What is ICHRA?

Key takeaways:

• An Individual Coverage Health Reimbursement Arrangement (ICHRA) lets employers reimburse employees for individual health plans, offering tax advantages and predictable costs. Instead of one group plan, employers set a monthly allowance — reimbursed tax-free — that employees use to buy their own insurance.
• Employees can select a health plan that fits their needs and budget, receive tax-free reimbursements, and keep their coverage even if they change jobs. This flexibility gives them greater control over their health care, allowing them to choose plans that suit their individual circumstances while maintaining consistent coverage and benefiting from cost savings. 
• Employers gain better cost control, predictable expenses, easier compliance with Affordable Care Act (ACA) rules, and simpler plan administration, compared to traditional group plans. Tools like eHealth’s IRIS™ also make it easier to manage benefits, keep employees satisfied, and use data to make smarter decisions.

Why ICHRA?

ICHRAs were introduced in 2020 as a flexible way for employers of any size to offer health benefits. Employers can set different allowance amounts for groups of employees — for example, full-time, part-time, or seasonal staff.

Employees must choose between enrolling in an ICHRA or a traditional group health plan, both cannot be offered at the same time.

Since their introduction, ICHRAs have gained popularity as a cost-effective alternative to group health insurance, simplifying benefits while offering employees more choice.

Common employer challenges 

Many businesses, especially small ones, face challenges managing group health plans. Here are a few of the main pain points:

• Rising costs: Premiums can increase each year, and smaller companies often pay more without access to large-group discounts.
• It’s complicated: Managing all the paperwork and details can be overwhelming, especially if you don’t have a big HR team.
• Unpredictable budgets: A single employee’s high medical costs can create sudden financial strain.

For these reasons and more, ICHRA adoption continues to grow quickly — overall it rose by 34% among large employers from 2024 to 2025, with some groups, such as those with 100–199 employees, seeing a 49% year-over-year increase. 

Smaller employers are also turning to these flexible health benefit options. Among businesses with fewer than 50 full-time employees, ICHRA adoption rose 52% in 2025, according to the HRA Council, a trusted source in the health benefits industry. The data comes from the Council’s latest report, with insights provided by eHealth through its ICHRA platform, Iris™, along with contributions from other member organizations.

Top ICHRA benefits for employers

Why are ICHRA’s becoming increasingly popular? Let’s look at some key benefits. ICHRA offers several features that make it a smart option for employers: 

• Predictable costs: Select coverage that fits personal needs, including preferred doctors or networks.
• Tax savings: Premiums and eligible medical expenses are reimbursed tax-free.
• Customization: Employers can design benefits for different employee groups based on job type, status, location, or union agreements.
• Simpler administration: ICHRAs reduce paperwork compared to group health plans.
• ACA compliance: Plans meet federal requirements, helping employers avoid penalties.

Top ICHRA benefits for employees

Employees can also gain unique benefits from ICHRAs, including: 

• Plan flexibility: Employees can choose individual health plans that suit their needs, including plans with preferred doctors. 
• Tax-free reimbursements: Reimbursements for premiums and qualified healthcare expenses enhance value for employees. 
• Portability: Employees keep their coverage even if they leave the company.
• Additional options: Employees can add vision, dental, or other supplemental benefits.

ICHRA Plan potential challenges 

Now that we’ve looked at benefits, let’s look at downsides employers and employees may face with ICHRA: 

Employer:

• Setting up an ICHRA requires careful planning to follow tax and health laws, which can be complex, but platforms like Iris™ offer administrative help to simplify the process.
• Employers must provide enough money so employees can afford insurance, or they risk penalties.
• Employers can’t steer employees toward plans with better coverage or lower costs, which may affect employee satisfaction.

Employee:

• Shopping for individual insurance can be confusing without help.
• Buying insurance alone might cost more than group plans, depending on your area.
• Some insurance plans may not be available where you live, limiting the choices.

ICHRA vs. other health plan options 

Now let’s look at ICHRA against other health plan options to see how they match up, so you can understand what might work best for your business. 

