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Individual Coverage Health Reimbursement Arrangements (ICHRAs) can affect how consumers shop for coverage, whether they may qualify for a subsidy, and how employers reimburse eligible expenses. Understanding affordability, subsidy eligibility, on-exchange and off-exchange coverage, and reimbursement administration can help clarify how an ICHRA fits into a consumer’s coverage options.

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An Individual Coverage Health Reimbursement Arrangement (ICHRA) allows an employer to reimburse employees, tax-free, for individual health insurance premiums and eligible out-of-pocket medical expenses, instead of offering a traditional group health plan.

Unlike a traditional group plan, an ICHRA does not enroll employees in a specific plan. Employees select their own coverage, and the employer’s contribution reimburses part or all of the premium and, in some cases, additional eligible medical expenses.

Employers may offer an ICHRA to provide financial support while giving employees more plan choice. Because the employer sets a fixed monthly allowance, the employer can also control health benefit costs more predictably.

An ICHRA may be offered to all employees or limited to specific employee classes, such as full-time, part-time, seasonal, or salaried workers, as long as the same terms apply to everyone within the class.

Because an ICHRA requires ongoing tracking, most employers rely on ICHRA platforms and administrators to manage day-to-day administration rather than handling it themselves.

Employers generally send employees a written notice before the start of the ICHRA plan year. The notice explains:

To receive reimbursement, the employee and any covered household members must be enrolled in qualifying individual health insurance coverage, or in Medicare, when eligible.

Qualifying individual health insurance coverage may include:

Short-term plans and other non-ACA compliant coverage do not qualify for ICHRA reimbursement.

A subsidy is federal financial assistance designed to lower the cost of health insurance purchased on-exchange.

Because an ICHRA is an employer-sponsored offer of coverage, it can affect whether an employee and any household members covered by the offer can receive a subsidy.

Whether an ICHRA affects subsidy eligibility depends on whether the ICHRA offer is considered “affordable.”

An employee cannot both accept ICHRA reimbursements and receive a subsidy for the same coverage period. Doing so is referred to as double dipping, which can result in the consumer having to repay some or all of the APTC when reconciling taxes for the year.

On-exchange coverage is coverage purchased directly through the Marketplace. Subsidies are only available for on-exchange coverage. Off-exchange plans do not go through the Marketplace, so they are not subsidy eligible.

Employees who are offered an ICHRA can choose from either on-exchange or off-exchange coverage. The option an employee chooses often depends on whether the ICHRA is affordable, whether the employee accepts or declines the offer, and whether the employer offers a cafeteria plan.

Many employers use an ICHRA platform or ICHRA administrator to manage the day-to-day work of offering an Individual Coverage Health Reimbursement Arrangement (ICHRA).

An ICHRA platform is the technology employees and employers use to manage the benefit. The platform may allow employees to view their allowance, upload proof of coverage, submit reimbursement requests, track remaining funds, and access plan shopping or enrollment support.

An ICHRA administrator helps operate the benefit. Depending on the services offered, an administrator may help with employee notices, eligibility tracking, coverage substantiation, reimbursement review, allowance tracking, and reporting support.

An ICHRA platform and ICHRA administrator are often the same entity, though some vendors offer only the platform with limited administrative support.

Because reimbursement documentation, such as a premium invoice, may include protected health information, an ICHRA platform or administrator can also help manage that documentation so the employer does not need to directly review an employee’s private health information.

ICHRA platform and administrator capabilities may include:

An ICHRA is only available through an employer, as an employer benefit offered to an employee. The offer may extend to the employee's household members, but it is not available to a consumer independent of an employer offer.

No. An ICHRA is a benefits strategy, not an insurance product. An ICHRA is the mechanism an employer uses to fund health insurance coverage that a consumer selects and enrolls in on their own.

No. An employee must choose one or the other for a given period of coverage. Accepting both can result in having to repay some or all of the APTC when reconciling taxes for the year.

No. Declining an ICHRA does not guarantee subsidy eligibility.

If the ICHRA is affordable, the employee and any household members covered by the offer are not eligible for a subsidy, even if they decline the ICHRA.

If the ICHRA is unaffordable, declining the ICHRA allows the employee to opt out of the ICHRA and apply for a subsidy. When the consumer completes a subsidy application, the Marketplace will determine the tax household’s eligibility for coverage and financial assistance.

An ICHRA platform calculates affordability using IRS guidelines.

An ICHRA offer may apply to the employee only, or it may extend to certain household members. Household members who are not covered by the ICHRA offer may still be subsidy eligible.

A Qualified Small Employer HRA (QSEHRA) works differently from an ICHRA. An ICHRA may affect whether an employee is eligible for subsidies as a whole, whereas a QSEHRA generally reduces the employee’s APTC dollar-for-dollar. QSEHRAs are also typically only available to a select group of small employers.

Yes. Employers offering an ICHRA have annual reporting obligations to the IRS, as well as notice requirements to employees.

Not always. An ICHRA platform is the technology used to help manage an Individual Coverage Health Reimbursement Arrangement (ICHRA). A third-party administrator (TPA) is a more specific term that may involve licensing, bonding, or regulatory requirements.

Some ICHRA platforms may also act as TPAs, but many do not. Agents should use the term ICHRA platform or ICHRA administrator unless they know the vendor is acting as a TPA.

A cafeteria plan, also called a Section 125 plan, is an employer-sponsored plan that lets employees set aside part of their paycheck, before taxes, to pay for certain qualified benefits instead of taking that amount as taxable income. The employer decides which benefits to offer, and employees choose which of those benefits to use. Depending on the employer's plan, cafeteria plan benefits may include:

An ICHRA and a cafeteria plan serve different purposes, but often work together. An ICHRA is funded entirely by the employer; employees cannot contribute their own money to it.

A cafeteria plan doesn't provide or replace the ICHRA allowance. Instead, it's a way for an employee to pay for eligible health coverage costs using pre-tax payroll deductions rather than post-tax income. Employers may pair an ICHRA with a cafeteria plan when permitted.

Sometimes. The portion of the premium not covered by the ICHRA allowance can be paid pre-tax only if the employer has established a cafeteria plan and the employee is enrolled in off-exchange coverage. If either condition isn't met, the employee's contribution is paid post-tax.

A cafeteria plan cannot be used to pay any portion of a premium for individual coverage purchased on-exchange.

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