSP premiums, employee ages, ZIP codes, wages, and class structures all change annually.

For applicable large employers, getting affordability wrong creates real financial exposure. ALEs that fail to offer affordable minimum essential coverage may owe employer shared responsibility payments if even one full-time employee receives a Marketplace premium tax credit. For more on how these rules apply, see this guide on ALE rules and ACA.

How the Affordability Formula Works

For 2026 plans, an ICHRA is affordable if the employee’s monthly cost for self-only lowest-cost Silver coverage in their area, after the HRA reimbursement, is less than 9.96% of 1/12 of yearly household income.

In plain terms:

Employee contribution after ICHRA = LCSP premium, minus monthly ICHRA allowance

That remaining amount must be less than 9.96% of the employee’s monthly applicable income (or the applicable safe harbor amount) for the ICHRA to pass the affordability test.

Example (for illustration only):

• Employee’s applicable LCSP premium: $475/month
• Employer’s ICHRA allowance: $350/month
• Employee’s remaining cost: $125/month
• Employee’s safe harbor maximum contribution: $130/month
• Result: The ICHRA is affordable ($125 < $130)

Actual affordability depends on location, age, household income or safe harbor method, plan year, and employee class. For a deeper look at how the FPL safe harbor works with ICHRA, read the FPL safe harbor guide.

FPL Safe Harbor Planning Amount for 2026

Using the mainland 2025 federal poverty guideline of $15,650 for one person and the 2026 affordability percentage of 9.96%, the FPL safe harbor monthly planning amount is approximately $129.89:

$15,650 x 9.96% / 12 = $129.89

An employer using the FPL safe harbor for a calendar-year 2026 plan would generally need to offer an ICHRA allowance that brings the employee’s remaining LCSP cost below roughly $130 per month.

2027 Affordability Percentage: 10.22%

Most pages covering ICHRA updates still focus exclusively on 2026. But IRS Rev. Proc. 2026-26 has already confirmed the 2027 rate at 10.22% for plan years beginning in calendar year 2027.

This matters for employers planning January 1, 2027 renewals. They can begin modeling allowances now.

Using the 2026 one-person poverty guideline of $15,960 and the 10.22% rate, the comparable FPL safe harbor planning amount for 2027 is approximately $135.93 per month:

$15,960 x 10.22% / 12 = $135.93

Label this as a planning figure. The final calculation depends on the employer’s plan year, location, safe harbor approach, and any updated poverty guidelines.

Why LCSP Data Matters for Every ICHRA Update

LCSP stands for lowest-cost Silver plan. It is not the plan employees must buy. It is the benchmark used to test whether an ICHRA offer is affordable.

CMS publishes an ICHRA Employer LCSP lookup table that provides lowest-cost Silver plan premium data by geographic location for states using the Federally-facilitated Exchange and State-based Exchanges on the Federal Platform. The Plan Year 2026 table is available now.

Affordability is a three-part calculation, not a single number:

1. Determine the employee’s applicable income (or safe harbor amount).
2. Look up the self-only LCSP premium for the employee’s area and age.
3. Subtract the employer’s monthly ICHRA allowance from the LCSP premium.

If the remainder exceeds 9.96% of the employee’s monthly applicable income, the ICHRA is unaffordable for that employee under ACA rules. Multi-state employers face extra complexity because LCSP premiums vary by county and rating area. A practitioner on LinkedIn noted that employees on one ICHRA platform selected an average of 14 unique health plans per organization, with one complex group reaching 534 plans. That kind of geographic spread makes LCSP data essential.

HSA Update: Bronze and Catastrophic Plans Became HSA-Compatible in 2026

One of the highest-value ICHRA updates for 2026 affects how employees shop for plans. The One Big Beautiful Bill expanded HSA eligibility so that bronze and catastrophic plans available through an Exchange are considered HSA-compatible as of January 1, 2026, regardless of whether they satisfy the general high-deductible health plan definition.

IRS Notice 2026-05 further clarifies that bronze and catastrophic plans do not have to be purchased through an Exchange to qualify for this relief. The same guidance made permanent the ability to receive telehealth before meeting the HDHP deductible while remaining HSA-eligible and added HSA treatment for certain direct primary care arrangements.

For employees using an ICHRA, this means more individual-market plans may now pair with an HSA strategy. But employers should not assume every ICHRA design is automatically HSA-compatible. The safe approach: confirm how your specific ICHRA coordinates with HSA rules before promising HSA eligibility to employees.

Explore SimplyHRA pricing to see how ICHRA administration costs compare when managing these updates.

