Reviewed by Erik Osborne, PA-C, Co-Founder | July 2026
The Quick Answer: An Individual Coverage Health Reimbursement Arrangement (ICHRA) is a way for employers to offer health benefits by reimbursing employees, tax-free, for individual health insurance premiums they buy on their own, instead of sponsoring a traditional group plan. Employers of any size can offer an ICHRA, set their own contribution amount, and even vary that amount by employee class (full-time, part-time, salaried, hourly, and more). ICHRA adoption grew 34% among large employers and 52% among small employers from 2024 to 2025, making it one of the fastest-growing employee benefit strategies in the country [1,2].
If you are staring down a renewal packet this year and the number at the bottom feels higher than it should, you are not alone. Employer healthcare costs are now estimated to be 62% higher than they were in 2017, and the pressure to offer competitive benefits without an unpredictable budget has never been greater [5]. That pressure is exactly why more employers, of every size, are taking a serious look at ICHRA this renewal season.
This guide walks through what ICHRA actually is, how it works day to day, what it costs, how it compares to a traditional group plan, and how to know if it makes sense for your business.
What Is an ICHRA?
An ICHRA is a type of health reimbursement arrangement that lets employers reimburse employees, tax-free, for premiums on individual health insurance plans the employees choose and purchase themselves, typically through the ACA marketplace or directly from a carrier. Employees can also be reimbursed for out-of-pocket medical expenses if the employer chooses to structure the ICHRA that way.
The defining shift with ICHRA is that it moves an employer from a defined benefit model to a defined contribution model. Instead of selecting one or two group plans and hoping they fit everyone’s needs, the employer sets a monthly allowance, and employees use that allowance to shop for the individual plan that actually fits their household, their doctors, and their budget.
ICHRA was introduced through federal rulemaking in 2020, and it is available to employers of any size, with no cap on how much an employer can contribute. This is a meaningful difference from its smaller cousin, the QSEHRA (Qualified Small Employer HRA), which is limited to businesses with fewer than 50 full-time equivalent employees and comes with an annual contribution cap.
How Does ICHRA Work?
Here is what the process looks like from the employer’s side:
- You decide which employee classes will be offered an ICHRA (for example, full-time employees, part-time employees, seasonal workers, or employees in a specific location). Classes make it possible to offer different allowance amounts to different groups without violating nondiscrimination rules that apply to group plans.
- You set a monthly allowance for each class. There is no minimum or maximum required by law, though the amount needs to be reasonable and consistently applied within a class.
- Employees shop for their own individual health insurance plan, either on the ACA marketplace or off-exchange, choosing the plan that fits their specific needs.
- Employees submit proof of a qualifying individual health insurance policy, and the employer reimburses premium costs, tax-free, up to the monthly allowance.
- If the plan costs more than the allowance, the employee pays the difference, often through pre-tax payroll deduction if the employer sets that up through a Section 125 cafeteria plan.
Unlike a traditional group plan, an employer cannot offer employees a choice between an ICHRA and a group plan within the same employee class. You choose one model per class, which is part of why defining classes thoughtfully matters.
What Does an ICHRA Typically Cost an Employer?
Allowance amounts vary widely based on company size, industry, and geography, but recent data offers a useful benchmark. Among small employers with fewer than 50 employees, the average monthly ICHRA allowance was approximately $600 per employee, according to a joint analysis from Remodel Health and PeopleKeep [2]. Because the employer sets this number directly, the total benefits budget becomes far more predictable than it is under a group plan, where renewal increases are set by the carrier based on claims experience, not by the employer.
That predictability is a large part of the appeal. With a group plan, employers absorb the full risk of a bad claims year showing up as a steep premium increase at renewal. With ICHRA, the employer’s cost exposure is capped at whatever allowance it chooses to offer.
ICHRA vs. Group Health Insurance
| Factor | Traditional Group Plan | ICHRA |
|---|---|---|
| Cost model | Defined benefit, renewal-driven | Defined contribution, employer-set |
| Plan choice | One or two plans for everyone | Employee chooses from the individual market |
| Cost predictability | Variable, tied to claims experience | Fixed monthly allowance |
| Employer size requirements | Often requires minimum participation | Available to employers of any size |
| Setup complexity | Broker-managed carrier selection | Requires class design and administration setup |
| Employee experience | Limited to employer’s chosen plans | Full individual marketplace access |
| Portability for employee | Coverage tied to job | Employee’s own plan, more portable |
ICHRA vs. QSEHRA: What Is the Difference?
Both are types of health reimbursement arrangements, but they serve different employers. QSEHRA is built specifically for small businesses with fewer than 50 full-time equivalent employees and comes with an annual contribution limit set by the IRS each year. ICHRA has no employer size limit and no cap on contribution amount, and it allows employee classes, which QSEHRA does not. Many small employers start with QSEHRA and move to ICHRA as they grow, or choose ICHRA from the start for the added flexibility.
Is ICHRA Right for Your Business?
ICHRA tends to work well if you:
- Are a small business that has never been able to offer traditional group coverage due to cost, minimum participation requirements, or administrative complexity. In fact, 83% of employers offering an ICHRA or QSEHRA in 2025 had not previously offered any health coverage at all [4].
- Want predictable, fixed monthly benefit costs instead of exposure to unpredictable renewal increases.
- Have a workforce with varied needs, such as employees in multiple states, a mix of full-time and part-time staff, or team members with very different family situations.
- Are a larger employer looking to control costs for a specific class of employees, such as part-time or seasonal workers, without eliminating their benefit entirely.
