ICHRA Employer Guide
ICHRA is a powerful tool for the right employer in the right market. But it is not the right answer for every situation. This guide walks through the five key questions to evaluate before adopting ICHRA, how to size the reimbursement, and how to communicate the change to employees.
The ICHRA decision framework
The decision to adopt ICHRA is not primarily a compliance question — it is a strategic question about whether the individual market in your employees' locations can deliver better value than your current group plan at a cost you can sustain. Employers who adopt ICHRA without answering this question first often find themselves with a benefit that is technically compliant but practically inadequate for their workforce.
The framework below covers the five questions that determine whether ICHRA is the right move. Work through them in order — the first question (individual market viability) is the most important, and the answer to it shapes everything else.
Five key evaluation questions
Is the individual market viable in your employees' locations?
ICHRA only works if employees can find affordable, quality individual plans in their area. Check marketplace plan availability and premiums in your employees' counties before committing. In some rural markets, individual plan options are limited or expensive — ICHRA may not be competitive.
What is your current group plan cost per employee?
Compare your current PEPM cost against the reimbursement amount you would need to offer to make ICHRA meaningful. If the gap is large — if you would need to offer $800/month to match your current group plan value but your budget is $400 — ICHRA may not be the right move.
Are you an ALE subject to the employer mandate?
If you have 50+ FTEs, your ICHRA must satisfy ACA affordability rules. Calculate the required reimbursement amount for each employee's location before setting the allowance. An unaffordable ICHRA exposes you to 4980H(b) penalties.
What is your workforce composition?
ICHRA is particularly well-suited for workforces with high proportions of part-time, seasonal, or geographically dispersed employees who are difficult to cover under a single group plan. If your workforce is concentrated in one location and primarily full-time, a group plan may be more cost-effective.
How will employees respond to the change?
Moving from a group plan to ICHRA is a significant change for employees. Plan for robust communication, enrollment support, and a transition period if possible. Employees who are accustomed to employer-managed benefits may find individual market navigation challenging without support.
How to size the reimbursement
The reimbursement amount is the most consequential design decision in an ICHRA. Set it too low and the benefit is inadequate — employees cannot afford meaningful coverage even with the reimbursement. Set it too high and the employer's cost advantage over a group plan disappears. The five guidelines below provide a structured approach to getting it right.
Communicating ICHRA to employees
The biggest risk in an ICHRA transition is employee confusion and dissatisfaction. Employees who are accustomed to employer-managed benefits often find the individual market intimidating. A well-designed communication plan — with real enrollment support — makes the difference between a smooth launch and a retention problem.
Model reimbursement amounts, estimate employer costs, and check ACA affordability before making a decision.
Score your overall benefits strategy across 12 domains to see where ICHRA fits in the bigger picture.
Next step
Model your ICHRA before you commit
Use the free ICHRA calculator to model reimbursement amounts, estimate employer costs, and check ACA affordability for your workforce before making a decision.