Reviewed by Erik Osborne, PA-C, Co-Founder | August 2026
The Quick Answer: An Individual Coverage Health Reimbursement Arrangement (ICHRA) lets an employer of any size give employees a fixed, tax-free monthly allowance to buy their own health insurance on the individual market, instead of enrolling everyone in one group plan. Adoption grew 34% among large employers and 52% among small employers over the past year, and roughly one million people are now covered through an ICHRA [1][2]. Because most employers finalize their benefits strategy for the next plan year in August and September, before their own open enrollment in October or November, this is exactly the window to decide whether one makes sense for your 2027 renewal [7][8].
If your group renewal came back with another double-digit increase this year, you are not alone. Average employer-sponsored premiums reached $9,325 for single coverage and $26,993 for family coverage in 2025, both up from the year before [6]. For a lot of small and mid-size employers, the annual renewal conversation has become the same conversation every year: absorb the increase, shift more cost to employees, or shrink the plan itself.
An ICHRA changes the shape of that conversation entirely, by removing the employer from the business of choosing a single plan for everyone.
What an ICHRA Actually Is
An ICHRA is not an insurance plan. It is a reimbursement arrangement. The employer sets a fixed monthly allowance, which can vary by employee class (full-time, part-time, salaried, hourly, geographic location, and several other categories defined by the rules), and employees use that allowance tax-free to pay for individual health insurance they choose themselves on the ACA marketplace or off-exchange [1].
The core shift is this: instead of the employer picking one plan (or a small menu of plans) for the whole company, each employee picks the plan that actually fits their situation, a young, healthy employee might choose a lean HDHP, while an employee with ongoing prescriptions might choose a richer plan, and the employer’s cost stays the same either way, because the allowance is fixed.
How ICHRA Differs From a Traditional Group Plan
| Traditional Group Plan | ICHRA | |
|---|---|---|
| Who chooses the plan | Employer selects one plan or a small menu | Employee chooses their own individual market plan |
| Employer cost | Tied to group claims experience, can swing year to year | Fixed monthly allowance, set by the employer |
| Renewal risk | Employer absorbs premium increases or shifts them to employees | Employer’s allowance amount is a controlled, predictable line item |
| Employee flexibility | Limited to what the employer selected | Full individual marketplace, employee can match plan to their own needs |
| Employee choice between ICHRA and group plan | Not applicable | Employers cannot let an individual employee choose between the two; it’s one or the other for a given class |
| Best fit | Employers wanting to keep a single group plan and manage costs directly | Employers wanting predictable costs and less administrative burden picking plans |
Why More Employers Are Making the Switch
A few numbers are driving the shift:
- ICHRA adoption grew 34% among large employers and 52% among small employers between 2024 and 2025 [1][2].
- An estimated one million people are now covered through an ICHRA, a new high [2].
- 92% of employers who offered an HRA the prior year continued to offer one, one of the stronger retention rates in employer benefits [4].
- Nearly 60% of ICHRA-enrolled employees have more than 75% of their premium covered by their employer’s allowance, and another 30% have 50% to 74% covered, meaning most ICHRA offers are landing as genuinely generous, not token, contributions [5].
- 84% of employers offering an HRA have 20 or fewer employees, which reflects how much of ICHRA’s growth is coming from small businesses specifically, not just large employers with dedicated benefits teams [4].
The Affordability Rule Employers With 50+ Employees Need to Know
If your business has 50 or more full-time equivalent employees, the ACA’s employer mandate still applies, and an ICHRA offer has to clear an affordability test to satisfy it. For plan year 2026, an ICHRA offer is considered affordable if the employee’s out-of-pocket cost for the lowest-cost Silver plan available to them, after subtracting your allowance, does not exceed 9.96% of their income [1][3]. Employers can use several IRS safe harbors, including W-2 wages or the federal poverty line, to simplify this calculation rather than tracking each employee’s actual household income [3].
Businesses under 50 full-time equivalent employees are not subject to the employer mandate at all, which is part of why ICHRA adoption has grown fastest among small employers who want to offer something more than nothing, without taking on group-plan-level administrative complexity [4].
What This Means for Your Renewal Timeline
Most employers with a calendar-year plan run their own open enrollment in October or November, ahead of the ACA Marketplace’s public open enrollment window for individuals, which runs November 1 through December 15, 2026 for 2027 coverage this year, a shorter window than in past years [7][8]. If you are considering a shift to an ICHRA for your 2027 plan year, that timeline matters in both directions:
- You need to finalize your allowance structure, employee classes, and communication materials before your own open enrollment starts.
