How ICHRA Works

An Individual Coverage Health Reimbursement Arrangement (ICHRA) is a health benefit that allows employers to give employees a fixed monthly allowance to buy their own health insurance and pay for qualified medical expenses.
Step-by-Step Overview

What is an ICHRA?

An ICHRA works similarly to a defined contribution model, like a 401(k). The employer sets the budget, and the employee selects the coverage.
Instead of sponsoring one group policy for everyone, employers define their contribution while employees select the coverage that fits their needs.

How does ICHRA work step-by-step?

ICHRA works in four primary steps:
Step 1: The employer sets the budget
The employer decides how much to contribute each month and may vary that amount by employee class and age under ACA guidelines. Instead of selecting insurance carriers or plan designs, the employer defines a set allowance.
Step 2: Employees choose their own plan
Employees enroll in an individual plan that meets minimum essential coverage standards. Pricing is community rated rather than based on employer claims, and employees can choose from multiple carriers and plan designs.
Step 3: Premiums and expenses are reimbursed
Employees pay their premium and submit proof of coverage and medical expenses. Qualified premiums and eligible costs defined by IRS Section 213(d) can be reimbursed, and some employers pay premiums directly and handle payroll deductions.
With zizzl health, premiums are prepaid, not reimbursed
Eligible premiums are paid through payroll deductions, so employees do not have to use their own cash upfront.
Step 4: Compliance requirements are followed
When properly documented and administered, ICHRA plans can meet ACA requirements. Employers must maintain required documentation, provide notices, and follow COBRA where applicable under ERISA.

Understanding ICHRA by role

ICHRA works because it balances control and flexibility. Employers gain predictability, employees gain choice, and brokers can use ICHRA as an alternative funding strategy.
For employers seeking cost control and stability
  • Budget predictability Employers set the contribution amount upfront, reducing exposure to renewal volatility because pricing is not tied to group claims experience.
  • Flexible eligibility Employers of any size may offer an ICHRA to full-time and part-time employees.
Download Employer Guide to ICHRA
For employees who want more plan choice
  • Personalized plan selection Employees choose their own insurance company and plan, giving them more control over their coverage.
  • More choice with ICHRA 72% of employers offering ICHRA say employees have more choices, reinforcing one of ICHRA’s biggest advantages: giving employees greater flexibility in selecting coverage that fits their needs.1
Download ICHRA Impact Flyer
1 Deft Research. (2026). Commercial Group and ICHRA Study
For brokers leading the ICHRA conversation
  • Relationship continuity Brokers can continue serving as the advisor while supporting implementation and ongoing administration.
  • Advisory credibility Understanding how ICHRA works equips you to introduce and explain the model before renewal pressure defines the discussion.
Download ICHRA Guide for Brokers

Compliance basics made simple

ICHRA includes defined compliance requirements that must be documented and administered correctly. From ACA reporting to COBRA administration and beyond, it can get complex. But when the plan is set up correctly, employers and employees each have straightforward responsibilities.
See if ICHRA is a Fit
When offering an ICHRA:
Employers must:
  • Maintain a formal plan document
  • Provide advance employee notice
  • Allow employees to opt out
  • Structure affordability appropriately
Employees must:
  • Enroll in a qualified individual plan
  • Provide proof of coverage and eligible expenses
ICHRA FAQs

Employers of any size may offer an ICHRA to full-time or part-time employees.

Employees may opt out if they prefer to pursue a federal subsidy instead.

Individual health insurance plans that provide minimum essential coverage qualify for reimbursement.

  • Medicare Parts A, B, C, D and supplements may qualify depending on plan design.
  • Dental and vision group plans do not qualify.

No. Employers of any size may implement an ICHRA.

There is no minimum or maximum contribution amount set by law. Employers choose the monthly allowance they want to offer, based on their budget and workforce strategy.

The contribution must meet ACA affordability rules for applicable large employers, but beyond that, the employer defines the amount.

Yes. Employers may vary contributions by employee class and age, within federal guidelines.

Common class distinctions include full-time, part-time, seasonal, salaried, hourly, or employees in different geographic locations. Age-based variation is permitted as long as it aligns with age-based premium differences in the individual market.

Contribution structures must follow IRS and ACA nondiscrimination rules.

When properly structured and administered, ICHRA can satisfy ACA employer mandate requirements.

Applicable large employers must ensure the contribution meets affordability standards and must provide required notices and documentation. Employees must enroll in qualifying individual coverage for the arrangement to function correctly.

Compliance depends on proper setup and ongoing administration, not the funding model alone.

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