An Individual Coverage HRA is an employer arrangement that reimburses employees tax-free for health insurance they buy themselves, instead of the employer choosing and sponsoring one group plan for everyone. It came out of a federal rule finalised in 2019 and has been available since January 2020, to employers of any size.
The trade is straightforward. You decide what you can afford per employee per month. They choose their own plan and keep it if they leave. You are budgeting a number rather than renewing a plan, and the renewal increase that arrives every autumn stops being your problem.
ICHRA, QSEHRA and a group plan, side by side
| Group plan | ICHRA | QSEHRA | |
|---|---|---|---|
| Who can offer it | Any employer; 1–50 FTEs is the small group market | Any employer, any size | Fewer than 50 FTEs, and no group plan |
| Cap on what you put in | None, but you are buying a plan | None — you set the number | $6,450 self-only / $13,100 family in 2026 |
| Who picks the plan | You do | Each employee does | Each employee does |
| Different amounts by group of staff | Limited | Yes, by defined class | No |
| Portable if they leave | No — COBRA at full cost | Yes, the policy is theirs | Yes |
The rules that actually constrain you
- Employees must hold individual coverage. Every month an employee is reimbursed, they must be enrolled in an individual health plan or Medicare. Being offered an ICHRA also opens a special enrollment period, so they can buy mid-year.
- You may split staff into classes, but not arbitrarily. The rule defines up to eleven classes — full-time, part-time, seasonal, salaried, hourly, employees in a waiting period, employees in the same insurance rating area, and so on. You can fund each class differently, and vary by age and family size inside a class, but you cannot pick out individuals.
- One class gets one kind of benefit. You cannot offer the same class both an ICHRA and a traditional group plan.
- 90 days' written notice before the plan year starts, to every eligible employee.
- Employees can opt out once a year, which matters for the next point.
The affordability test, and why it decides everything
This is the part that gets missed. Take the lowest-cost Silver plan for self-only coverage in that employee's rating area, subtract what you are putting in each month, and compare what is left against 9.96% of their household income for 2026.
- At or under 9.96% the ICHRA counts as affordable. The employee cannot also take a premium tax credit on the marketplace.
- Over 9.96% the employee may opt out and claim the premium tax credit instead — which, for a lower-paid worker, can be worth more than your contribution.
So the same monthly amount can be the right answer for one employee and the wrong one for another, depending on their household income and the Silver premium where they live. Running that comparison per employee, before you set the number, is the whole job.
When an ICHRA beats a group plan
- Your team is spread across counties or states and no single network covers everyone well.
- You have a handful of employees and group quotes come back priced off one or two people.
- Several employees would qualify for large subsidies on their own, and you would rather fund the ones who would not.
- You want a predictable line in the budget instead of a renewal negotiation.
And when it does not: if most of your staff earn enough that no subsidy applies and you want one plan with one network and one card, a group plan is usually simpler and often cheaper per head.
What I do with this
I am a licensed independent advisor in 23 states, and the individual plans an ICHRA pays for are what I place every day. Practically, that means I can run the affordability test against real Silver premiums in each employee's rating area, tell you what monthly figure makes the arrangement work, and then help each employee choose and enroll. If the numbers say a group plan is better for you, I will say so — I compare those too.
By type of practice
Who can be in an ICHRA depends on how the firm is built: partners, more-than-2% S corporation owners, 1099 associates and licensed real estate agents cannot. HealthCare.gov now calls an ICHRA a CHOICE Arrangement; the rules are the same.
- Law Firms
- Dental Practices
- Medical Practices
- CPA Firms
- Real Estate Brokerages
- Financial Advisory Firms and Insurance Agencies
Common questions
What is an ICHRA?
An Individual Coverage HRA is an employer arrangement that reimburses employees tax-free for individual health insurance they buy themselves, instead of the employer sponsoring a group plan. It has been available to employers of any size since January 2020.
Is there a limit on what an employer can contribute to an ICHRA?
No. Unlike a QSEHRA, which is capped at $6,450 for self-only and $13,100 for family coverage in 2026, an ICHRA has no federal minimum or maximum. The employer sets the amount, and may set different amounts for different defined classes of employee.
Can an employee take a premium tax credit if they are offered an ICHRA?
Only if the ICHRA is unaffordable to them. Subtract the monthly ICHRA amount from the lowest-cost self-only Silver plan in their rating area; if what is left is more than 9.96% of household income in 2026, they may opt out and claim the credit instead.
Can a business with under 50 employees use an ICHRA?
Yes. An ICHRA is open to employers of any size. Employers under 50 full-time equivalents may also consider a QSEHRA or a small group plan, and which one wins depends on what your employees earn and what individual coverage costs where they live.
Related: Cigna vs Humana for a small business.