What is an ICHRA, and how is it different from a group plan?

An Individual Coverage Health Reimbursement Arrangement (ICHRA)is a way for an employer to fund employees' health coverage without offering a traditional group health plan. Instead of choosing plans for everyone, the employer sets aside a tax-free reimbursement allowance, and each employee uses it to buy their own individual-market plan — on or off the ACA marketplace — that fits their own situation.

How it actually works

• The employer sets a monthly (or annual) allowance amount — there's no federal cap on how much.
• The employee shops for and buys their own individual health plan, the same way anyone browsing our plan explorer would.
• The employee submits proof of that coverage and their premium (and often other qualifying medical expenses) for reimbursement, up to the allowance.
• Reimbursements are tax-free to the employee and deductible for the employer, similar to how traditional group premiums are treated.

The employee must actually be enrolled in individual health coverage to receive reimbursements — an ICHRA allowance isn't cash that can be used for anything, and it can't be used to reimburse a spouse's employer-sponsored group plan.

Employers can vary the allowance by employee class

An employer doesn't have to offer the same allowance to everyone. ICHRA rules allow varying the amount by defined employee classes — full-time vs. part-time, salaried vs. hourly, different geographic locations, or age (within limits) — as long as the classes are defined by legitimate job-based criteria, not by health status. What an employer can't do is set a higher allowance for healthier employees or lower it based on someone's medical history.

How it interacts with ACA subsidies

An employee offered an ICHRA generally can't also claim a premium tax credit on marketplace coverage — the two benefits are mutually exclusive per individual. Whether the ICHRA offer counts as “affordable” (which determines whether declining it and claiming a subsidy instead is even an option) depends on comparing the allowance to the cost of a benchmark plan relative to the employee's household income — the same benchmark-plan mechanism described in how ACA subsidies actually work. An employee can generally opt out of an ICHRA offer entirely if they'd rather pursue marketplace coverage with a subsidy instead — but not receive both at once.

Why an employer would choose this over a group plan

The appeal is mostly predictability and simplicity: the employer sets a fixed budget line rather than absorbing whatever a group plan's renewal rate does year over year, avoids picking (and being blamed for) a single plan that doesn't fit everyone, and — unlike the older QSEHRA model — there's no employer size limit, so this is available to businesses of any size, not just small employers.