Health benefits don’t have to be all-or-nothing. An Individual Coverage Health Reimbursement Arrangement (ICHRA) lets employers define a tax-free monthly allowance that employees can use to buy their own qualifying individual health insurance and eligible medical expenses. The model offers cost control for the employer and more plan choice for the employee—when implemented correctly.

How it works:

  • Employer sets allowance (by permitted classes, such as full-time vs. part-time).
  • Employee buys coverage in the individual market or Medicare (if eligible).
  • Employer reimburses after verifying qualifying coverage each month.

When it might not fit:

ICHRAs may be less viable for employers bound by specific state or municipal mandates (e.g., Hawaii’s Prepaid Healthcare Act, San Francisco’s Health Care Security Ordinance) or certain federal contract obligations like the Service Contract Act.

Compliance essentials:

For ERISA-covered employers, the ICHRA is itself an ERISA plan, which means you must follow ERISA’s reporting, disclosure, and fiduciary rules. However, the individual policies employees purchase with their ICHRA funds are not considered ERISA plans—provided you do not influence or control their choice of policy.

Ready to explore if ICHRA could be the right fit for your team? Book a free consultation and we’ll model your options—allowances, employee classes, and compliance included.

Related Resources:

ICHRA Affordability & Budgeting:: https://gobenefits.com/can-an-ichra-save-us-money-affordability-safe-harbors-budgeting/

ICHRA Compliance Checklist:: https://gobenefits.com/ichra-compliance-reporting-an-employers-checklist/

Best-Fit Scenarios for ICHRAs:: https://gobenefits.com/when-an-ichra-makes-the-most-sense-and-when-it-doesnt/ 

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