As an Account Director, I am asked about ICHRA a fair amount. If you want to learn more about them, you’re not alone. ICHRAs (that’s short for Individual Coverage Health Reimbursement Arrangements) are becoming more popular with employers of all sizes, and we expect this trend to continue.
But as with anything in the benefits world, the details matter. So let’s walk through what an ICHRA is, how it works, the pros and cons, and how I (or your broker) can help guide the process.
What Is an ICHRA?
At its core, an ICHRA is a way for employers to reimburse employees for individual health insurance premiums, instead of offering a traditional group plan. You decide how much to contribute each month. Employees then use those funds to buy a plan that works best for them, either through the ACA Marketplace or a preferred private vendor. If their plan costs less than your contribution, they might even be able to use the leftover funds for dental or vision (if the plan’s through the marketplace).
Unlike old-school HRAs, ICHRAs are structured to meet ACA compliance standards, which means if you offer one, you’re still fulfilling your coverage obligation as an employer (as long as it’s “affordable”).
How It Works: Behind the Scenes
Here’s a quick breakdown of some of the structure and rules:
Age-Banded Rates
Premiums on the individual market vary by age. ICHRAs account for this by allowing contributions to be scaled accordingly. You can group employees in age bands (e.g., 1-year, 5-year, or 10-year spans), and reimburse more for older employees.
That said, the contribution for the oldest employee in a class can’t be more than 3x the youngest, a rule that was challenged early on but ultimately upheld by the Department of Labor as ACA-compliant.
Employee Classes
This is where it gets interesting. ICHRAs let you segment your workforce into “classes”, each with different contribution strategies. Some valid classes include:
- Full-time vs. part-time
- Hourly vs. salaried
- Union vs. non-union
- Seasonal employees
- Geographic location (insurance rating area or state)
Each class has its own 3:1 age band limit and must meet minimum size requirements (10 employees under 100 total, or 10% of the class size otherwise) but the classes aren’t subject to 3:1 across one another..
So yes, you could reimburse a 65-year-old salaried employee $1,200/month while giving a 25-year-old hourly employee $300, and still be totally compliant.
ACA Affordability Still Applies
If your ICHRA is meant to satisfy your ACA employer mandate, the contributions must meet the affordability standard, based on the lowest-cost silver plan in the employee’s area. If not, you could face penalties for each full-time employee. These penalties would match a traditional insurance plan deemed unaffordable.
Why Employers Have Chosen ICHRAs
One of the biggest reasons employers have been drawn to ICHRAs is cost control. In 2026, however, we are seeing a surge in marketplace plan pricing with an average of 19% in the state of Pennsylvania. Historically, ICHRAs have been relatively stable with 5-7% average cost increases. There are additional factors that may promote further price surges in 2027 and beyond, but it is too early to project. It is something we will continue to monitor.
A benefit of ICHRAs that will remain is flexibility. If your workforce includes a mix of remote workers, part-timers, or seasonal staff, you no longer have to find a single group health plan that fits everyone. ICHRAs allow your employees to make their own decisions from a broad range of potential choices.
Advantages and Disadvantages of ICHRAs
Like many decisions, there are advantages and disadvantages to ICHRAs.
- Flexibility: On the positive side, employees get freedom of choice and can make a plan selection driven toward their specific needs. This can be an empowering experience for your team. This choice can also be a disadvantage, however, as there continues to be a general population knowledge gap on how health plans operate. Employees may pick plans with large coinsurance and not be aware or they may choose a limited network and not understand the nuances.
- Historic Cost Control: For the past few years, ICHRAs have touted a 5-7% annual budget increase. This would outperform the medical trend on an annual basis. In 2026, across the country, we are likely to see ICHRA increases in the upper teens, including a 19% average in Pennsylvania. Some components of the new Medicaid law and reduced marketplace subsidies may threaten to make these increases multi-year as opposed to a single-year “market reset”. Simultaneously, these market pressures may impact the employer-sponsored plans, which could continue to keep ICHRAs a competitive option.
- Claims Experience and its impact on rating: At its most basic level, ICHRAs offer age age-banded rating to groups with over 50 employees. The group-specific claims will not impact the renewal, but as we see more programs that send poor risk to the exchange, we may see a larger increase in the years to come. If you have experienced 30+% renewals year over year, ICHRAs may be a way to offer competitive benefits not subject to your claim risk.
Where a Benefits Consultant Comes In
For now: Setting up an ICHRA might sound straightforward at first glance, but behind the scenes, there’s quite a bit of strategy and education involved. When presented with a budgetarily advantageous option, it may be easier to overlook whether or not the plan truly provides an apples-to-apples comparison to current plan options. It is important to work with a consultant for two reasons: 1) to ensure you are making a decision knowing the full picture of the comparison and avoiding challenges in creating an ICHRA, and 2) to educate your employees before they pick their plans.
For the future: One item which was removed at the last minute from the Budget Reconciliation Act (OBBB) was CHOICE plans. CHOICE plans essentially allow an employer to offer both an ICHRA and a traditional plan to all plan participants. It is very important to have a trusted advisor before CHOICE plans become a reality. Groups that do not have proper expertise with CHOICE plans may direct poor risk to the group plan, contributing to significant budgetary crises.
Curious whether an ICHRA makes sense for your company? BSI is here to help you think through the strategy, crunch the numbers, and build a benefits solution that works both for your business and your people.