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What you need to know about ICHRA substantiation requirements

Health Benefits • March 16, 2023 at 8:25 AM • Written by: Holly Bengfort

The individual coverage health reimbursement arrangement (ICHRA) is an IRS-approved health benefit that allows businesses to offer their employees an allowance for the qualified health plans of their choice. One of the most significant differences between the ICHRA and other types of HRAs is that employees and their dependents are required to have their own individual health insurance policies in place to participate.

In this article, we'll go over the benefits of an ICHRA, which types of individual health insurance coverage qualify, the steps you need to take to make sure your employees and their dependents are insured, and how often you should check their insurance status.

Thinking about self-administering your ICHRA? Find out what it takes

What are the benefits of offering an ICHRA?

An individual coverage HRA offers several benefits to the employer and employee.

Individual health insurance plans empower employees

Instead of the employer picking a one-size-fits-all policy, each employee can shop around for individual health insurance coverage with the network, doctors, and monthly premiums that work best for them. You can then reimburse employees for their individual insurance premiums and other qualifying medical expenses.

Completely customizable with employee classes

An ICHRA is also customizable to meet the needs of your business. For example, you can offer various allowance amounts to different employees. This is done by creating separate employee classes, such as full-time employees, part-time employees, hourly employees, and more. Then, you can legally offer each class of employees different allowances based on job criteria, family size, and so on.

No contribution or participation requirements

Unlike other HRAs, the ICHRA has no minimum or maximum employer contribution limits, so you can offer your employees as little or as much as you choose. However, if you’re considered an applicable large employer (ALE), the Affordable Care Act (ACA) requires you to provide coverage that’s considered affordable to your employees and their dependents. What’s more, there are no participation requirements in order to offer an ICHRA, so you don’t need to have a certain number of employees enrolled in the benefit to offer it. This provides greater flexibility for employers compared to traditional group health insurance.

According to the Federal Register1, participants must be allowed to permanently opt out of and waive future reimbursements at least once a year.

Tax advantages

Plus, there are tax advantages to offering an ICHRA. With an ICHRA, employee reimbursements are free of payroll taxes for the employer and free of income taxes for the employee. That means ICHRA funds don’t need to be reported as income on employees’ taxes at the end of the year.

How does an ICHRA work?

Rather than providing traditional group health insurance to your employees, you'll simply reimburse them for their qualifying medical expenses up to your set allowance.

Here's a basic outline of how it works:

  1. Design your plan. This includes determining employee classes and setting the amount of money you agree to reimburse.
  2. Your employees pick the individual health insurance coverage that works for them
  3. Employees use their individual health coverage and submit requests for their medical care expenses in order to be reimbursed
  4. You reimburse your employees for their approved medical care expenses

Which insurance plans are allowed under the ICHRA?

Since not all coverage types are equal, there are special rules that determine what individual health insurance coverage is acceptable under an ICHRA. Eligible employees and their dependents who plan to get medical care expenses reimbursed need to be covered through a plan that can be integrated with the ICHRA.

Acceptable individual health insurance coverage types include:

  • Individual health plans: Any individual health insurance coverage policy purchased on the open individual health insurance market, the ACA individual health insurance marketplace, or on a private exchange can be accepted. All of these plans will work with the ICHRA so long as they cover the necessary essential health benefits with no annual or lifetime limits set forth by the ACA as minimum essential coverage (MEC).
  • Medicare. Medicare Part A and B, or C, can be integrated with the Individual Coverage HRA and are eligible for individual health insurance premium reimbursements for Medicare Part A, B, C, or D, and Medigap policies, as well as related medical coverage expenses.
  • Student health insurance policies. All student health insurance policies follow the ACA's essential coverage rules, so it's acceptable. However, self-insured student health coverage isn't allowed since self-insured student plans are exempt from ACA coverage rules.

Policies that aren't considered individual health insurance coverage include the following:

  • Any kind of traditional group health plan, including a group plan from a spouse or a parent
  • Association health plans
  • Health care sharing ministries
  • Self-insured student health plans
  • Short-term limited duration insurance
  • Tricare

How do current employees submit proof of individual health insurance coverage?

According to ICHRA regulations, individual health insurance coverage can be substantiated in one of two ways at the discretion of the plan administrator or employer.

1. Submit proof through a third-party

The first option is for the employee to submit proof of coverage directly to the employer through a third party, like their insurance provider or an exchange. This could be from an insurance card, an explanation of benefits, or another document stating the employee (and any dependents) will have individual health insurance coverage for the plan year.

2. Submit an attestation

The other option is for the employee to submit an attestation of coverage to the employer. This is a physical or electronic letter stating that the employee and their dependents will be enrolled in individual health insurance coverage for the plan year. It should also include the date the insurance coverage begins, as well as the name of the coverage provider.

When do employers need to check employees' insurance status?

There are three periods when employers need to ensure their ICHRA participants have acceptable individual health insurance coverage:

Annual basis

Prior to the first day of each plan year, all current employees and their dependents must fill out the Individual Coverage HRA Attestation: Annual Coverage Substantiation Requirement form2 to show proof of coverage.

Ongoing basis

Every time a current employee submits a reimbursement request, they must also include a completed copy of the Individual Coverage HRA Attestation: Ongoing Substantiation Requirement form to go with it.

Individual basis

When you hire a new employee or an existing employee becomes newly eligible in the middle of the year, they'll need to submit the annual substantiation form before the ICHRA will take effect.

Do employers need to verify the information is accurate?

Here's the nice thing about ICHRA's regulations—as long as you, the employer, have no reason to believe that the information provided to you is false or misleading in any way, then you can safely assume the information is accurate. This takes the pressure off from verifying the validity of the documents you receive.


The most significant difference between the ICHRA and other types of HRAs is that your employees will need their own individual health insurance policies in order to participate. There are some special rules you have to follow if you go with an ICHRA over a traditional group health plan. But in return, you get a more modern, personalized health benefit for your employees that's cost-effective for your business.

While managing a compliant ICHRA comes with several rules and regulations, you don’t have to go it alone. PeopleKeep’s employee benefits administration software and award-winning customer support team have helped thousands of organizations administer their health benefits in just minutes each month.

Schedule a call with a PeopleKeep personalized benefits advisor to offer an ICHRA to your employees!

1. https://www.federalregister.gov/documents/2019/06/20/2019-12571/health-reimbursement-arrangements-and-other-account-based-group-health-plans

2. https://www.coredocuments.com/wp-content/uploads/2019/06/ICHRA-Annual-Substantiation-Sample.pdf

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Holly Bengfort

Holly is a content marketing specialist for PeopleKeep. Before joining the team in 2023, Holly worked in television news as a broadcast journalist. As an anchor and reporter, she communicated complex stories to the vast communities she served on a daily basis. Her background has given her a greater understanding of people and the issues that affect our lives. When Holly isn’t writing, she enjoys reading, exercising, and spending time at the beach.