Understanding ICHRAs: A Flexible Health Benefit Your Business Might Need

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July 16, 2025 | Tags: Insurance Education Employee Benefits

Health insurance costs and plan options change year after year, creating challenges for business owners trying to offer high-quality benefits. One solution growing in popularity is an Individual Coverage Health Reimbursement Agreement (ICHRA).

Introduced to the health insurance market in January 2020, the use of ICHRAs has been steadily growing. In small employers alone, adoption rose 52% between 2024 - 2025. Now, more and more businesses are considering them as a sustainable option. 

First, what is an HRA?

To understand what an ICHRA is, let's first discuss a Health Reimbursement Arrangement (HRA). An HRA is an account-based health plan that employers can offer to their employees. Employers contribute a certain amount of money to the plan and reimburse employees for qualified medical expenses they, their spouse or dependents have. 

What is an ICHRA?

An ICHRA is an employer-funded HRA that allows employers to reimburse employees for individual insurance coverage. This offers greater flexibility, customization and control for both employers and employees through tax-free reimbursements. 

There are a few key differences. ICHRA plans are available to employers of any size – small, medium or large – or industry with no restrictions. All that’s required to offer an ICHRA is at least one W-2 employee. Also, unlike traditional health plans, ICHRAs are designed to meet the unique needs of individual employees, offering more personalized coverage.  

How does an ICHRA work?

To participate in an ICHRA, employees must be enrolled in qualified, individual health insurance coverage. Once enrolled, the following information applies: 

  1. Employers determine a reimbursement limit: Employers establish a tax-free reimbursement amount for their employees. Reimbursement eligibility can be tailored to different employee classes, like full-time or part-time workers, or salaried or hourly workers, but the same terms must apply to all workers within a given class. 
  2. Employees choose their own insurance: Employees who opt in purchase the individual plan that best suits their needs. 
  3. Employers reimburse employees: Employers review eligible expenses and then reimburse employees up to the limit they set with their available allowance. Reimbursements can also apply to Medicare premiums for those enrolled in Medicare Parts A and P or Part C. 

What are the benefits of an ICHRA?

ICHRAs offer many benefits to both employers and employees when compared to other group plan options: 

 Feature ICHRA Group Plan
 Flexibility and Customization Employees choose and customize their own plan based on their needs and preferences One-size-fits-all where employers chose a group plan for all employees
 Cost Management  Predetermined reimbursement limits = more cost control Possibility of yearly rate increases = less cost control 
 Plan Administration and Oversight Employees manage their own plan enrollment, renewals and coverage decisions   Employers manage plan enrollment, renewals and coverage decisions on behalf of their employees 
 Contribution Requirements  No employer contribution limits for groups under 50 eligible; groups over 50 eligible must meet minimum affordability requirements Requires employers to contribute a percentage of the premium
 Portability Employees can carry over their plan if they change jobs Employees lose coverage if they change jobs

Interested in an ICHRA plan for your business? 

If you're looking to learn more about ICHRAs and how they can benefit your business and employees, contact your broker to request a quote or email the Medical Mutual Sales Team at ichrasales@medmutual.com to get started today.

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