What to expect when your employer offers you an ICHRA

If you work for a company that offers employee benefits, you may be familiar with options like group health insurance and retirement plans. However, you may not be as familiar with a newer type of employee health benefit: the individual coverage health reimbursement arrangement (ICHRA).

The ICHRA can be a valuable benefit for employees, providing them with greater flexibility and choice when it comes to their healthcare coverage options. If your employer is offering you an ICHRA, it's important to understand the details and potential implications before you decide to participate.

In this article, we'll explain what the ICHRA is, how it works, and what you can expect as an employee if your employer offers you this health benefit.

In this blog post, you'll learn:

• How ICHRA benefits work for both employers and employees.
• How to shop for individual health insurance coverage.
• How to decide if participating in your employer’s ICHRA is right for you.

What is an ICHRA?

An individual coverage HRA (ICHRA) is an employer-funded health benefit that allows employers to reimburse employees for individual health insurance coverage and, in some cases, other qualified medical expenses listed in IRS Publication 502 and the CARES Act. This depends on the type of ICHRA your employer offers and whether you contribute to a health savings account (HSA).

Unlike traditional group health plans, where the employer selects a specific plan for all employees, an ICHRA gives employees the freedom to choose their own health coverage so you can find the policy that best suits their individual needs.

Why does your employer offer an ICHRA?

ICHRAs give employers a cost-effective way to control their healthcare spending. Rather than purchasing a one-size-fits-all group health plan for their entire workforce, they reimburse employees for their individual plan premiums. This helps employers avoid the annual rate hikes that come with traditional group health plans.

With this health benefit, employers can also offer different reimbursement amounts to different employees. This is possible through 11 employee classes.

For example, they could offer:

• $400 for full-time employees
• $400 for salaried workers
• $350 for hourly workers
• $300 for part-time employees

How does an ICHRA work for employees?

An ICHRA provides employees with greater control and flexibility when it comes to their health insurance coverage. When your employer offers you an ICHRA, they'll give you a fixed amount of money to spend on health insurance.

Your allowance amount may vary depending on your:

• Age
• Family size
• Employee class

With an ICHRA, you pay for your insurance premiums and medical expenses upfront. Once you make a qualifying purchase, you can request reimbursement for those items or services. Your employer will then reimburse you for eligible healthcare costs up to your allowance amount.

It's important to note that the ICHRA funds your employer provides are not considered taxable income. They’re tax-free to you.

Another perk: the individual health insurance plan you enroll in is portable. Unlike traditional group plans that end when you leave your job, you can keep your individual health plan. You simply take over the full premium payments. This means no scrambling for COBRA, no mid-year plan changes, and uninterrupted access to your doctors and care.

While ICHRA is subject to COBRA, keep in mind that opting for COBRA after you leave your job means you’ll have to pay a premium to access your previous allowance. This can end up costing you more than simply taking over the full premium for your individual health plan.

How do you shop for an individual health insurance policy?

Eligible employees must have individual health insurance coverage to participate in this health benefit. If you aren't already covered by an individual health plan, you'll need to get one or enroll in Medicare Parts A and B or Part C if you qualify.

There are several ways employees can shop for qualifying individual health plans. You can work with a health insurance broker or use the public exchanges.

It's important to compare different individual plans and consider factors such as:

• Monthly premiums
• Deductibles
• Network coverage
• Prescription drug coverage

Typically, people can only purchase insurance from the exchanges during Open Enrollment. However, employees who are offered an ICHRA by their employer for the first time are eligible for a special enrollment period (SEP). This allows you to enroll in a health plan within 60 days of your employer offering the benefit.

Most states use the federal exchange, HealthCare.gov, but some have their own individual health insurance marketplaces. You can also purchase an off-exchange individual plan directly from an insurance company or private marketplace.

If your employer uses PeopleKeep by Remodel Health, you can purchase an individual policy right from your online account. Your employee dashboard will have a link to shop for a policy directly or through your employer's preferred broker.

What are the reimbursement rules for an ICHRA?

Another key aspect of an ICHRA is the reimbursement process. Once you purchase your ICHRA-qualified plan and opt in to the benefit, you'll need to submit proof of it to your employer. ICHRA participants must attest that they have qualifying individual health coverage with MEC for every reimbursement request. With PeopleKeep, employees must attest to having coverage each month and for every expense submission. However, you only need to submit proof of insurance once.

