What are Eligible Expenses for ICHRA Reimbursement?  

TL;DR

Under ICHRA, employees may be reimbursed for other eligible, IRS-approved medical expenses outside of individual insurance premiums.

Key Takeaways

• Flexibility: Coverage for medical expenses depends on whether the employer creates an open-plan ICHRA or a premium-only benefits structure.
• Eligible needs: Most medical and healthcare essentials, especially when prescribed by a doctor as treatment for a diagnosed illness or condition.
• Hard boundaries: Expenses that may "seem" important but don't treat a diagnosed medical condition or special healthcare need (e.g., cosmetic surgeries and general maintenance) are excluded.

An Individual Coverage Health Reimbursement Arrangement (ICHRA) shifts healthcare control back to employees by replacing rigid group plans with tax-free medical allowances.

Setting up a successful program hinges on knowing exactly what the IRS allows your team to write off.

The baseline for compliance sits squarely with IRS Publication 502, which defines all qualified medical expenses (QMEs). Employers maintain some authority here — you can choose to restrict reimbursements exclusively to premium costs or open the plan up entirely to cover day-to-day medical bills.

Individual Health Insurance Premiums & Plan Design

First and foremost, employers have the authority to choose their foundational plan design — way before employees can submit reimbursement requests.

That means companies can outright restrict reimbursements exclusively to individual premiums (premium-only ICHRA).

In the same way, companies can also open up the plan to cover both premiums and out-of-pocket medical bills. But for any expense to be paid tax-free, employees and their dependents must be enrolled in qualifying individual health insurance coverage or Medicare for the month the expense occurred.

Clean, software-driven validation systems handle this by verifying that an employee's monthly policy meets Minimum Essential Coverage (MEC) rules. This spans standard marketplace plans (e.g., Bronze, Silver, and Gold), as well as off-exchange policies, student health coverage, and Medicare Parts A, B, C, and D.

Verify ICHRA-eligible health insurance plans here.

Practical Next Steps for Employees

Here's a quick checklist for employees looking to secure reimbursements for out-of-pocket expenses:

• Review your Summary Plan Description (SPD), which is typically housed in your benefits portal, to confirm if your ICHRA covers eligible medical expenses.
• Secure itemized documentation for any medical expense beyond generic payment slips or credit card receipts.
• Reach out to HR for clarifications in case your plan documents don't mention specific medical expenses (like orthodontic care for you or your dependents).

Dependent Eligibility Considerations

• Active coverage: Both you and your dependents must hold qualifying individual health insurance policies or Medicare during the exact month of the medical expense. A coverage lapse in that month will make the expense ineligible for reimbursement through ICHRA.
• Dependent age status: Your dependent must fit the plan's definition of an eligible dependent, typically covering children under 27 years of age.
• Clinical necessity: Medical expenses must be deemed medically necessary rather than cosmetic. This guideline is mirrored from the IRS, which will reject claims for expenses made purely for aesthetic improvements.

Q: Can I use my ICHRA balance for routine out-of-pocket care and orthodontic treatments?

If the employer decides to cover both health insurance and medical expenses, employees will be able to use their tax-free ICHRA funds to pay for qualified, out-of-pocket medical expenses.

Under IRS Section 213(d), routine medical expenses cover baseline services like:

• Standard doctor visits
• Telehealth consultations
• Specialist fees
• Diagnostic lab tests
• Emergency ambulance rides

This is also where specialized dental care becomes eligible for reimbursement under ICHRA. If the employer's plan allows it, comprehensive orthodontic treatments (e.g., braces and aligners) are fully reimbursable.

Guideline: For approving dental, orthodontic, or routine medical claims, the care must be specifically for the employee or an eligible dependent (including biological and adopted children under age 27).

Q: How does ICHRA work with prescription and over-the-counter drugs?

Covering prescription and OTC medications offers massive financial relief to employees.

