What is an ICHRA Account?

Health Reimbursement Arrangements (HRA) are employer-funded health plans that provide employees with funds to pay for qualified medical expenses or monthly insurance premiums. 

Individual Coverage Health Reimbursement Arrangement — or "ICHRA" for short — is a specific type of HRA. 

Unlike other HRAs, ICHRA enforces neither minimum nor maximum employer contribution limits — making it more flexible and predictable. Businesses of any size can also offer ICHRA plans regardless of their size, unlike certain HRA types like QSEHRA (Qualified Small Employer Health Reimbursement Arrangement) that's only available for businesses with fewer than 50 employees. 

Affordability, stability, and flexibility are major concerns in employer-funded health insurance for small businesses — areas that ICHRA addresses. As such, its adoption grew 29% year-over-year between 2024 and 2025. 

What is Individual Coverage Health Reimbursement Arrangement (ICHRA)?

Compared to traditional group health insurance, ICHRA offers both employees and employers greater flexibility in terms of budget and coverage options. It is an account-based health plan where employers set the maximum budget for each person. 

An ICHRA account is simply the enforced arrangement between the employer and employee, which is typically managed by a third-party insurer or via a platform like SimplyHRA. 

Should they enroll, employees can then customize their ICHRA account benefits based on their specific needs. Employers or third-party ICHRA managers then oversee the administration of accounts — tracking allowances and processing reimbursements. 

What are the Benefits of ICHRA?

Aside from the surging health insurance costs, here are some of the reasons why more businesses are choosing ICHRA:  

Advantages for Employers

• Customization of benefits to suit different employee groups — Employers can modify ICHRA allowances for up to 11 different employee classes. Some examples of employee classes are part-time, full-time, seasonal, hourly, and overseas employees among others. 
• Predictability and cost control — With ICHRA, employers are in control of the maximum reimbursement amount for each employee class. This is a surefire way to avoid unexpected healthcare costs.
• Tax advantages — Reimbursements made under ICHRA plans are free of income and payroll taxes. Furthermore, employers can write off ICHRA payouts as business expenses. 
• Flexibility in managing health benefits — ICHRA plans allow employers to respond more quickly to changes in regulations, market conditions, and their own business needs. This helps employers to ensure both compliance and employee satisfaction.

Advantages for Employees

• Greater choice and flexibility in selecting individual health benefits — With ICHRA, employees can select the services and insurance plans that best suit their specific healthcare needs and preferences.
• Tax-free reimbursements — Properly substantiated ICHRA reimbursements for eligible individual health insurance premiums are generally excluded from the employee’s income. If a premium exceeds the ICHRA allowance, only the unreimbursed portion of eligible off-Exchange coverage may be paid pre-tax through an employer’s Section 125 cafeteria plan; Marketplace premiums cannot be salary-reduced under Section 125.

Cons of ICHRA

• Steep learning curve — It may require a significant amount of time and effort for both employers and employees to understand the complexities of ICHRA plans.
• ICHRA compliance requirements — Just like traditional health insurance, ICHRA plans come with specific regulations such as Minimum Essential Coverage (MEC), reporting requirements, and clear employee classifications. 
• Selecting plans can be stressful for employees — This shift of responsibility, while empowering, can cause stress for employees who are unfamiliar with health insurance policies and how they work.

How Does ICHRA Work?

Opting for an ICHRA plan requires the effort and cooperation of both employers and employees. 

Here's how ICHRA plans work in a nutshell:

• Employers set a maximum reimbursement amount to cover the premiums and qualified medical expenses of their employees.
• Businesses create a predefined list of eligible medical expenses for transparency.
• Employees are notified whether or not they are qualified for ICHRA — followed up by key details like enrollment deadlines and benefits information.
• Employees can choose their individual health insurance plans and services once enrolled.
• If the cost of premiums or healthcare services exceeds the allowance for an ICHRA account, the employee covers the difference.

Remember, ICHRA has no annual minimum or maximum contribution requirements. This gives employers the freedom to set allowances tailored to the company's budget and employee needs. 

Who is Eligible for ICHRA Plans?

According to the IRS, employers are eligible for ICHRA if they have at least one W-2 employee. This pertains to someone who is formally employed by the company in the U.S. 

This can be purchased through an insurance marketplace, directly from a health insurance provider, or via a private exchange.

Just remember that ICHRA is not available for self-employed business owners and their spouses. 

ICHRA plans should strictly follow the employer-funded reimbursement model. As such, here are other types of individuals and groups that are not eligible for ICHRA:

• Part-owners 
• Employees already covered by an existing group health plan
• Self-employed individuals with W-2 wages

Tax Implications and Premium Tax Credit

Employees generally are not eligible for Premium Tax Credits for months in which they are offered an affordable ICHRA. If the ICHRA is unaffordable, an employee may qualify for Premium Tax Credits only by opting out of the ICHRA and enrolling in Marketplace coverage.

Let's say an employee has an annual income of $60,000. Here's how to check their PTC eligibility if their health insurance premium is at $680 while their monthly ICHRA allowance is $400: 

Monthly income: $60,000 / 12 = $5,000

Out-of-pocket premium cost: $680 - $400 = $300

Affordability requirement: $5,000 x 9.96% = $460

In this scenario, the ICHRA offer is considered affordable since the remaining premium cost is less than the affordability threshold.

Tools for ICHRA

Thanks to Healthcare-as-a-Service (HaaS) and HRA platforms, managing ICHRA plans is easier than ever. 

Here are some of the best solutions you can use right now:

• SimplyHRA — A user-friendly platform that makes offering personalized healthcare for employees a breeze. It provides a visual interface for managing reimbursements, streamlining employee enrollment, and tracking your ICHRA plan budgets — all while handling time-consuming tasks (i.e., compliance) on your behalf.
• Take Command Health — An HaaS platform for managing both ICHRA and QSEHRA health plans. In addition, Take Command Health offers additional benefits like plan selection support and administrative assistance.
• PeopleKeep - Another platform that specializes in ICHRA, QSEHRA, and GCHRA. Its biggest strength is the availability of learning resources for employers who are new to HRAs. 

Looking for something else?

Feel free to check out more alternatives like Salusion and Ambient.  

Conclusion

Flexibility is one of the biggest reasons why more businesses are going with ICHRA plans.

By delivering personalized healthcare benefits within a set budget, ICHRA strikes the perfect balance between individual and group health insurance — a significant advantage to both employers and employees.

Ready to dive into the world of ICHRA? 

SimplyHRA features a user-friendly platform with all the tools you need to take the complexities out of ICHRA. Request for a demo here to see it in action!