Premium Tax Credit Changes and Employee Confusion

This is the ICHRA update that creates the most real-world friction. Enhanced premium tax credits introduced in 2021 expired at the end of 2025 and had not been renewed by Congress as of early 2026. KFF reports that many Marketplace enrollees now receive less financial assistance and pay more in monthly premiums.

The Rule Employees Need to Understand

An employee offered an ICHRA generally cannot claim a Marketplace premium tax credit. The IRS states that PTC eligibility requires the ICHRA to be unaffordable and the employee to opt out.

If the ICHRA is affordable, it blocks Marketplace subsidies. If the ICHRA is unaffordable, the employee may be able to opt out and use the premium tax credit instead. There is no way to double dip.

Why This Confuses People

Practitioners on Reddit report significant confusion around this rule. In one r/tax thread, a taxpayer described spending hours trying to understand how a 1095-C code for an ICHRA offer created a surprise premium tax credit repayment at filing time. In r/smallbusiness discussions, employers noted that some lower-income or older workers chose to decline an ICHRA offer and take the government subsidy instead, which is perfectly legal when the ICHRA is unaffordable.

This is not a rare edge case. It happens routinely, especially among workforces with wide income or age ranges. Employers need to communicate the opt-out and PTC rules clearly during enrollment, not leave employees to discover the issue at tax time. For a full breakdown, see ICHRA and ACA tax credits.

ICHRA Adoption Is Scaling Fast

ICHRA updates matter more now because adoption is no longer a small-business experiment. The HRA Council’s 2026 report, based on anonymized data from 17 member organizations, found that more than 20,000 U.S. businesses offered ICHRA or QSEHRA in 2026 to at least 500,000 employees.

Several trends from the report stand out. ALEs were the fastest-growing segment, more than doubling on average since the prior year. More than half of enrollments were by employees under age 45. And more than two-thirds of small businesses offering ICHRA in 2026 previously offered no health coverage at all.

That said, ICHRA remains small relative to traditional employer-sponsored insurance. Peterson-KFF notes that over 150 million people are covered by traditional group plans. ICHRA is growing quickly from a modest base, not replacing group coverage overnight.

Why Cost Pressure Is Driving Interest

Mercer projected that total health benefit cost per employee would rise 6.5% in 2026, the highest increase since 2010. Employers searching for ICHRA updates are often doing so because renewal costs for group plans have become unpredictable.

One practitioner on Reddit described cutting employer premium contributions to less than half after switching to an ICHRA, while employee premiums dropped by about one-third. But the commenter noted this worked partly because the workforce was younger and exchange rates were lower for that demographic. Age mix and geography matter. ICHRA is not a universal cost-reduction tool.

In another r/smallbusiness thread from August 2026, employees reportedly loved having multiple carrier options instead of one or two plans from a single carrier. One employer described covering $300 per month while employees chose plans ranging from $350 to $700. More choice can increase satisfaction, but it also creates more questions for employees to navigate.

A LinkedIn post summarizing discussions from the HRA Council Foresight Forum put it well: employee choice can become friction without structured guidance and re-engagement. Successful ICHRA transitions require HR teams to guide employees, not merely facilitate enrollment.

What Employers Should Update Each Year

ICHRA updates are only valuable if they translate into action. Here is the annual checklist:

1. Update the ACA affordability percentage. Use 9.96% for 2026 plan years, 10.22% for 2027.
2. Pull current LCSP data. Download the CMS lookup table for your employees’ locations and ages.
3. Recheck employee classes. Confirm classes use allowed criteria (full-time, part-time, salaried, location, etc.) and that allowances within each class follow same-terms rules.
4. Recalculate allowances. Model by class, age, location, and family status if applicable.
5. Update employee notices. Current employees generally receive written notice at least 90 days before the plan year. New eligible employees receive notice by the first day coverage can start.
6. Verify individual coverage. Employees need individual health insurance or Medicare for each month covered by the ICHRA.
7. Educate employees on premium tax credits. Explain opt-out rules clearly enough that nobody is surprised at tax time.
8. Review HSA messaging. Update materials to reflect the 2026 bronze and catastrophic plan changes if employees are pairing ICHRA with HSA-eligible plans.
9. Coordinate payroll and reimbursement timing. Confirm that workflows are accurate and that payment timing matches the plan design.
10. Prepare ACA reporting and documentation. Make sure 1095-C codes and supporting records are audit-ready.

For a detailed walkthrough of reporting requirements, see the guide on ICHRA audit and reporting.

