What is an ICHRA?
ICHRA (pronounced “ick-rah”—rhymes with “sick-raw”) stands for Individual Coverage Health Reimbursement Arrangement.
Instead of offering a traditional group health insurance plan, employers can use an ICHRA to reimburse employees—tax-free—for their individual health insurance premiums. This gives employees more flexibility and often saves employers money.
ICHRAs became available on January 1, 2020, after the IRS and federal agencies finalized the rules in 2019. Because they’re employer-sponsored health benefits, ICHRAs fall under ERISA (the Employee Retirement Income Security Act of 1974), which regulates employee welfare benefit plans.
Which Employers Benefit Most from ICHRAs?
ICHRAs can work for businesses of all sizes, but certain types of employers tend to see the biggest advantages:
- 1–50 employees (community-rated): Small businesses with high premiums can shift coverage to the individual market and save money.
- 1–50 employees (new to offering benefits): Companies that couldn’t afford traditional group plans, or couldn't meet participation requirements, can now contribute what they decide toward the cost of employee coverage.
- 51–500 employees (experience rated employers or self-insured employers): Companies with high-cost claims (such as cancer treatments or premature births) can move their group into a different risk pool and lower costs.
- Remote or multi-state workforces: National group plans are limited and often expensive; ICHRAs give employees freedom to choose what works best in their state.
- High turnover shift workforces: Flexibility with different contributions for classes of employees plus portability of policies for employees who leave all make administration easier.
How You as an Employer Benefit
Switching to an ICHRA can unlock several advantages for employers:
Cost savings: On average, employers save 10-50% compared to group plans—savings that can equal the cost of a few full-time employees.
Predictable budgets: Instead of waiting for insurers to dictate renewal rates, employers set contributions based on a benchmark (e.g., the cost of a silver plan for a 40-year-old).
No participation requirements: Even if only one employee enrolls, the plan still works.
Flexible classes: Employers can vary contributions by role, pay type, or location.
Tax benefits: Contributions are a pre-tax business expense.
Advantages for Your People
Employees (and their families) also gain flexibility and choice:
- Pick your insurer: Each employee chooses the plan and provider network that fits their needs.
- Upgrade options: Want a richer plan? Employees can “buy up” and pay the difference through payroll.
- HSA compatibility: Employees can "buy down" to an HSA compatible plan, and get the difference between employer contribution and plan premium deposited into their HSA.
- Tax advantages: Contributions and reimbursements are pre-tax.
- Portability: The policy belongs to the employee, so if they change jobs, their coverage moves with them.
What About Administration Headaches?
At first glance, ICHRAs may sound complicated—but with the right adviser and administrator, setup is straightforward. Many employers actually find it easier than managing a group plan.
Here’s the typical setup process after signing a contract:
- Decide contribution amounts for each employee class (and dependents).
- Finalize ERISA-compliant plan documents.
- Set up employer funding schedules so employees don’t have to prepay premiums.
- Invite employees to a secure portal to explore and select their plans.
- Employees confirm their selections.
- Each employee gets a debit card to for payment of premiums.
From there, employers and employees get ongoing support—help with benefits, disputes, or provider issues—so no one is left navigating insurance alone.
Ready to Explore ICHRA for Your Business?
At Shift, we can run your demographic and cost data through our cost analyzer tool to show exactly how much you could save by switching from a group health plan to an ICHRA.
We’re also here to answer questions and walk you through the process step by step.
👉 Contact us today to see if ICHRA is the right fit for your business.