An ICHRA is an Individual Coverage Health Reimbursement Arrangement (ICHRA). This is a type of Health Reimbursement Arrangement (HRA) created in 2019. Employers can reimburse employees tax-free for qualified medical expenses, including premiums for individual health plans.

Adoption has grown significantly since ICHRAs were introduced. According to the HRA Council's 2025 annual report, large employer participation grew by 34% and small employer participation by 18% from 2024 to 2025. ¹

An ICHRA allows employers to provide employees with tax-advantaged reimbursements to pay for qualified medical expenses, including individual health insurance premiums and eligible healthcare expenses. Unlike traditional group plans, employees shop for coverage among all available major medical plans in the market, allowing them to enroll in a plan of their choice while potentially allaying the monthly premium cost.

An employer may self-administer an ICHRA plan or use an ICHRA administrator. After the employee purchases their health plan, the employee will submit proof of payment of premium, along with other medical expenses, if allowed, to their employer. The employer will then make a contribution up to the set limit to reimburse the employee for eligible expenses.

Any employer with at least one W-2 employee can offer an ICHRA—small or large employers alike. There are no minimum or maximum contribution requirements, but contributions must be consistent within an employee class.

Self-employed individuals with no employees cannot participate in an ICHRA for themselves.

Employees who are offered an ICHRA by their employer can participate if they enroll in ACA-compliant individual health insurance, whether that is purchased on or off the exchange. Enrolling in an ICHRA may impact an employee’s ability to receive subsidies (Premium Tax Credits) for health insurance purchased through the ACA marketplace.

Additionally, employees can participate if they are eligible for or enrolled in Medicare. Employers can use an ICHRA to reimburse employees for premiums paid for Medicare Part A, B, C, D, and Medicare Supplement (Medigap) insurance. Employees may also be eligible to receive reimbursements for their spouses and dependents, if allowed by the employer.

Classes, for purposes of an ICHRA, are specific groupings of employees that employers can use to tailor their health benefit offering. There are eleven employee classes defined by the federal regulations for ICHRAs. Employers can offer various health benefits or contributions across the classes. They must follow the minimum class size rules, may include only one benefit offering per class, and may not be used to discriminate against employees. Additionally, employers must offer the ICHRA on the same terms to all employees within a class.

ICHRA Classes:

1. Full-Time Employees
2. Part-Time Employees
3. Seasonal Employees
4. Employees covered by a collective bargaining agreement
5. Employees who have not satisfied a waiting period
6. Salaried Employees
7. Hourly Employees
8. Non-resident aliens with no U.S.-based income
9. Employees in the same geographic location
10. Temporary Employees
11. Combination of two or more of the above categories

An ICHRA can be a strategic win for both employers and employees. For employers, a key advantage is that an ICHRA can make it easier to respond to employees’ diverse needs and preferences. With no participation or contribution requirements, employers can offer an ICHRA to their employees and let them choose the plan that best serves their health insurance needs. Another major upside for employers is that an ICHRA can help them plan. Control of the ICHRA reimbursement amounts and limits they offer allows an employer to better control costs and manage budgets.

For employees, an ICHRA offers choice, and best of all, the coverage is portable. An employee can pick any available individual-market health plan that best fits their needs, unlike traditional group coverage, in which the employer selects one or multiple plan options from which employees can choose. Another advantage of an ICHRA is that it’s not contingent upon their employment and employees can keep their health plan provided they continue premium payments.

While both ICHRAs and traditional group health plans provide comprehensive medical coverage, they differ in several key areas. An employer is only able to offer a limited choice of group plans, often just one or two plan options selected by the employer, whereas ICHRAs allow employees to choose individual health plans that meet their benefit, budget, and preferred provider network needs.

ICHRAs can be a great choice for employers with remote or multi-state workforces, as each employee can select a plan available in their local market, ensuring access to suitable providers. Unlike traditional group plans that can have participation and contribution requirements, ICHRAs can be offered by employers with as few as one W-2 employee. Employers also benefit from greater cost predictability with ICHRAs, as they control the reimbursement amounts, unlike group plans where premiums are likely to increase annually.

An employer may offer both an ICHRA and a traditional group health plan, but not to the same employee class. For example, full-time employees must all be offered the same type of coverage, like a traditional group health plan, while part-time or seasonal employees can be offered an ICHRA, but the employer couldn’t offer some full-time employees a traditional group health plan and other full-time employees an ICHRA.

An ICHRA is funded by the employer; employers set a fixed, monthly account contribution that is tax-free for employees, who can use it to reimburse eligible healthcare expenses, such as individual health insurance premiums and qualified out-of-pocket medical costs. The employer determines the contribution amount, which can vary by employee class, and retains full control over how the ICHRA is structured and administered. Employees are not permitted to contribute to the ICHRA account established by the employer.

ICHRA funds can be used to reimburse a wide range of qualified medical expenses including individual health insurance premiums purchased on or off the Marketplace. Employers may choose to reimburse eligible out-of-pocket expenses such as copayments, deductibles, prescriptions, dental and vision care, and other medical costs. All reimbursed expenses must be substantiated, and only employees enrolled in qualified individual coverage are eligible to receive contributions and reimbursements under an ICHRA.

INSXCloud has tools that can help agents quote and design an ICHRA benefit offering, helping their employer group clients find the right balance between budget and benefits. Using ICHRA Private Exchange tool, you will be able to create proposals to present to employer clients, as well as shop, compare and quote ACA-compliant individual health plans in select markets. Agents can assist employers with designing the employer’s contribution strategy and show employees a broad choice of individual and family plan carriers. Finally, you can export data and send it to a group or ICHRA administrator, making the process easy and straightforward.