Key Takeaways
- ICHRA offers flexibility and cost control by allowing employers to set monthly contribution amounts while employees choose their own health plans.
- Tax advantages for both sides: Employer contributions are tax-deductible, and employee reimbursements are tax-free.
- Ideal for diverse workforces, especially small businesses, those with remote teams, and growing companies seeking affordable, customizable health benefits.
Healthcare costs aren’t slowing down and neither is the pressure on employers to offer medical benefits for their staff. As prices continue to rise, more companies are hitting a breaking point, leaving them to ask:
“How can we keep offering quality health coverage without breaking the budget?”
One option gaining renewed attention is the Individual Coverage Health Reimbursement Arrangement (ICHRA), a modern alternative to traditional group health plans that’s helping employers of all sizes provide meaningful coverage in a flexible, affordable way.
The Lewer Benefits team has answered some of the most common questions about ICHRAs, how they work, and when they might make sense for your organization.
Q: What is an ICHRA?
An ICHRA is an arrangement that allows employers to reimburse employees for individual health insurance premiums and medical expenses, instead of sponsoring a group plan.
In simple terms, employers set aside a fixed monthly amount, and employees use those funds to buy their own coverage through the Health Insurance Marketplace or directly from an insurer.
The employer’s contributions and the employee reimbursements are tax-free, and employers retain control over how much to contribute and which expenses qualify.
Q: Why are ICHRAs becoming more popular?
When ICHRAs were introduced in 2020, they were considered experimental. But as costs and workforce needs have shifted, they’ve quickly become a practical solution, especially for small and mid-sized businesses.
Industry research shows that small businesses make up a large share of new ICHRA adopters, with many offering health benefits to employees for the first time.
During fall 2025, our team at Lewer Benefits spoke with many clients and callers about ICHRA options, a clear sign of changing times. Not long ago, we rarely recommended having employees purchase individual coverage because it was typically more expensive for employees to purchase on their own.
Now the market has shifted. In many cases, individual policies are more affordable and also offer broader networks than traditional group plans coordinated through an employer.
Q: How does an ICHRA work?
At a high level, ICHRAs typically work as follows:
- You, as the employer, decide how much to contribute to employees each month and what expenses will be reimbursable.
- Employees choose their own qualified health plan from the Marketplace or a private insurer.
- Employees submit proof of coverage and expenses for reimbursement.
- The company then reimburses those costs tax-free up to the monthly allowance.
Employers can design ICHRAs to fit different employee groups. For example, offering different amounts for full-time, part-time, or remote employees, as long as the same rules apply within each class.
Q: What are the main advantages of offering an ICHRA?
Flexibility and cost control: Employers decide their contribution levels and can adjust them annually to match budgets.
Employee choice: Workers can pick the plan that fits their doctors, dependents, and budgets best.
Tax benefits: Contributions are tax deductible for employers and tax-free for employees.
Simplicity: Employers don’t have to manage a group plan, negotiate renewals, or worry about minimum participation requirements.
Q: Are there any drawbacks to ICHRA?
Like any benefit option, ICHRAs come with trade-offs.
Administrative setup and maintenance: Employers need a clear process for employee communications, verifying documentation, and coordinating reimbursements.
Varying coverage: Employees may choose plans from different carriers, which means less uniformity across the workforce.
Affordability testing: For larger employers (those subject to the ACA’s employer mandate), contributions must be considered “affordable” to avoid penalties.
These challenges are manageable with good planning and often outweigh the financial and administrative relief an ICHRA can bring. You should ask your employee benefits broker to guide you through these hurdles.
Q: Who is a good candidate for an ICHRA?
While ICHRAs can work for almost any employer, they are most valuable for:
- Small employers that struggle to afford a traditional group health plan
- Growing companies looking to scale benefits without unpredictable annual cost spikes
- Organizations with remote or multi-state employees where local plan and network options vary
- Employers who prioritize flexibility and want to give employees more autonomy in choosing coverage
Q: How do employees qualify for an ICHRA reimbursement?
To participate, employees must have individual health insurance coverage, either through the Marketplace, a private insurer, or Medicare. They can’t use short-term health plans or coverage through a spouse’s group plan.
Employers are responsible for verifying enrollment, typically through documentation or attestation forms.
Q: How is this different from a traditional group HRA?
Traditional HRAs are tied to a group health plan. ICHRAs are not.
This means employers can offer ICHRAs instead of a group plan (or even alongside one), so long as it is offered to all eligible employees. This includes employees with varying classifications such as salary and hourly.
That flexibility lets employers tailor benefits to their workforce without managing multiple group contracts.
Q: How can employers get started?
Setting up an ICHRA is straightforward when you have the right partner guiding you through the process and compliance requirements.
Your broker will help you:
- Decide who’s eligible and how much they’ll contribute
- Create a written plan document and employee notices
- Coordinate reimbursement and compliance tracking
- Communicate the new benefit clearly to employees
Working with a knowledgeable advisor helps ensure compliance with ACA affordability standards and IRS rules—while making the rollout simple for HR teams.
A new path to employee health security
ICHRAs give employers a way to support employees’ health without overspending or overcomplicating benefits. By shifting from “one plan fits all” to “choice within structure,” companies can provide flexibility, stability, and care in equal measure.
How LewerBenefits can help
LewerBenefits helps businesses strike a balance between cost and care, compliance and compassion. Whether you’re exploring an ICHRA for the first time or ready to implement one, we can guide you through every step and provide all the necessary communication and resources for your employees.
