ICHRA FAQ: Common Employer Questions Answered | Employer Benefits IQ

Question 1

What is an ICHRA?

Accepted Answer

An Individual Coverage HRA (ICHRA) is an employer-funded health benefit that reimburses employees tax-free for individual health insurance premiums and qualifying medical expenses. Unlike a group health plan, the employer does not purchase insurance — the employer funds a monthly reimbursement account and employees use it to pay for their own individual coverage. ICHRA was created by a 2019 federal rule and became available January 1, 2020.

Question 2

Who can offer an ICHRA?

Accepted Answer

Any employer of any size can offer an ICHRA — there is no minimum or maximum employee count. Sole proprietors, S-corp owners, and partners in a partnership are generally not eligible to receive ICHRA reimbursements themselves, but their employees can. Government employers and churches may have additional restrictions.

Question 3

Does ICHRA satisfy the ACA employer mandate?

Accepted Answer

Yes — for Applicable Large Employers (50+ FTEs), an ICHRA satisfies the employer mandate if it meets the ACA affordability standard. An ICHRA is affordable if the employee's required contribution for the lowest-cost silver plan in their rating area does not exceed the ACA affordability threshold (9.02% of W-2 wages for 2025). ALEs must run this calculation for each employee's location before setting reimbursement amounts.

Question 4

Can I offer ICHRA to some employees and a group health plan to others?

Accepted Answer

Yes — but only if the employees are in different IRS-defined employee classes. You cannot offer ICHRA to one employee and a group plan to another employee in the same class. The 11 permitted classes include full-time, part-time, salaried, hourly, seasonal, CBA-covered, geographic location, and others. When offering both ICHRA and a group plan, minimum class size requirements apply to prevent health-status discrimination.

Question 5

What expenses can ICHRA reimburse?

Accepted Answer

ICHRA can reimburse individual and family health insurance premiums (ACA-compliant plans, Medicare, COBRA) and, if the plan document allows it, qualifying medical expenses under IRC Section 213(d) — deductibles, copays, prescriptions, dental, vision, and more. The plan document controls which expenses are eligible. Premiums for a spouse's employer-sponsored group plan, short-term health insurance, and health sharing ministries do not qualify.

Question 6

What is the required employee notice and when must it be delivered?

Accepted Answer

Employers must provide a written ICHRA notice to eligible employees at least 90 days before the plan year begins. For new employees, the notice must be provided within 90 days of hire. The notice must include the reimbursement amount, eligibility requirements, opt-out procedure, and a statement about premium tax credit eligibility. This is a hard compliance deadline — missing it creates legal exposure.

Question 7

Can employees opt out of ICHRA?

Accepted Answer

Yes — employees must be allowed to opt out of the ICHRA. Employees who opt out of an unaffordable ICHRA may be eligible for ACA premium tax credits on the marketplace. The opt-out procedure must be documented in the plan document and described in the employee notice. Employees who opt out generally cannot receive ICHRA reimbursements for that plan year outside of qualifying life events.

Question 8

What happens if an employee does not enroll in individual coverage?

Accepted Answer

Employees must maintain qualifying individual health insurance coverage to receive ICHRA reimbursements. If an employee does not enroll in qualifying coverage, they cannot receive reimbursements — regardless of the employer's contribution. The HRA administrator verifies coverage before approving reimbursements.

Question 9

Is there a limit on how much an employer can contribute to an ICHRA?

Accepted Answer

No — there is no IRS cap on ICHRA employer contributions. The employer sets the monthly reimbursement amount. Contributions can vary by employee class, age (up to 3x the youngest employee's allowance), and family status. They cannot vary based on health status, claims history, or any other factor.

Question 10

What ACA reporting is required for ICHRA?

Accepted Answer

All employers offering ICHRA must file Form 1095-B (and furnish copies to employees) and Form 1094-B with the IRS to report minimum essential coverage. Applicable Large Employers must also file Form 1095-C to report the ICHRA offer, reimbursement amount, and affordability status for each full-time employee. The HRA administration platform typically handles these filings.

Question 11

Do I need an HRA administration platform?

Accepted Answer

Yes — an HRA administration platform is effectively required. The platform handles employee enrollment, expense substantiation (verifying that expenses qualify before reimbursement), coverage verification, and ACA reporting. Managing substantiation manually is not feasible at any meaningful scale, and informal reimbursement arrangements without proper substantiation violate IRS rules and lose the tax-favored status.

Question 12

How does ICHRA compare to a QSEHRA?

Accepted Answer

Both ICHRA and QSEHRA (Qualified Small Employer HRA) reimburse employees for individual health insurance premiums. The key differences: QSEHRA is limited to employers with fewer than 50 full-time employees and has annual IRS contribution caps ($6,350 self-only / $12,800 family for 2025). ICHRA has no size limit and no contribution cap. ICHRA also allows different reimbursement amounts for different employee classes; QSEHRA must offer the same benefit to all eligible employees (except for family status variation).

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