Request a benefits consultation if you need help evaluating whether ICHRA fits your workforce, subsidy situation, or renewal timeline.

Common ICHRA Confusion Points

“Can employees use ICHRA and Marketplace subsidies at the same time?”

Generally, no. If the ICHRA is affordable, the employee cannot claim a Marketplace premium tax credit. If it is unaffordable, the employee may opt out and use the PTC instead.

“Can an employer offer both group coverage and an ICHRA?”

Yes, to different employee classes. But no employee can be offered a choice between a traditional group plan and an ICHRA. The 2019 final rules explicitly prohibit that.

“Does ICHRA mean employees can buy any plan?”

Employees need individual health insurance coverage or Medicare to participate. They cannot use ICHRA to reimburse short-term or non-qualifying plans. When requesting reimbursement, they must confirm qualifying coverage.

“Is the LCSP the plan employees have to buy?”

No. The LCSP is the affordability benchmark, not a purchasing requirement. Employees can choose a different eligible individual plan. The LCSP only determines whether the ICHRA passes the affordability test.

“Do ICHRA updates only matter to large employers?”

No. ALEs face employer mandate exposure, but small employers still need updates for employee notices, reimbursement rules, subsidy communication, and HSA education. The compliance checklist applies regardless of employer size.

“Will plan transitions cause coverage gaps?”

They can. One user on Reddit described their family’s individual plan being accidentally canceled during an ICHRA plan change, delaying a medical procedure. Premium payment timing, carrier coordination, and effective dates are not minor admin details. They directly affect care access. If you are comparing tax form requirements during transitions, the guide on 1095-A vs 1095-C differences explains what employees should expect.

What Has Not Changed

Not everything about ICHRA shifts each year. These baseline rules remain the same:

• Employers must provide a formal ICHRA structure with written employee notices.
• Employees still need individual coverage or Medicare to participate.
• Employers cannot offer the same employee a choice between group coverage and ICHRA.
• Employee classes must use allowed job-based criteria. Arbitrary classes are not permitted.
• Within a class, reimbursement amounts must be offered on the same terms, though they can vary by age (within a 3:1 ratio) and by number of dependents.
• The premium tax credit tradeoff still applies: an affordable ICHRA generally blocks Marketplace subsidies.

The unchanged rules mean compliance is not a one-time setup. Every year’s ICHRA updates layer on top of a permanent set of obligations.

Frequently Asked Questions

What are the latest ICHRA updates for 2026?

The key 2026 updates include the 9.96% ACA affordability percentage, CMS Plan Year 2026 LCSP lookup data, expanded HSA eligibility for bronze and catastrophic plans, and the expiration of enhanced Marketplace premium tax credits after 2025.

What is the 2027 ICHRA affordability percentage?

For plan years beginning in 2027, the IRS set the required contribution percentage at 10.22%. Employers planning January 2027 renewals can begin modeling allowances now using this confirmed rate.

Does ICHRA have annual contribution limits like QSEHRA?

ICHRA does not have the same statutory annual contribution cap as QSEHRA. There is no universal minimum or maximum employer contribution. The numbers employers need to watch are the affordability percentage and local LCSP premiums, which together determine whether their allowance is sufficient for compliance.

Can employees use an ICHRA and premium tax credits together?

Generally, an employee offered an affordable ICHRA cannot claim a premium tax credit for Marketplace coverage. The employee must opt out of the ICHRA, and the ICHRA must be unaffordable, for PTC eligibility.

How often should employers recalculate ICHRA affordability?

Every plan year. The affordability percentage, LCSP premiums, employee wages, locations, ages, and class structures can all change annually. Skipping recalculation creates compliance risk, especially for ALEs.

Are bronze plans now HSA-compatible under ICHRA?

As of January 1, 2026, bronze and catastrophic plans received special HSA-compatible treatment under the One Big Beautiful Bill. IRS Notice 2026-05 clarified that this applies whether or not the plan was purchased through an Exchange. Employers should still verify how their specific ICHRA design coordinates with HSA rules.

What happens if an employer does not follow ICHRA updates?

For ALEs, outdated affordability calculations can trigger employer shared responsibility payments. For all employers, missed notice deadlines or incorrect employee communications can create compliance exposure and employee confusion around subsidies, coverage verification, and tax reporting.

ICHRA updates determine whether your plan design, allowances, and employee communications stay compliant each year. Staying current is not optional.

See how SimplyHRA works to manage ICHRA allowances, reimbursements, compliance, and employee support in one platform.