Why your small business can't afford to ignore ICHRA in 2026

By Holly Bengfort on January 9, 2026 at 8:22 AM

Heading into 2026, small business owners are facing increasing pressure to offer meaningful employee benefits without straining their healthcare budgets. While they have long been the common choice for employer-sponsored health insurance, one-size-fits-all group health plans often don't meet these needs. That’s why many small employers are turning to individual coverage health reimbursement arrangements (ICHRAs) as a flexible, cost-effective alternative.

In this article, we'll explain why small employers can’t afford to ignore ICHRA in 2026.

In this blog post, you'll learn:

How the individual coverage HRA (ICHRA) benefits employers and employees.
The variety of medical expenses an ICHRA covers.
How the ICHRA is growing in popularity among small businesses.

What is ICHRA?

Introduced in 2020, the individual coverage HRA (ICHRA) revolutionized how businesses approach health benefits. It eliminates the need for a pricey group health plan. It allows employers to offer a tax-free monthly allowance to their employees, who can then use it to purchase their own individual health insurance coverage.

And that's not all. If employers allow it, employees can also use their monthly allowance on more than 200 types of eligible medical expenses in IRC Section 213(d), including the following¹:

Monthly premiums for dental and vision coverage
Dental care expenses
Vision care expenses
Preventive care
Emergency care
Perscription drugs
Over-the-counter medication

According to Remodel Health's 2024 ICHRA Report, Remodel Health and PeopleKeep small business customers with fewer than 50 employees offered an average monthly allowance of $600. This amount varies by state and industry.

To receive reimbursements for any expense, employees (and any covered dependents) must enroll in a qualifying individual health insurance plan or Medicare Parts A and B (together) or Part C.

QSEHRA vs. ICHRA

The qualified small employer health reimbursement arrangement (QSEHRA) is another popular stand-alone HRA option, designed specifically for employers with fewer than 50 full-time equivalent employees (FTEs). While the QSEHRA can be a great fit for some small businesses, many employers ultimately go with ICHRA for one key reason: flexibility.

Unlike the QSEHRA, an ICHRA is available to employers of any size and doesn’t have annual contribution limits². Employers can also tailor allowances by employee class, age, and family size. This makes it easier to design a benefits strategy that reflects diverse employee demographics.

The QSEHRA, on the other hand, comes with annual contribution caps and more limited customization. Employers can only vary allowances by age and family size, giving them fewer options to align benefits with different employee roles or locations.

For small businesses looking to scale or offer more personalized benefits, an ICHRA often provides the flexibility that a QSEHRA can’t.

Learn more about the differences between an ICHRA and a QSEHRA in our guide.

Why should employers choose ICHRA over a group health plan?

Traditional group health insurance is expensive, inflexible, and difficult to manage as healthcare costs continue to rise. An ICHRA offers a modern alternative that gives employers greater control over their healthcare budget while giving employees more choice in their health insurance coverage.

Let's go over four ways ICHRAs outperform group health insurance plans.

1. ICHRA offers small businesses flexibility and choice

Traditional group health plans put your whole workforce under one umbrella. ICHRA, on the other hand, caters to individual employee needs. It empowers employees to shop for the individual health plan that fits their needs. One employee might opt for a high deductible health plan directly from a health insurance company, while another could choose a Health Insurance Marketplace plan that covers their entire family.

This flexibility of an ICHRA is particularly valuable for small teams with a diverse workforce. With an ICHRA, you can support full-time employees, part-time workers, and seasonal staff under the same benefits strategy without forcing a rigid group plan structure. You simply design separate employee classes if you want to customize allowances or eligibility.

2. Small group coverage is often unattainable

As health insurance premiums continue to rise, ICHRA provides small businesses with a predictable way to manage healthcare expenses, protecting them from sudden rate hikes. Offering a small group health plan can be challenging or even impossible for employers, due to the cost, complexity, or minimum participation requirements.

Given these hurdles, it’s no surprise that adoption is growing rapidly. Recent data from the HRA Council shows that small business ICHRA adoption increased 52% from 2024 to 2025, highlighting its surge in popularity as a cost-effective benefits solution.

HRAs serve as an on-ramp to health benefits for small employers. According to the HRA Council, 83% of employers offering ICHRA or QSEHRA in 2025 had not previously offered any coverage, while 17% transitioned from traditional group insurance.

Now, why does this matter? It shows that your competitors are offering employee benefits packages. If you fall behind, you risk losing top talent.

3. Staying compliant with ACA rules as your small business grows

By implementing an ICHRA now, you can avoid future compliance challenges. Once your business hits 50 FTEs, it's subject to the Affordable Care Act's (ACA) employer mandate. This requires applicable large employers (ALEs) to offer at least 95% of their full-time workers and their dependents affordable health insurance that meets minimum essential coverage (MEC) and provides minimum value (MV).

As long as you offer an affordable ICHRA to at least 95% of your full-time employees and their dependents, it satisfies the employer mandate. Failing to meet these requirements can result in penalties while also hurting employee retention and morale, something no small business can afford.

An ICHRA is a health benefit that can scale as your business grows, adapting to any changes in employment size, budget, and flexibility.

4. Predictable budgeting helps your small business stay profitable

One of the biggest headaches for small employers is budget volatility due to healthcare spending. Traditional group plans expose you to unpredictable premium increases and claim risk. ICHRA provides predictably, so you can stay within your budget. You set the contribution amount in advance and stick to it. You only reimburse employees up to their allowance amounts. For example, if an employee chooses a health plan with a $650 monthly premium, and you offer a $600 monthly allowance, they cover the remaining $50 on their own.

Offering an ICHRA with PeopleKeep by Remodel Health

If you're new to ICHRA, you may not want to take on the burden of administering it on your own. You can easily manage your health benefit in just minutes each month with PeopleKeep by Remodel Health's ICHRA administration platform. Our team of experts handles the tedious tasks for you, so you can focus on growing your small business.

We simplify the experience of offering an ICHRA by:

Creating compliant plan documents
Guiding you through plan design
Reviewing and processing employee reimbursement requests
Organizing and storing required documentation
Delivering award-winning customer support

Plus, we offer integrated health insurance shopping. Your employees can shop for individual health insurance coverage directly from their PeopleKeep accounts.

Conclusion

In 2026, the companies that adapt will be the ones that grow. If you ignore the individual coverage health reimbursement arrangement (ICHRA) for another year, you're not missing out on a trend. You're forgoing a more affordable way to offer competitive health benefits. If your small business hasn’t considered an ICHRA yet, now is the time. Schedule a call with an HRA specialist today to get started!