ICHRA may not be the right fit if you:
- Operate in a market where individual plan networks are significantly narrower than group plan networks, which can matter for employees with established specialist relationships.
- Have a workforce that strongly values a single shared plan experience over individual choice.
- Are not prepared to communicate the change clearly. ICHRA asks employees to shop for their own plan, which is a bigger shift than handing them a new insurance card, and it works best with real support during the transition.
Why This Renewal Season Specifically
Two things are happening at once in 2026 that make this a particularly important year to evaluate ICHRA. First, employer healthcare costs keep climbing well ahead of general inflation, keeping pressure on renewal budgets year over year [5]. Second, the individual insurance market went through a significant shift when enhanced ACA premium tax credits expired at the start of 2026, which pushed marketplace premiums higher for many households.
That second point matters more than it might seem at first. Some employers have paused ICHRA plans out of concern that rising individual market premiums would make the strategy less attractive. In practice, the opposite has largely held true. Employers who already offer ICHRA are not backing away from it. They are refining their contribution strategy and leaning further into the flexibility it provides, because a fixed employer contribution protects the business from individual market volatility even when marketplace premiums move [3]. Retention among employers offering ICHRA and QSEHRA sits at roughly 92% year over year, a strong signal that once employers make the switch, they tend to stay with it [6].
Setting Up an ICHRA: The Basic Steps
- Define your employee classes. Decide whether you will offer ICHRA to all employees or specific groups, such as full-time versus part-time, or by location.
- Set your allowance by class. Choose a monthly contribution amount for each class. This becomes your predictable benefits budget going forward.
- Confirm affordability if you are an Applicable Large Employer (ALE). If your business has 50 or more full-time equivalent employees, your ICHRA allowance needs to meet an IRS affordability safe harbor to avoid potential employer mandate penalties. This calculation is worth reviewing with a qualified advisor before you finalize your allowance.
- Provide required employee notices. Employees need advance written notice of the ICHRA offer, generally at least 90 days before the plan year begins, so they have time to shop for coverage.
- Support employees through enrollment. This is the step employers most often underestimate. Employees shopping for an individual plan for the first time benefit significantly from real guidance, not just a benefits portal link.
- Set up reimbursement administration. Whether handled in-house or through a third-party administrator, you will need a system for verifying coverage and processing tax-free reimbursements each month.
Frequently Asked Questions About ICHRA
Can any size business offer an ICHRA?
Yes. Unlike QSEHRA, which is limited to employers with fewer than 50 full-time equivalent employees, ICHRA is available to businesses of any size, from a two-person shop to a large enterprise.
Can I offer ICHRA to some employees and a group plan to others?
Yes, as long as they are in different employee classes. You cannot offer both a group plan and an ICHRA to employees within the same class, but you can offer a group plan to one class (such as full-time employees) and an ICHRA to another (such as part-time or seasonal employees).
Do employees have to use the ACA marketplace?
Employees can generally use an ICHRA to reimburse premiums for any individual health insurance plan that qualifies as minimum essential coverage, whether purchased on the marketplace or off-exchange, as well as Medicare in some cases.
Is ICHRA affected by the 2026 ACA subsidy changes?
Individual market premiums have risen for many households since enhanced premium tax credits expired at the start of 2026. That said, because an employer’s ICHRA cost is a fixed allowance the employer controls, rising marketplace premiums affect what employees pay above the allowance, not the employer’s underlying cost exposure. This is one of the reasons ICHRA adoption has continued to grow through 2026 rather than slowing down [3].
How long does it take to set up an ICHRA?
Most employers need at least 60 to 90 days before their intended plan start date to design classes, confirm affordability if applicable, provide required notices, and give employees enough time to shop for coverage.
Next Steps
If you are heading into renewal season wondering whether there is a more predictable, more flexible way to offer benefits, ICHRA is worth a real look, not just a passing mention from your broker. At Journey Health Advisors, we help employers model an ICHRA against their current group plan costs side by side, design employee classes that make sense for their workforce, and support the rollout so employees actually feel confident shopping for their own coverage.
Ready to see what ICHRA could look like for your business this renewal season? Speak with an advisor at Journey Health Advisors: 1 (844) 580-6055 | journeyhealthadvisors.com/contact
Related Reading:
- DPC for Employers: How Small Businesses Are Adding Primary Care as a Benefit
- Health Benefits for Small and Mid-Size Employers: Smarter, More Affordable Solutions
- COBRA Alternatives and Cost-Saving Strategies During Transitions
REFERENCES
All data points, statistics, and regulatory details cited in this post are sourced from the following references. Dates reflect the publication or last-updated date of each source.
[1] HRA Council. “Growth Trends for ICHRA and QSEHRA.” HRA Council Annual Report, 2025-2026. https://www.hracouncil.org/report
[2] PeopleKeep. “Why Your Small Business Can’t Afford to Ignore ICHRA in 2026.” PeopleKeep Blog, January 2026. https://www.peoplekeep.com/blog/why-your-small-business-cant-afford-to-ignore-ichra
[3] 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
[4] 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/
[5] Healthcare Dive. “ICHRAs, a growth opportunity for insurers, face uphill battle.” Healthcare Dive, April 2026. https://www.healthcaredive.com/news/ichras-individual-coverage-health-reimbursement-arrangements-adoption-challenges/816878/
[6] Remodel Health. “HRA Council Report: Growth Trends for ICHRA.” Remodel Health Blog, April 2026. https://remodelhealth.com/blog/hra-council-report-growth-trends-for-ichra
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