An Individual Coverage Health Reimbursement Arrangement, or ICHRA, is an employer-funded benefit that reimburses employees tax-free for individual health insurance premiums and other medical costs instead of enrolling them in a traditional group health plan. It was created by a joint rule from the Treasury Department, the Department of Labor, and the Department of Health and Human Services, and it became available for plan years starting January 1, 2020.1Federal Register. Health Reimbursement Arrangements and Other Account-Based Group Health Plans The employer sets a monthly dollar amount, the employee buys their own qualifying health plan on or off the marketplace, and the employer reimburses that premium (and, depending on plan design, out-of-pocket medical costs) up to the allowance.
The tax treatment is the point. Money moving through an ICHRA is excluded from the employee’s federal income and payroll taxes, and the employer deducts it as a business expense. Unlike a Qualified Small Employer HRA, which is capped at $6,450 for self-only coverage and $13,100 for family coverage in 2026, an ICHRA has no federal ceiling on how much the employer can contribute.
Which Employers Can Offer One
Any employer can set up an ICHRA regardless of size. A three-person startup and a Fortune 500 company are equally eligible. There is no minimum headcount, no industry restriction, and no requirement that the company previously offered group coverage.1Federal Register. Health Reimbursement Arrangements and Other Account-Based Group Health Plans
The employer funds the arrangement entirely on its own. Employees cannot put their own pretax money in through salary reductions the way they would with a Flexible Spending Account. And one class of workers can only be offered one thing: an employer cannot offer both a traditional group plan and an ICHRA to the same class of employees for the same plan year.
How It Works From the Employee’s Side
The employer never pays the insurance carrier directly. You pay for your own coverage and eligible medical expenses, then submit a reimbursement request to the plan administrator with documentation. After the claim is verified, the employer pays you back, typically through the next payroll cycle.
Before any money moves, you have to prove you actually have qualifying coverage. The rules require two rounds of verification:2DOL.gov. Individual Coverage HRA Model Attestations
- An initial attestation, given before the plan year begins or when you first become eligible, confirming that you and any covered dependents are enrolled in qualifying individual coverage or Medicare.
- An ongoing attestation before each reimbursement, confirming that the person whose expense is being reimbursed was actually enrolled that month.
A simple written statement satisfies both requirements, though some employers ask for copies of insurance cards as an added safeguard. If you lose your qualifying coverage mid-year, reimbursements have to stop for any month you were uninsured.
The Special Enrollment Period
Being newly offered an ICHRA opens a Special Enrollment Period on the health insurance marketplace. You have 60 days to pick or change a plan.3CMS. Special Enrollment Periods (SEP) Job Aid Without this window, someone offered an ICHRA outside of open enrollment would have no legal way to buy the coverage they need to use the benefit. Pick a plan before your ICHRA start date and coverage begins the first of the month following that date (or on the start date if it falls on the first). Pick a plan later and coverage begins the first of the following month.
What Coverage Actually Qualifies
You cannot pocket ICHRA money without insurance. Every month you claim a reimbursement, you and any covered dependents have to be enrolled in qualifying individual health coverage.4HealthCare.gov. Individual Coverage HRAs The following count:
- Individual major medical plans bought through HealthCare.gov or a state exchange
- Individual major medical plans bought directly from a carrier (off-exchange)
- Medicare Part A and Part B together, or Medicare Part C (Medicare Advantage)
Several things that feel like they should qualify do not. Healthcare sharing ministries are not insurance. Short-term limited-duration insurance is exempt from ACA consumer protections and does not count. TRICARE is the trap most likely to catch someone off guard: it satisfies the ACA’s minimum essential coverage requirement, but it is neither individual health insurance nor Medicare, so it cannot be used on its own to make you ICHRA-eligible. A TRICARE beneficiary who wants to participate has to buy a separate qualifying individual policy.4HealthCare.gov. Individual Coverage HRAs
Medicare and Medigap premiums are reimbursable, which makes an ICHRA useful for workforces that include Medicare-eligible employees.1Federal Register. Health Reimbursement Arrangements and Other Account-Based Group Health Plans
How Much Money and What It Pays For
The employer picks the dollar amount, and there is no federal cap. A company could offer $500 a month or $2,000 a month. That is a budget decision, not a legal one.
Employees who join mid-year can receive either the full annual allowance or a prorated amount based on months of eligibility, as long as the employer applies its choice consistently within a class. Unused funds belong to the employer. At year-end, the employer can reset balances to zero or allow rollover into the next year, but that has to be spelled out in the plan document before the year begins. When employment ends, any remaining balance reverts to the employer, subject to COBRA rights described below.
The employer also decides what the reimbursement covers. An ICHRA can pay all qualifying medical expenses, only premiums, or only out-of-pocket costs like copays and deductibles.1Federal Register. Health Reimbursement Arrangements and Other Account-Based Group Health Plans Eligible expenses track the IRS definition of medical care under Section 213(d), which is broad: doctor visits, prescriptions, dental work, vision care, mental health treatment, medical equipment, and more.5Internal Revenue Service. Publication 502, Medical and Dental Expenses Read the plan document. The scope is set there, not by what the IRS technically allows.
