Learn how an ICHRA benefit can help to make health coverage affordable
Published: 05/22/2025
An ICHRA – short for Individual Coverage Health Reimbursement Arrangement – is a tool employers of any size can use to reimburse employees for individual-market health insurance premiums and out-of-pocket medical expenses.1
This type of health reimbursement arrangement (HRA) has been growing in popularity, with ICHRA adoption growing 29 percent between 2023 and 2024, according to a study by the HRA Council – and an estimated 5,000 firms offering ICHRAs in 2024.2 The HRA Council estimates that 500,000 people were receiving employer reimbursements for their health insurance premiums in 2024, either via an ICHRA or a QSEHRA (Qualified Small Employer Health Reimbursement Arrangement).3
Let’s take a look at what’s behind the growing popularity of ICHRAs.
An ICHRA allows employees to choose from among any of the individual-market health plans available in their area. To utilize an ICHRA, the employee must be enrolled in either an individual major medical plan or Medicare,4 and provide the employer with proof of the premiums paid.
Depending on where they live, this could mean dozens of different plan options to choose from.
And since the coverage is purchased by the employee, they don’t have to keep their job to maintain their coverage. If they were to leave their job and lose their employer-sponsored ICHRA benefit, they would still have the option to keep the individual-market coverage.
(Without the ICHRA, a health plan enrollee would be responsible for the full cost of the plan’s premiums. But if the coverage was purchased in the Marketplace, they might be eligible for income-based subsidies if and when they lose access to the ICHRA benefit.)
If the employer chooses to allow it, an ICHRA can also reimburse employees for out-of-pocket medical expenses,5 up to the limit set by the employer.
ICHRAs allow employers of any size to reimburse employees, tax-free, for individual-market health plan premiums. Large employers can use an ICHRA to satisfy the ACA’s employer mandate6 as long as the benefit makes purchasing an individual-market health insurance plan affordable.
In addition, there are no limits on how much an employer can reimburse under an ICHRA.7 In other words, employers can set their own limits in terms of how much they’re willing to reimburse their employees for premiums and qualified medical expenses that the employer allows to be reimbursed under the plan.
ICHRAs allow employers to control their costs by setting a reimbursement limit that works for their budget, while also allowing employees to pick from among all of the individual-market health plans available in their area.
Additionally, while the employer manages the ICHRA itself, the administration of employees’ health coverage is handled by the health plan that each employee picks. This can help to simplify overall benefits administration for the employer.
For some employers, an ICHRA might make it possible for them to offer benefits for the first time, or to a population of employees that didn’t previously qualify for benefits, such as part-time employees. Small employers do not have to comply with the ACA’s employer mandate, and it also doesn’t apply to part-time employees, even at large businesses. So in those scenarios, employers have full flexibility in terms of the amount they offer via the ICHRA.
The amount you might save on premiums and medical costs will depend on how much your employer reimburses with the ICHRA, as well as the cost of the individual health plan you select.
Employers set their own ICHRA reimbursement limits, and the government does not impose any lower or upper reimbursement limits.8 So an employer can choose to reimburse only a fraction of the average employee’s premium, or reimburse enough to cover all premiums as well as some out-of-pocket medical expenses.
When an employer offers an ICHRA, eligible employees receive a notification of the reimbursement limit set by the employer. The employee can then shop for coverage in the individual market – or keep an existing individual-market plan.
If the selected plan costs more than the ICHRA reimbursement, the employee is responsible for paying the additional premiums.
Yes. You can only use an ICHRA with individual-market major medical coverage, or Medicare. (ICHRAS cannot be used with other types of coverage, such as short-term health insurance or coverage obtained from your spouse’s employer.9)
All individual-market major medical plans sold since 2014 must fully comply with the ACA. So if you’re purchasing coverage to use with an ICHRA, it will be an ACA-compliant plan.
You can get your coverage:
In either case, a broker can help you with the process of selecting a plan and enrolling in the coverage.
When an employer initially offers an ICHRA benefit, the employees who are offered the ICHRA become eligible for a special enrollment period for individual-market health insurance. This allows them to purchase coverage – in their state’s Marketplace or directly from an insurer – that they can use with the ICHRA benefit.
If an employee doesn’t take advantage of the SEP, they will not have another opportunity to enroll in individual-market coverage until the next annual open enrollment period (assuming they don’t qualify for a different SEP due to another qualifying life event).
Without individual-market health coverage (or Medicare) in place, an employee cannot utilize an ICHRA benefit offered by their employer. So it’s important for employees to enroll in coverage during the SEP triggered by the ICHRA benefit becoming available to the employee.
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