Definition
An Individual Coverage Health Reimbursement Arrangement (ICHRA) is a tax-advantaged employer benefit that allows employers of any size to reimburse employees for the cost of individual health insurance premiums and qualified medical expenses on a tax-free basis. Established by federal regulation in 2019, ICHRAs give employers flexibility to set contribution amounts by employee class (full-time, part-time, seasonal, etc.) without offering a traditional group health plan. Employees purchase their own coverage on the individual or small group market using the employer's contribution.
What This Means for Employers
ICHRAs offer employers a defined-contribution approach to health benefits: you set the reimbursement amount, and employees choose plans that suit their individual needs. This eliminates the employer's exposure to claims volatility and simplifies plan administration. ICHRAs are particularly valuable for employers with geographically distributed workforces, those with highly varied employee demographics, or those struggling to find an affordable group plan. However, the quality and availability of individual market options varies significantly by geography, so an ICHRA strategy requires careful market analysis in each employee location.
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