Is an ICHRA Right for Your Organization?

As healthcare costs continue to rise and workforce needs evolve, many employers—especially small to midsize businesses—are rethinking their approach to health benefits. One option that’s gained traction over the last few years is the Individual Coverage Health Reimbursement Arrangement, or ICHRA (pronounced ick-rah).

If you’re looking for more flexibility, cost control, and choice in your benefits strategy, an ICHRA might be worth exploring.

What’s an ICHRA, Really?

An ICHRA is an employer-funded benefit that reimburses employees for individual health insurance premiums and other qualified medical expenses. Instead of offering one group plan for everyone, you provide a monthly allowance and employees use that to purchase their own coverage on the individual market.

It’s a different way of thinking about benefits:

• You set the budget.
• Employees choose the plan that works for them.
• Everyone gets more flexibility.

And yes—done correctly, it’s typically tax-free for both the employer and the employee.

Why Employers Are Considering ICHRAs

Here’s what makes ICHRAs appealing to more employers each year:

• Predictable Costs: You decide how much to contribute, giving you more control over your benefits budget.
• Employee Choice: No more one-size-fits-all plans. Employees choose coverage that fits their needs and families.
• Portability: Since the coverage is individually owned, employees keep their plan even if they leave the organization.
• Compliance-Friendly: ICHRAs can help meet ACA employer mandate requirements when designed correctly.

Things to Think Through Before Moving Forward

While the flexibility is attractive, ICHRAs aren’t a fit for every organization. Here’s what you’ll want to weigh carefully:

• Affordability Rules: To satisfy ACA rules, your ICHRA contribution must make coverage “affordable.” That usually means the employee’s cost for the lowest-cost silver plan (after your contribution) can’t exceed a set percentage of their income.
• Marketplace Subsidies: If you offer an ICHRA, it affects your employees’ eligibility for premium tax credits on the Health Insurance Marketplace. Employees can’t “double dip”—it’s either the subsidy or the ICHRA.
• Administration: There’s more admin involved than with a traditional group plan. You’ll need a process for verifying individual coverage and managing reimbursements or a partner who can help with that.

How to Know If an ICHRA Makes Sense for You

An ICHRA could be a strong option if:

• You’re struggling with group plan costs or participation.
• You have a geographically diverse or part-time workforce with different needs.
• You want to offer a benefit, but group coverage isn’t sustainable.
• You’re looking for a fresh approach to attract and retain employees, especially in competitive markets.

That said, ICHRAs aren’t right for everyone. They require thoughtful planning, clear communication with employees, and a good partner to help navigate the moving parts.

Size Doesn’t Matter—But Strategy Does

One of the biggest misconceptions about ICHRAs is that they’re only for small employers. Not true. ICHRA is available to employers of any size—from startups to large corporations.

What matters more is how you structure it and what you’re trying to achieve:

• If you're a small business, it could be a flexible, affordable way to offer meaningful coverage without the pressure of group plan participation.
• If you're a large employer, you’ll need to design your ICHRA to meet ACA affordability rules, but it can still be a powerful, compliant alternative to traditional plans.

Regardless of size, the key is aligning the benefit with your workforce’s needs and your organization’s goals.

What Might Be Missing From the Conversation?

You’ve covered the technical side—but here are a few additional questions employers often overlook:

• How much support will your employees need to shop for their own plans? If you’re shifting the buying experience onto your team, do you have the tools or vendor to help?
• How will this affect your employer brand? Employees may view an ICHRA positively—or see it as a downgrade—depending on how it’s rolled out and communicated.
• What’s your long-term strategy? Is this a stopgap or part of a broader shift in your benefits philosophy?

We find that education, transparency, and trust are just as important as dollars and cents when it comes to making an ICHRA work.

Let’s Walk Through It Together

There’s no one-size-fits-all answer to whether an ICHRA is right for your organization, but we can help you explore it in a way that makes sense.

We guide employers through the complex world of benefits with clarity and care. If you’re curious about how an ICHRA might work for your team, we’ll walk you through the pros, cons, and practical steps so you can make a confident decision that works for your business and your team.