ICHRA, explained honestly.

What it actually is

An Individual Coverage Health Reimbursement Arrangement (ICHRA) is a formal group health plan under which you commit to a monthly dollar amount, and each employee uses it to buy their own individual-market health plan — on the ACA marketplace or off it — instead of enrolling in a single plan you chose for the whole company. You reimburse the premium (and other IRS-qualifying medical expenses) tax-free, up to the allowance. The employee owns the decision of which plan and which network fits their family; you own the budget.

Why it's genuinely ACA-compliant

An ICHRA is not a workaround — it is a formal ACA-compliant structure. Employees must enroll in a plan that meets minimum essential coverage (MEC) to participate, which satisfies that piece of the employer mandate automatically. For applicable large employers (50 or more full-time-equivalent employees), an ICHRA can satisfy the ACA's employer mandate outright, as long as the allowance is "affordable" under IRS rules — for 2026, that means the employee's share of the lowest-cost silver marketplace plan, after your contribution, cannot exceed 9.96% of household income. Safe harbors based on W-2 wages or the federal poverty line make that calculation manageable without collecting anyone's tax return.

Below 50 FTEs the mandate does not apply to you either way, but the same affordability math is still worth running if you want the allowance to actually cover what it is meant to.

How contributions work

You are not required to offer the same amount to everyone. ICHRA rules let you set different allowances by defined employee "classes" — full-time versus part-time, salaried versus hourly, different geographic markets, or age and family size within a class — as long as the classes are defined consistently and meet minimum class-size rules. That flexibility is useful for a business with a spread-out or hybrid workforce, where a single group plan's network never quite covers everyone well.

What employees experience

Employees shop for their own plan the way an individual buyer would — comparing carriers, networks and metal tiers — then submit proof of enrollment and get reimbursed up to your allowance each month. If they leave the company, the plan is theirs; it does not end with the job. If they already have marketplace subsidy eligibility, that needs to be checked carefully: accepting an affordable ICHRA offer generally means giving up a premium tax credit, so the two need to be compared before anyone enrolls.

What to watch for

• Class design has to be done correctly. Poorly defined employee classes or allowances that don't meet the size and consistency rules can undo the compliance benefit. This is not a do-it-yourself spreadsheet exercise.
• Affordability math matters if you're an ALE. Get the allowance wrong and you can still owe an employer mandate penalty even though you offered something.
• Employees need real support choosing a plan. Handing someone a monthly dollar figure and a marketplace link without guidance is how a good ICHRA turns into a frustrated team. Enrollment support is not optional here.
• Subsidy interaction. An employee who would qualify for a marketplace premium tax credit needs to compare that against the ICHRA offer before choosing — accepting one can waive the other.