A Guide to ICHRAs
A guide to ICHRAs for employers, brokers, and benefits professionals. Interested in a cost analysis for your business? Get started below.
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What is an ICHRA?
An ICHRA (short for Individual Coverage Health Reimbursement Arrangement, or Individual Coverage HRA) allows an employer to reimburse employees for the cost of purchasing their own health insurance. Employers provide employees with tax-free dollars they can use to pay for one of the dozens of plans available to them from the Marketplace.
ICHRAs are an alternative to traditional group health insurance. Instead of paying a portion of the costs to provide a group health benefit like a group health plan, employers can give employees essentially a stipend to use for Marketplace insurance.
ICHRA amounts can vary by employee class, age, and family size
With an ICHRA, a business can vary the allowance by the employee’s age, family size, and employee class. Within each employee class, businesses can offer an increased allowance to employees who have a family, and they can offer the oldest employees in the class up to three times more than the allowance offered to the youngest in the class.
Businesses are allowed to use 11 different employee classes:
ICHRA Employee Classes
 | Full-time employees, defined by average 30 hours a week or more or 40 hours a week or more (as chosen by the business) |
| Part-time employees, defined as averaging under 40 hours a week or under 30 hours a week (as chosen by the business) |
| Seasonal employees |
| Temporary employees who work for a staffing firm |
| Salaried employees |
| Hourly employees |
| Employees covered under a collective bargaining agreement |
| Employees in a waiting period for health benefits (waiting periods can be up to 90 days) |
| Foreign employees who work abroad |
| Employees in different locations,based on rating areas |
| A combination of two or more of the above--businesses can create additional classes by combining two or more of the above classes |
Source: Medicaid.gov
ICHRAs vs. QSEHRAs
ICHRAs and QSEHRAs are similar in that they both involve the business reimbursing employees for health care, tax-free for the employees. However, the two differ in eligibility.
In terms of employer eligibility, QSEHRAs are only an option for employers who
1) employ fewer than 50 full-time people and
2) do not offer a group insurance policy to any employees.
In terms of employee eligibility, ICHRAs offer more flexibility. QSEHRAs require that all full-time employees be given the same allowance, whereas ICHRAs allow employers to vary their allowance and eligibility based on a defined set of employee classes.
QSEHRA vs ICHRA
| QSEHRA | ICHRA | |
|---|---|---|
| Business size | <50 full-time employees | Any size |
| Can it be offered with a group plan? | No | Yes, but not to the same employee class |
| Is there a maximum contribution amount? | $5,250 for single employees, $10,600 for employees with a family | No maximum |
| Can amounts vary per employee? | Employer can vary allowance amounts by family status, age and family size | Employer can vary allowance amounts by family size, age, and employer class |
| Who is eligible? | All full-time employees are eligible, and part-time employees may be included | Employer determines the eligibility by each employee class, and same terms are offered to all employees in each class |
| How does it work with premium tax credits? | employees are eligible for premium tax credits, but amount is reduced by the HRA allowance. | Employees aren't eligible for premium tax credits. |
Source: Medicaid.gov
What are the benefits of ICHRAs?
For employers, ICHRAs can be more affordable than group health insurance.
ICHRAs also offer employers:
- Transfer employer responsibility for health risks
- Offer more personalized plan choices for employees
- Have simpler and more flexible plan design options
- Give employers greater cost control
- Have no participation concerns
- Require less administrative work
For employees, ICHRAs offer flexibility and portability.
ICHRAs also gives employees:
- More plan choices than group insurance
- Portability—they can continue in their same plan through the Marketplace if they leave their employer
How can I make sure my ICHRA is compliant?
ICHRAs must meet the following criteria:
1. Affordability
The Affordable Care Act (ACA) requires employers with more than 50 full-time equivalent employees to provide health insurance to their employees. Employers that don’t provide affordable insurance must pay a penalty. As the IRS defines ICHRA affordability, an ICHRA is affordable if “the remaining amount an employee has to pay for a self-only silver plan on the exchange is less than 9.02% of the employee’s household income (rate applies to 2025).” If your employee has to pay 9.02% of their household income or more for their insurance premiums for individual health insurance through a silver plan, then the ICHRA is not considered affordable.
You can use our calculator to determine how much you’ll need to allot to your employees for your ICHRA to be deemed affordable.
Since you may not know the exact cost of a silver plan for each of your employees’ locations and ages, the IRS has established “safe harbors” you can use to estimate the amount you need to allot employees in their ICHRA for it to be deemed affordable.
