ICHRA (Individual Coverage HRA)

An ICHRA is a type of Health Reimbursement Arrangement that lets an employer reimburse employees for individual-market health insurance premiums (and, if the employer chooses, qualified medical expenses) instead of offering a traditional group health plan. Employees pick their own plan on the individual market, pay the premium, and get reimbursed tax-free by the employer up to the ICHRA allowance. The regulation authorizing ICHRAs took effect January 2020.

ICHRAs let employers exit the group health insurance business entirely while still providing a defined-contribution benefit. The employer sets a monthly allowance (can vary by employee class — full-time, part-time, geographic location, age), and employees choose a plan that fits their situation. For small employers frustrated with rising group premiums, ICHRAs offer budget predictability. For employees, they offer plan portability — the coverage moves with them if they leave the job. The tradeoff is choice paralysis (many employees don't want to shop the individual market) and possible loss of the employer's group-negotiated pricing leverage. ICHRA adoption has grown steadily, especially among small employers and in industries with distributed workforces.

The takeaway: for employers with under 200 employees or geographically distributed teams, ICHRA is worth evaluating alongside traditional group coverage. Pair it with employee decision-support tools (or a broker who helps with individual plan selection) to reduce the choice burden.