Understanding Individual Coverage HRAs (ICHRAs) 

One of the biggest expenses for employers is health benefits, which also is a major concern for employees. That is where Individual Coverage HRAs (ICHRAs) come in. These are the plans that enable businesses to reimburse employees for individual health insurance premiums and eligible medical expenses, all while giving employees freedom to choose the plan that fits their requirements best.  

How Do Individual Coverage HRAs Work? 

Instead of offering one group health plan that works for everyone, employers can choose to contribute to an ICHRA. Employees are then able to use those funds to buy their own individual health insurance. Employers decide: 

• Which employee classes (full-time, part-time, seasonal, etc.) are eligible. 
• How much do they want to contribute. 
• Whether funds can cover just premiums or other medical expenses too. 

This structure makes Individual Coverage HRAs flexible and customizable for different workforce needs. 

Why Employers Are Considering ICHRAs 

Most businesses are exploring ICHRAs as an alternative to traditional group plans due to various reasons, such as: 

• Employers’ ability to set their own budget, enabling cost control.  
• Plans are fully customizable by employee type.  
• Employees have the freedom to choose the plans that fit them best.  
• Allows portability, where coverage follows employee even if they decide to switch jobs.  

Meeting Affordability Standards 

Affordability matters under the Affordable Care Act (ACA), especially for larger employers. An Individual Coverage HRA is considered affordable if the employee’s share of the lowest-cost silver plan premium, after subtracting the ICHRA allowance, is less than 8.39% of household income (2024 rate). To determine affordability, employers can use IRS “safe harbors” like W-2 wages or Federal Poverty Level guidelines to determine affordability.  

The Future of Health Benefits 

Just as 401 (k) plans shifted how retirement benefits are delivered, ICHRAs are likely to reshape how companies provide health insurance. By blending employer cost control with employee choice, ICHRAs reflect a more modern, flexible approach to benefits that can adapt to today’s diverse workforce.