Understanding ICHRAs
A Complete Guide to Individual Coverage Health Reimbursement Arrangements
What is an ICHRA?
An Individual Coverage Health Reimbursement Arrangement (ICHRA) is a health benefit option that allows employers to reimburse employees for individual health insurance premiums and qualified medical expenses tax-free instead of offering traditional group health insurance.
Key Concept: With an ICHRA, employers set a monthly allowance and employees purchase their own individual health insurance plans from the marketplace or private insurers. The employer then reimburses them up to the set amount. Employees must be enrolled in qualifying individual health coverage (or Medicare) to receive the reimbursement.
Key Features
- Flexibility: Employers of any size can offer ICHRAs with no minimum or maximum contribution requirements
- Employee choice: Workers can select any individual market plan available in their area that meets their needs
- Portability: The insurance stays with the employee even if they change jobs
- Tax advantages: Reimbursements are tax-free for both employers and employees
Eligibility and Adoption
ICHRAs became available in January 2020 under regulations issued by the Trump administration. The HRA Council estimates that at least 500,000 to 1 million people are enrolled in ICHRAs as of 2025, with adoption growing significantly each year.
Affordability and Tax Credits
Whether an ICHRA is considered “affordable” affects whether employees can receive premium tax credits from the health insurance marketplace. An ICHRA is affordable if the employee’s cost for the lowest-cost Silver plan (after ICHRA reimbursement) is less than 9.96% of their annual household income.
How to Get Coverage with an ICHRA
People don’t actually “buy” an ICHRA itself—instead, the ICHRA is a benefit employers set up and offer to their employees. Here’s how it works from the employee’s perspective:
- Employer offers the ICHRA
The employer notifies eligible employees that they’re offering an ICHRA benefit with a specific monthly reimbursement amount. - Employee shops for individual health insurance
Employees can use an ICHRA with any individual-market plan available to them, and employers cannot require selection of a specific plan. Employees can shop through HealthCare.gov, state health insurance marketplaces, directly from insurance companies, through insurance brokers (at no cost), or private exchanges. - Special enrollment period
Employers offering an ICHRA trigger a special enrollment period for employees, giving them 60 days to buy a plan, which means employees don’t have to wait for the annual open enrollment period. - Employee enrolls in chosen plan
The employee completes the enrollment application for the individual health insurance plan they’ve selected and pays the premium. - Employee submits proof of coverage
After enrolling, employees submit proof of their insurance coverage to their employer, which may include a copy of their insurance card or confirmation letter. - Employer reimburses the employee
The employer reimburses the employee (typically through their paycheck) up to the set monthly allowance amount for their premium costs and any other qualified medical expenses if the plan allows.
Important Points
- Employees must have qualifying individual health insurance (or Medicare) to receive ICHRA reimbursements
- If the ICHRA allowance doesn’t cover the full premium, employees pay the difference
- The reimbursement is tax-free for both employer and employee
- Employees own the insurance policy, so it stays with them if they change jobs
ICHRA vs. HSA vs. FSA: Key Comparisons
Understanding how ICHRAs compare with other healthcare savings options helps you maximize your benefits. Here’s a comprehensive breakdown:
ICHRA
- Funded by: Employer only
- Covers: Health insurance premiums + medical expenses
- Limits: No contribution limits
- Ownership: Employer owns it; funds don’t go with you if you leave
- Requirements: Must have individual health insurance or Medicare
HSA
- Funded by: Both employer and employee can contribute
- Covers: Medical expenses (copays, bills, prescriptions) but NOT premiums
- Limits: $4,300 individual / $8,550 family in 2025
- Ownership: Employee owns it; funds are portable and stay with you forever
- Requirements: Must have a high-deductible health plan (HDHP)
FSA
- Funded by: Primarily employee through payroll deductions (employer can contribute too)
- Covers: Medical expenses but NOT insurance premiums
- Limits: $3,400 in 2026
- Ownership: Employer owns it; typically “use it or lose it” at year end
- Requirements: Offered through employer
Can You Use Them Together?
ICHRA + HSA: Yes, but only if the ICHRA reimburses only insurance premiums and the employee has a high-deductible health plan. If the ICHRA also covers medical expenses beyond premiums, you can’t contribute to an HSA.
ICHRA + FSA: Yes, you can use both together, but you cannot “double dip” by claiming the same expense from both accounts.
HSA + FSA: You can have a Limited Purpose FSA (for dental and vision only) alongside an HSA.
The Bottom Line
Think of these options this way:
- ICHRA: Employer pays for your health insurance
- HSA: You and your employer save for future medical bills (yours to keep forever)
- FSA: You set aside pre-tax money for current year expenses (use it or lose it)
The ICHRA is unique because it actually helps pay for the insurance policy itself, while HSAs and FSAs help with out-of-pocket costs after you already have insurance. This makes ICHRAs an increasingly popular choice for employers seeking flexibility in benefits offerings while giving employees control over their healthcare decisions.