What is ICHRA?

ICHRAs offer employers a flexible, tax-free way to control healthcare costs while empowering employees with personalized insurance choices.

Individual Coverage Health Reimbursement Arrangements (ICHRAs) are transforming how businesses structure healthcare benefits. Rather than offering a traditional group plan, an ICHRA allows employers to provide tax-free reimbursements for employees to purchase their own individual health insurance, creating a more customizable, cost-controlled alternative. 

For employers struggling with rising healthcare costs and complex benefit administration, ICHRA offers a scalable, financially sustainable solution that aligns with workforce needs through:

• Predictable cost management: Employers set defined contributions, ensuring budget stability while avoiding unpredictable premium hikes

• Flexibility for employees: Employees choose plans that meet their specific needs rather than being restricted to a group plan that might not be the best fit

• Flexibility for employers: Employers can choose different ICHRA subsidy levels for different classes of employees, such as FT/PT, salaried/hourly, and work location, allowing larger employers more flexibility to potentially align healthcare costs to specific segments of their business

• Tax-efficient strategy: Contributions remain tax-free for both employers and employees, minimizing financial burden while maximizing value

• Reduced administrative complexity: Unlike traditional group benefits, ICHRA allows businesses to streamline compliance

• Competitive edge in talent acquisition: This modern benefit offering enhances recruitment and retention, appealing to employees who prefer personalized healthcare choices

For plan sponsors considering the move to Individual Coverage Health Reimbursement Arrangements (ICHRA), a thoughtful implementation strategy is key to maximizing its advantages while ensuring a smooth transition for employees.

1. Defined contribution strategy 

ICHRA allows employers to set fixed reimbursement amounts, providing greater control over healthcare costs. Businesses should determine:

• Subsidy levels based on employee and employer affordability

• Class-specific (full time/part time, work location, etc.) subsidy strategies

• Subsidy model (reimbursement vs payroll contributions) to maximize tax effectiveness

2. Communicate the transition clearly 

Employees may be unfamiliar with ICHRA, so education is crucial. Employers should:

• Provide step-by-step guidance on choosing an individual health plan

• Offer decision support tools or consultants to assist employees

• Ensure messaging highlights the flexibility and personalized benefits of ICHRA

3. Choose a partner for administration 

Managing reimbursements and compliance can be complex, so working with an ICHRA administrator helps businesses stay organized. Employers should seek:

• Enrollment tools that allow employees to elect an optimal plan based on their unique healthcare needs

• Platforms that automate reimbursements and eligibility tracking

• Compliance management and reporting tools that ensure ICHRA compliance with IRS, ERISA, etc.

4. Monitor success & adjust accordingly 

Once ICHRA is in place, businesses should regularly:

• Evaluate employee satisfaction and adoption rates

• Index the ICHRA subsidy annually as appropriate to meet employee and employer affordability needs

• Monitor the individual market plans for expansion to new areas, and changes to premiums or coverage that may impact an employer’s future strategy

ICHRA is reshaping healthcare benefits, allowing plan sponsors to move away from outdated, inefficient models while controlling costs, reducing complexity, and empowering employees. As healthcare expenses continue to rise, forward-thinking organizations are recognizing that flexibility, efficiency, and financial sustainability are key to a smarter benefits strategy.