Depending on the type of ICHRA your employer offers, your ICHRA allowance covers individual health insurance premiums only or premiums and other medical expenses. Your official notice will explain which plan your employer offers. Even if your employer offers a premium-plus ICHRA, contributing to an HSA limits your ICHRA to premiums only.

To submit a reimbursement request, you'll need to show proof of your expense. If it's for an individual health plan premium, you'll need to show the insurance carrier, the plan name and type, the premium amount, and the start and end dates for the plan. For medical expenses, a receipt works as long as it shows the vendor, the price of the product or service, and what the expense was for. In some cases, you'll need a prescription or a doctor's note as well.

If your employer offers you an ICHRA through Remodel Health, PeopleKeep’s parent company, you won’t need to submit insurance premiums for reimbursement if you shop for an off-exchange plan through the ICHRA+ platform. That’s because Remodel Health offers automatic premium payments. There’s no need to front the cost. Instead, you can pay for any remaining amount using pre-tax payroll deductions.

Once your employer reviews any submitted documents, they reimburse you for the eligible expenses up to the amount of your ICHRA allowance. If your employer uses PeopleKeep, we review your expenses on their behalf. This ensures HIPAA compliance, as your employer won't see your specific documentation.

Employee reimbursements are tax-free (not reported as income). Most employers reimburse their employees through payroll once or twice per month, but you can verify your employer's specific reimbursement schedule directly with them.

It's important to keep in mind that you can't use ICHRA funds for non-healthcare out-of-pocket expenses or premiums for other types of insurance, such as life insurance. Additionally, if your employer uses PeopleKeep, any unused ICHRA funds at the end of the year won't roll over to the following year. This means you'll need to use your ICHRA allowance before the end of the plan year, or it will reset.

How do you choose whether to participate in your employer's ICHRA?

There are many factors that go into this decision, so you'll want to take the time to do the math and see which option is best for you.

If you already have insurance you're happy with through another source, like a spouse's or parent's group health plan, or if you would prefer to go uninsured, then you may want to opt out. That's because an ICHRA requires an individual health insurance policy. However, keep in mind that some employers have spousal carve-outs in place. A spousal carve-out restricts spouses from using an employee’s group health plan if they have access to a health benefit through their own employer.

Short-term plans, healthcare sharing plans or ministries, Medicaid, and COBRA don't count as qualifying individual coverage. If you want to participate in your employer's ICHRA, you'll need to enroll in a qualifying plan.

If you want to get individual insurance coverage, the main decision you'll have to make is whether to choose your employer's ICHRA or premium tax credits if you're eligible. If you qualify for premium tax credits from the Health Insurance Marketplace and your ICHRA allowance is unaffordable, you must choose either premium tax credits or the ICHRA. You can't use both. If your ICHRA benefit is affordable, you can’t claim any premium tax credits, even if you opt out.

To make this decision, you'll need to know whether the ICHRA your employer is offering you is affordable. For 2026, an ICHRA is affordable if an employee isn't expected to pay more than 9.96% of their household income for a self-only silver plan.

You can determine affordability using the following formula:

Household income * .0996 = X

X/12 = Y

Lowest cost silver plan - Y = minimum affordable ICHRA monthly allowance

If the ICHRA isn't affordable, then you have two options: participate in the ICHRA anyway or opt out of participating in the ICHRA and use your premium tax credits. In this case, you'll choose whichever option offers you more money. If the premium tax credits you're eligible for are higher than the ICHRA allowance your employer is offering you, then you should opt out of the ICHRA and use the tax credits. If it's the other way around, you should forfeit your tax credits and opt in to the ICHRA instead.

If the ICHRA is affordable, there's really only one option available. If the ICHRA is affordable, you won't be eligible for premium tax credits. If you opt out of an affordable ICHRA, then you won't be receiving anything from your employer, but you also can't take the premium tax credits, which leaves you with no financial help.

In this situation, you should opt in to the affordable ICHRA so that you'll receive at least some financial help, even if it's less than you could have gotten through premium tax credits.

Conclusion

An individual coverage health reimbursement arrangement (ICHRA) is an alternative to a traditional group health plan. It's meant to save employers and eligible employees money. If your employer offers you an ICHRA, you can expect greater freedom in selecting your insurance coverage and the ability to tailor it to your unique needs.

Understanding the reimbursement process, tax advantages, and affordability rules will help you make the most of this benefit. However, it's important to carefully review the terms and conditions of your employer's ICHRA offering and seek guidance from insurance professionals if needed.

This blog article was originally published on December 31, 2020. It was last updated on March 26, 2026.