ICHRA comparison chart:

Type of health plan:	Description:	Tax benefits:	The max amount you can put in each year:	Flexibility for employers:	Flexibility for employees:	Stays with employee if they switch jobs?
Traditional Group Health Plan	A plan chosen and paid for by an employer that covers a group of employees	Employer pays with tax-free dollars; employees often pay part of the cost before taxes	Set by employer; usually high	Low – it’s the same plan for everyone	Must use the plan offered	Usually no (unless COBRA is used)
Individual Coverage Health Reimbursement Arrangement (ICHRA)	Employer gives money for employees to buy their own health plans	Employer gets tax breaks; employees get tax-free paybacks	No set limit – employer decides	High – employer can give different amounts to different types of workers	Pick your own plan and doctors	Yes – plan stays with employee
Qualified Small Employer HRA (QSEHRA)	Specifically for small businesses, to help employees buy their own health plans	Employer gets tax breaks; employee reimbursements are tax-free	$6,350 (individual) / $12,800 (family)	Good for small businesses; more flexible than group plans	Choose your own plan	Yes
Health Savings Account (HSA)	Savings account used to pay for medical costs; must be with a high-deductible plan	Contributions and withdrawals are tax-free if used for medical costs	$4,300 (individual) / $8,550 (family); extra $1,000 if 55+	Employer can add money but doesn’t control use	Use money how you want (if medical)	Yes – money is yours
Flexible Spending Account (FSA)	Employer sets up account to help cover medical costs	Contributions are pre-tax; withdrawals are tax-free if used for medical expenses	$3,300 per person; some plans let you carry over up to $660	Employer sets rules and amount	Use for qualified expenses in the year	Usually no – money stays with employer

What’s New in 2025: Policy shifts impacting ICHRA

Let’s look at a few key policy updates in 2025 that could impact how ICHRAs work for you and your team:

1. Expanded tax credit eligibility.

Thanks to an extended federal rule, employees earning more than 400% of the federal poverty level can still qualify for premium tax credits if their ICHRA plan is considered unaffordable. This extension, in effect through the end of 2025, helps make individual health coverage more affordable for a wider range of employees.

2. Paused year-round enrollment for low-income individuals.

Previously, individuals earning up to around 150% of the federal poverty level (about $22,590 for a single person in 2025) could enroll in or change Marketplace coverage at any time year-round. However, under a new federal rule effective August 25, 2025, that low income‑ Special Enrollment Period (SEP) will bepaused nationwide through the end of 2026. It’s important to note that this pause is temporary — the low-income SEP is normally available year-round.

3. New out-of-pocket limits in 2025.

For 2025, the out-of-pocket cost limits for individual health plans — which are often purchased through an ICHRA — have been updated. Employees will not pay more than $9,200 for an individual or $18,400 for a family for in-network covered services, providing added financial protection.

Bringing it all together 

ICHRAs provide a smart, modern approach to employee health benefits for employers by combining flexibility, tax advantages, and cost control. Although setup and compliance require thoughtful planning, ICHRA’s customization makes it an excellent option for businesses looking to enhance their health benefit offerings — and platforms like eHealth’s Iris™ make the process simple. 

ICHRA FAQ’s 

Can business owners participate in ICHRA? 

Yes, but it depends on the business type. C-corporation owners who are employees can participate. However, sole proprietors and S-crop owners with more than 2% ownership usually can’t due to tax rules.

What’s considered an “affordable” ICHRA? 

An ICHRA is affordable if the employee’s monthly cost for the cheapest Silver plan (after the employer pays their part) is less than 9.02% of one month’s household income.

If it’s affordable, employees and their families can’t get premium tax credits. If it’s not affordable, employees can choose to skip the HRA and get tax credits for Marketplace plans —but they can’t use both at the same time.

The affordability calculation doesn’t include extra savings from the American Rescue Plan Act.

What happens if employees already have a plan?  

Employees can use ICHRA funds for qualifying plans. If their plan isn’t eligible, they’ll need to switch to a compliant individual health plan. 

Note: This article provides general information and is not intended to provide tax, legal, or accounting advice. Consult with your own tax, legal, or accounting advisors for advice on your specific situation. 

MMR-3538-2025