- Your employees will then need to shop the individual marketplace themselves during that same shortened window, so clear, early communication about how the ICHRA works matters more this year than in years with a longer shopping window.
August and September are the right time to model this out, not October.
Questions to Work Through Before You Decide
- Do you want to keep a group plan for some employee classes and offer ICHRA to others (for example, a group plan for full-time staff and an ICHRA for part-time or seasonal workers)?
- What monthly allowance would actually be competitive in your market, and does it clear the affordability threshold if you have 50 or more employees?
- How will you communicate a benefit that puts more decision-making in employees’ hands, in a way that reads as more flexible, not less generous?
- Do you have a broker or advisor who can help employees actually shop the individual market, since this is unfamiliar territory for most employees used to a single group plan menu?
Frequently Asked Questions
Can we offer ICHRA to some employees and a group plan to others? Yes, as long as the distinction is made by defined employee classes (for example, full-time versus part-time, or by location), not on an individual, case-by-case basis. Employers cannot let one specific employee choose between an ICHRA and the group plan while offering the group plan to their identical peers.
Is the allowance taxable to employees? No. ICHRA allowances are provided tax-free to employees, the same tax treatment as employer contributions to a traditional group plan [1].
Does this work for a business with fewer than 10 employees? Yes, ICHRAs are available to employers of any size, and a large share of current ICHRA adoption is coming from businesses with 20 or fewer employees specifically [4].
What happens if premiums on the individual market are higher than expected this year? This is worth watching closely for 2027. The individual market has gone through real changes recently, and modeling your allowance against current, not last year’s, individual market pricing is important before you finalize a number.
How is this different from a QSEHRA? A QSEHRA (Qualified Small Employer HRA) is a similar but more limited arrangement designed specifically for small employers with fewer than 50 employees who do not offer any other group plan, with lower contribution caps than an ICHRA. An ICHRA is available to employers of any size and has no federal cap on the allowance amount.
Next Steps
Deciding between a traditional group plan, an ICHRA, or some mix of the two is not a decision to make from a spreadsheet alone. It depends on your workforce’s age mix, your current renewal numbers, and how much administrative complexity you are willing to take on in exchange for cost predictability.
At Journey Health Advisors, we help employers model ICHRA, group plans, and other alternatives side by side against your actual renewal numbers, with no carrier bias. If your renewal is coming up, now is the time to have this conversation.
Speak with an advisor at Journey Health Advisors: 1 (844) 580-6055 | journeyhealthadvisors.com/contact
Related Reading:
- Direct Primary Care for Employers: Should It Be Part of Your 2027 Renewal?
- Health Benefits for Small and Mid-Size Employers: Smarter, More Affordable Solutions
- COBRA Alternatives and Cost-Saving Strategies During Transitions
REFERENCES
[1] Peterson-KFF Health System Tracker. “Explaining Individual Coverage Health Reimbursement Arrangements (ICHRAs).” Peterson-KFF, January 2026. https://www.healthsystemtracker.org/brief/explaining-individual-coverage-health-reimbursement-arrangements-ichras/
[2] healthinsurance.org. “What Is an Individual Coverage Health Reimbursement Arrangement (ICHRA)?” healthinsurance.org, January 2026. https://www.healthinsurance.org/glossary/individual-coverage-health-reimbursement-arrangement-ichra/
[3] Thatch. “ICHRA Affordability Explained: 2026 ACA Requirements for Employers.” Thatch Blog. https://thatch.com/blog/ichra-affordability-guide
[4] RemodelHealth. “HRA Council Report: Growth Trends for ICHRA.” RemodelHealth Blog, April 2026. https://remodelhealth.com/blog/hra-council-report-growth-trends-for-ichra
[5] Zorro. “What Our 2026 ICHRA Open Enrollment Data Reveals.” Zorro, December 2025. https://www.myzorro.co/resources/what-our-2026-open-enrollment-data-reveals-about-the-ichra-market-and-why-were-optimistic
[6] KFF. “2025 Employer Health Benefits Survey.” Kaiser Family Foundation, October 2025. https://www.kff.org/health-costs/2025-employer-health-benefits-survey/
[7] Summit Health Benefits. “Open Enrollment 2027 Deadline: ACA Dates & Employer Guide.” Summit Health Benefits, June 2026. https://www.summithealthbenefits.com/blog/open-enrollment-employer-guide
[8] healthinsurance.org. “ACA Open Enrollment Guide.” healthinsurance.org, April 2026. https://www.healthinsurance.org/open-enrollment/
Journey Health Advisors | journeyhealthadvisors.com | 1 (844) 580-6055 8810 Blakeney Professional Drive, Suite 100, Charlotte, NC 28277
