ICHRA

ICHRAs are growing rapidly because they give employers predictable costs and employees true choice. 
Businesses set a fixed monthly allowance, employees pick the plan that fits them, and both benefit from tax advantages and simplified administration. 
They’re flexible, scalable, and ideal for today’s hybrid and multi-location workforces. 

Any employer — from a two-person startup to a large corporation — can offer an ICHRA, as long as the same group of employees is not simultaneously offered a traditional group health plan. 

The beauty of ICHRA is choice. An employer can set reimbursement rules for various employment statuses by establishing employee “classes.” Rules for each will differ to meet the needs of that class. 

Classes are set using job-based criteria. They can’t be used to discriminate against any individual employee or employee group or to shift health risks off of an existing plan. The IRS outlines 11 different classes, including:  

•  Full-time employees 

• Part-time employees 

• Employees working in the same geographic location (generally, the same insurance rating area, state, or multi-state region) 

• Seasonal employees 

• Employees in a unit of employees covered by a specific collective bargaining agreement 

• Employees who have not satisfied a waiting period 

• Non-resident aliens with no U.S.-based income 

• Salaried workers 

• Non-salaried workers 

• Temporary employees of staffing firms 

• Any group of employees formed by combining two or more of these classes 

Classes were created to benefit both the employer and the employee. The flexibility employers gain by establishing classes helps them maintain their budget and better serve their employees. Employees also benefit from flexibility. For example, if an employee lives in a state with higher individual insurance premiums, the employer can make class adjustments to help fill that need. 

Employers may not, however, vary ICHRA compensation based on an employee’s compensation or tenure with the company. Within classes, it is possible to vary reimbursements by definitions such as family size or employee age. Older employees or employees with a family could be given a higher (but still fair and reasonable) amount. 

No. ICHRAs allow you to create employee classes and offer different reimbursement amounts to each group — as long as the distinction follows federal guidelines. 

However, all employees within the same class must be treated equally. 

For example, if full-time employees receive $400 per month, every full-time employee must have access to that same allowance. 

In most cases, no — employees cannot receive both an ICHRA and a Premium Tax Credit at the same time. 

Here’s how it works under federal rules: 

• If an employee is offered an ICHRA that is considered affordable under IRS guidelines, they cannot claim a Premium Tax Credit (PTC) for Marketplace coverage. 

• If the ICHRA offer is not affordable, the employee may opt out of the ICHRA before enrolling and instead claim a Premium Tax Credit through the Marketplace (if eligible). 

• Affordability is determined by comparing the employee’s required contribution for a benchmark Marketplace plan to a set percentage of their household income (the IRS updates this percentage each year). 

In summary: 
Employees can choose either the ICHRA or the Premium Tax Credit — but not both at the same time. 
Employers should clearly communicate this choice to help employees make an informed decision during enrollment. 

If an employer has over 50 employees, the employer is required under the Affordable Care Act (ACA) to provide health insurance to their employees. This means the ICHRA must be considered affordable. (See the calculation below.) 

If an employer has less than 50 employees, the employer is not required to offer health coverage to their employees and can choose to make the ICHRA “affordable” or “unaffordable” without the risk of any ACA penalties. 

Every year, the IRS sets the affordability standards. This establishes the maximum percentage of household income an employee can be expected to pay on individual insurance premiums. The affordability requirement for 2024 was 8.39% and was raised to 9.02% for 2025.  

How is ICHRA affordability calculated according to those standards? The lowest-cost silver plan on the local exchange is the standard for calculating affordability for ICHRA. 

ICHRAs are regulated under IRS, ERISA, and COBRA, just like traditional employer-sponsored health benefits. 
Here’s what compliance includes: 

• IRS: Reimbursements must be for qualified health expenses and documented properly. 

• ERISA: Employers must provide a written plan document and a Summary Plan Description (SPD). 

• COBRA: If your organization is subject to COBRA, ICHRA participants may have continuation rights similar to group health plans. 

Working with a licensed advisor like HE Benefits Advisors ensures your plan is designed and administered according to all federal requirements. 

You can start an ICHRA at any time during the year — there’s no need to wait for Open Enrollment. 
Launching an ICHRA automatically triggers a Special Enrollment Period (SEP), allowing employees to purchase individual health insurance when the plan begins. 
Most employers align their ICHRA start date with their group plan renewal or the start of a new month or fiscal year to keep payroll and accounting simple. 

📋 Compliance note: Employers must provide employees with at least 90 days’ advance written notice before the ICHRA takes effect. 

Yes. Large employers subject to the Affordable Care Act (ACA) can use an ICHRA to meet the employer mandate — as long as: The ICHRA is considered affordable under IRS guidelines, and It provides access to minimum essential coverage (MEC) through individual health insurance. 

If the plan meets these two conditions, the ICHRA is treated as an offer of coverage for ACA compliance purposes. 

HE Benefits Advisors ensures your plan design meets affordability and reporting standards (Form 1095-C, 1094-C, etc.). 

An ICHRA helps employers stand out by offering flexible, personalized, and portable health benefits that today’s workforce values. 

Instead of one-size-fits-all group coverage, each employee can choose a plan that fits their family, doctor network, and budget — often with lower out-of-pocket costs. 

For employers, this means: 

Stronger recruiting power — candidates see that you offer real health benefits, even as a small or growing business. 

Higher retention — employees appreciate choice and stability, especially when their coverage can move with them if their role or location changes. 

Better satisfaction — employees feel supported and informed through a modern benefits experience with licensed advisors instead of call centers. 

In a competitive job market, ICHRAs help businesses of all sizes offer benefits that feel personal, modern, and sustainable — creating a workplace people want to stay in.