The CARES Act permanently allows coverage for most OTC medications and menstrual care products, without requiring employees to obtain a doctor's note to receive reimbursements. This also includes allergy pills, pain relievers, cold medicine, and antacids.

Things get a little more nuanced when it comes to tobacco cessation. Under Revenue Ruling 99-28, the IRS treats nicotine addiction as a valid medical condition. However, the organization established a clear line based on how an employee purchases and uses the treatment:

• Reimbursable under ICHRA: Enrolling in a structured program for quitting smoking and obtaining physician-prescribed withdrawal drugs.
• Non-reimbursable under ICHRA: Buying OTC nicotine patches, lozenges, and gum without a prescription (considered personal expenses).

The same logic rules the general wellness aisle. Unless formally prescribed by a doctor for a specific, diagnosed illness, all multivitamins, dietary supplements, and herbal remedies are not reimbursable.

Q: What are ICHRA eligibility rules for dental, vision, and alternative specialized care?

With an open-plan design, ICHRA can be used to cover routine dental work, vision care, and other specialized medical treatments.

The rules are straightforward when it comes to standard dental and vision health.

For dental care, employees can write off out-of-pocket costs for diagnosis, treatment, or prevention:

• X-ray
• Flouride application
• Cleaning
• Filling
• Crowns
• Root canal
• Gum surgery
• Dental exam
• Topical fluoride application
• Periodontal treatment
• Occlusal guards

As for vision needs, some examples of reimbursable expenses are:

• Annual eye exam
• Refraction tests
• Diagnostic vision testing
• Prescription glasses
• Contact lenses and solutions
• Corrective surgeries (i.e., LASIK)

As for alternative or specialized care, the IRS readily approves mental healthcare services like visits with licensed therapists, psychologists, and psychiatrists. Other services, however, are more tightly restricted:

• Adjustments and therapy: Treatments like physical therapy, chiropractic care, and acupuncture are eligible for reimbursement, but only if they treat a specific injury or chronic condition.
• Medical Necessity guardrail: General health programs like weight loss plans can only be covered with a formal Letter of Medical Necessity, which proves that the regimen is prescribed to treat a diagnosed disease (i.e., clinical obesity).

Q: Will ICHRA cover transportation costs?

A major benefit for employees that often gets overlooked is that the IRS also covers transportation for getting treatment.

Under Section 213(d), travel expenses qualify for tax-free reimbursement as long as the trip is for a legitimate medical reason. As such, ICHRA allows employees to offset the logistical costs of getting to and from their appointments:

• Driving a personal vehicle: Employees can track and claim the standard medical mileage rate for trips to a doctor, hospital, or even a pharmacy — along with any parking garage fees and highway tolls.
• Public and commercial transit: Fares for local taxis, rideshares, buses, trains, and other modes of public transportation can also be covered on the way to specialized clinical care.
• Emergency transport: Full reimbursement for ambulance dispatches and specialized medical transport services may also be offered under ICHRA (as long as the cost doesn't exceed the allowance set by the employer).

Q: Will ICHRA cover durable medical equipment and home supplies?

Recovering from surgery or managing chronic illnesses gets expensive quickly. With an open-plan ICHRA, your employer can chip in to ensure your unique medical needs are being met.

Reimbursable items include:

• Crutches, canes, and wheelchairs
• Artificial limbs and prosthetic teeth
• Blood sugar testing kits, lancets, and glucose strips
• Blood pressure monitors
• Medical alert bracelets

Ineligible Expenses & Exclusions

While ICHRA covers a broad range of eligible medical expenses, anything that fails to treat specific, diagnosed medical conditions is excluded:

• Teeth whitening
• Cosmetic botox
• Hair transplants
• Gym memberships
• Fitness trackers and smartwatches
• Maternity clothes
• Daily toiletries and cosmetics
• Everyday multivitamins (not prescribed by a doctor)

Ready to design a compliant, tax-free ICHRA plan for your team?

Book a 1:1 consultation here and let's build a tailored ICHRA strategy that works for your company.