Employee Classes and the Same-Terms Rule
An employer does not have to offer the same ICHRA to everyone. It can offer the benefit to the whole workforce, limit it to certain groups, or give a traditional plan to one group and an ICHRA to another. But the groupings have to come from a fixed federal list. Employers cannot invent custom categories to steer more money to favored workers. The permissible classes are full-time employees, part-time employees, salaried employees, hourly employees, seasonal employees, employees in a specific geographic rating area, collectively bargained employees, employees in a coverage waiting period, and non-resident aliens with no U.S.-based income. Classes can also be combined, such as full-time salaried employees in one rating area.6eCFR. 26 CFR 54.9802-4
Within a class, everyone must be offered the ICHRA on the same terms. Two adjustments are allowed: contributions can vary by age and by number of dependents. The age variation is capped at a 3:1 ratio, so the amount offered to the oldest participant in a class cannot exceed three times the amount offered to the youngest. That keeps age-based pricing rational without letting the benefit turn into a hidden raise for older executives.
When a traditional group plan and an ICHRA are offered to different classes at the same company, the ICHRA classes have to meet a minimum size: at least 10 people at companies with fewer than 100 employees, at least 10 percent of the workforce at companies with 100 to 200, and at least 20 people at companies with more than 200. If the employer offers ICHRAs to every class and no traditional group plan to anyone, the minimum size rules do not apply.6eCFR. 26 CFR 54.9802-4
The Premium Tax Credit Trade-Off
This is where employees most often get stuck. If you are offered an ICHRA, you generally cannot also claim a Premium Tax Credit on the marketplace. The one exception is when the ICHRA offer is “unaffordable” under IRS rules.
For the 2026 plan year, the offer is affordable if your share of the lowest-cost silver plan available in your area, after subtracting the employer’s monthly ICHRA contribution, does not exceed 9.96 percent of household income.7Internal Revenue Service. Revenue Procedure 2025-25 If the math shows the offer is affordable, you are ineligible for a Premium Tax Credit whether you take the ICHRA or not. If the offer is unaffordable, you can opt out of the ICHRA and claim the credit instead. You cannot receive both a reimbursement and a credit for the same month.8Internal Revenue Service. Publication 4012 – IRS
Run the numbers before you enroll. A modest ICHRA plus a small subsidy is not an option.
HSA Compatibility
If you have a Health Savings Account, pay attention. A standard ICHRA that reimburses all medical expenses is generally incompatible with HSA contributions. If you are covered by both an ICHRA and a High Deductible Health Plan, you typically cannot contribute to an HSA, because the ICHRA counts as “other health coverage” that pays expenses before the HDHP deductible is met.9Internal Revenue Service. Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans
Three plan designs preserve HSA eligibility:
- A limited-purpose ICHRA that only reimburses dental, vision, and preventive care expenses.
- A post-deductible ICHRA that pays nothing until the employee meets a minimum deductible at least as high as the HDHP minimum ($1,700 self-only or $3,400 family in 2026).
- A suspended ICHRA, where the employee elects to suspend reimbursements for the plan year, receiving only preventive care and certain limited items, and can contribute to an HSA until the suspension ends.
For 2026, HSA contribution limits are $4,400 for self-only coverage and $8,750 for family coverage.10Internal Revenue Service. Notice 2026-05 If you value your HSA, a limited-purpose ICHRA is often the better fit than a broad one.
What Happens When You Leave the Job
An ICHRA is legally a self-insured group health plan, so it is subject to COBRA continuation coverage at employers with 20 or more employees. When employment ends (or hours are reduced enough to lose eligibility), you have the right to keep receiving ICHRA reimbursements by paying a COBRA premium.11DOL.gov. FAQs on COBRA Continuation Health Coverage for Workers The premium cannot exceed 102 percent of the plan’s cost, which in the first plan year usually works out to the monthly allowance plus a 2 percent administrative fee. You still have to keep your qualifying individual coverage during the COBRA period. That requirement does not go away when the paycheck does.
Employer Notice and Reporting
Employers must give every eligible employee a written notice at least 90 days before the plan year begins. New hires and other newly eligible employees have to receive it no later than the day their coverage can start. The notice must state the monthly dollar amount, the coverage start date, whether dependents are covered, information about the marketplace Special Enrollment Period, and a contact for questions.12Centers for Medicare & Medicaid Services. Individual Coverage HRAs Policy HC.gov Application Overview Skipping the notice can trigger penalties under the Internal Revenue Code that add up quickly on a per-employee basis.
Employers with 50 or more full-time equivalent employees also have to report ICHRA offers to the IRS on Form 1095-C, using specific indicator codes that identify who was offered coverage and how affordability was measured.13Internal Revenue Service. 2025 Instructions for Forms 1094-C and 1095-C Because the ICHRA is technically self-insured, the employer also owes the annual PCORI fee, which is $3.84 per covered life for plan years ending after September 30, 2025, and before October 1, 2026, paid on Form 720.14Internal Revenue Service. Patient-Centered Outcomes Research Trust Fund Fee: Questions and Answers
The affordability percentage changes every year. A contribution that made the offer affordable in one plan year can fall short the next if local silver premiums jump, and when that happens the employees are the ones who feel it in their subsidy eligibility.