What Employers Need to Know About ICHRAs: A Modern Solution for Employee Health Benefits

What Employers Need to Know About ICHRAs: A Modern Solution for Employee Health Benefits

ICHRAs are transforming how employers think about health benefits. By combining flexibility, tax advantages, and employee empowerment, they present a compelling alternative to traditional group plans. For many employers, they offer a way to provide meaningful healthcare support without the complexity or cost unpredictability of group coverage.

If you're evaluating new health benefit strategies, now is a great time to explore whether an ICHRA could be the right fit for your business.

As healthcare costs continue to rise, many employers are seeking flexible, cost-effective ways to offer health benefits. One increasingly popular option is the Individual Coverage Health Reimbursement Arrangement (ICHRA). Created under a 2019 federal rule, ICHRAs offer an innovative approach to providing health benefits — one that gives employers predictable costs and gives employees more choice in their health coverage.

What Is an ICHRA?

An ICHRA is an employer-funded, tax-advantaged health benefit that allows employees to purchase their own individual health insurance coverage — either through the marketplace or a private insurer — and get reimbursed for premiums and, optionally, other qualified medical expenses.

Unlike traditional group health plans, ICHRAs shift the insurance selection process to the employee, giving them more control over their healthcare options while employers define their maximum reimbursement budget.

Key Features of an ICHRA

• Tax Advantages: Employer contributions are tax-deductible for the business and tax-free for the employee.
• Flexibility: Employers can design different benefit levels for different classes of employees (e.g., full-time vs. part-time, salaried vs. hourly).
• Cost Control: Employers choose a defined monthly allowance, eliminating unexpected premium increases.
• Employee Choice: Employees choose the individual plan that works best for them and their families.

How ICHRAs Work

1. Employer Sets a Budget: Employers determine how much they will reimburse employees each month.
2. Employee Shops for Coverage: Employees buy a health insurance plan that fits their needs.
3. Employee Gets Reimbursed: After submitting proof of coverage and/or expenses, the employer reimburses employees up to the allowed amount.

ICHRA vs. Traditional Group Plans

Who Can Offer an ICHRA?

Any employer, regardless of size, can offer an ICHRA. However, employers cannot offer both a traditional group plan and an ICHRA to the same class of employees. They can offer different benefits to different classes of employees (within IRS rules).

Is an ICHRA Right for Your Business?

ICHRAs are especially well-suited for:

• Small to mid-sized businesses looking for cost predictability
• Employers with a geographically diverse workforce
• Employers with low participation on the medical plan
• Companies with part-time, seasonal, or 1099 workers (in some configurations)
• Organizations wanting to reduce administrative overhead

Compliance and Considerations

Employers must ensure:

• Employees enrolled in an ICHRA have individual health insurance (not short-term or sharing ministries)
• Reimbursements are for qualified expenses
• Annual notices are provided to employees
• Proper substantiation and recordkeeping are in place

Partnering with a third-party administrator (TPA) or benefits platform can help ensure compliance and simplify the process.

Connect with Your CBA Insurance Expert: Alexa Schoonover