ICHRA IRS Compliance
| Safe Harbor | Description |
|---|---|
| Location | Employers can use employees' primary work address instead of their home address when determining the availability of silver plans |
| Prior year plan rates | Employers can use the prior year's rates to determine the following year's affordability |
| W-2 wages for salaried employees | Employers can assume salaried employees' household income is equal to what the employer reports annually in Box 1 of their W-2 form |
| Rate of pay for hourly employees | Employers can multiply the hourly rate by 130 hours to estimate a monthly income (regardless of how many hours the employee actually works) |
| Federal Poverty Line (FPL) | Employers can assume an employee's income to be equal to the federal poverty level |
Source: Medicaid.gov
2. Non-biased plan shopping
Employers cannot steer employees toward or against certain plans and cannot bias the employees toward or against certain plans. This is where sites like HealthCare.gov and HealthSherpa come in handy—these sites show all Marketplace plans that employees are eligible for, and they do not show any plans that ICHRAs do not cover, like short-term health insurance or health sharing ministries.
3. Qualified health plans only
Employees can only use an ICHRA to reimburse the costs of a Qualified Health Plan or Medicare plan. Qualified Health Plans (QHPs) are plans offered on the Marketplace and directly from insurers that meet certain consumer protections, like covering pre-existing conditions.
That means ICHRAs cannot be used to pay for other coverage, like a short term plan, indemnity plan, or a health sharing ministry.
HealthSherpa is a trusted partner to HealthCare.gov, 40,000 brokers, 25 carriers, and dozens of employers
HealthSherpa is uniquely positioned to help employers implement ICHRAs due to its partnership and full compliance with HealthCare.gov.
HealthSherpa has enrolled over 9 million people in Marketplace coverage and has an unbiased enrollment process that shows only Marketplace plans. HealthSherpa was the first to partner with the Centers for Medicare and Medicaid Services (CMS) on their Enhanced Direct Enrollment technology, so our enrollment process is streamlined and fast.
In the 2020 Open Enrollment Period, HealthSherpa was responsible for 20% of Marketplace enrollments in states that use the federal marketplace, and 90% of enrollments that used Enhanced Direct Enrollment technology. 25 issuers and 40,000 agents and brokers use HealthSherpa.
HealthSherpa is uniquely positioned to help employers implement ICHRAs due to its partnership and full compliance with HealthCare.gov.
With HealthSherpa, you’ll get:
- Full compliance with CMS
- The ability for your employees to see all plans from all issuers - no steering concerns
- Seamless routing on/off exchange, within a single household
- Off-exchange shopping & application
- Full Medicaid/CHIP submission equivalent to HC.gov
- ICHRA tools extended to 40,000 agents and brokers who can help your employees
How HealthSherpa Compares
| HealthSherpa | Healthcare.gov | Others | |
|---|---|---|---|
| Federal integration | | | Varies, usually none |
| All plans from all issuers | | |  |
| Comprehensive coverage only | | | |
| Medicaid submission | | | |
| White-glove customer service | | | |
| High-pressure sales tactics | | | |
| Robo-dials | | | |
| Data sharing with marketers | | | |
Source: Medicaid.gov
HealthSherpa’s Free ICHRA solutions
For Agents & Brokers
With HealthSherpa, your employer group clients will be able to provide a seamless enrollment experience for their employees through your branded website, as well as tools to help them make payments, upload documents, and use their insurance after enrolling. Learn more here.
You’ll also have ICHRA details in your agent dashboard that will give you visibility to the ICHRA business you are writing along with any follow-ups necessary for that client.
Learn more about HealthSherpa for Agents.
For TPAs/Broker Administrators
HealthSherpa is the largest individual coverage enrollment platform, and we have flexible solutions to support your ICHRA business needs. We offer agent and broker tools for licensed TPAs as well as a partner model where HealthSherpa will fully service your group. These services all come with employee-facing tools as well.
Enter your email below to learn more about how HealthSherpa can support your business with our free tools.
For Employers
With HealthSherpa, your employees will have a seamless enrollment experience through a co-branded website supplemented by expert phone support, as well as tools to help them make payments, upload documents, and use their insurance after enrolling.
You’ll get a dashboard that gives you reporting in real-time where you can track how many of your employees have shopped for plans, started applications, completed applications, and called in.
About HealthSherpa
We make it easy to compare and enroll in ACA health plans.
We're a partner of HealthCare.gov, offering the same plans and prices.
We've enrolled more than 9 million people!
