Individual Coverage HRAs (ICHRAs) – formally called Individual Medical Coverage HRAs (IMC-HRAs) – are employer-funded reimbursement arrangements that allow employers to reimburse employees for individual health insurance premiums and other qualified medical expenses under IRS Section 213(d).
Created through federal rulemaking finalized in 2019, ICHRAs represent the most significant expansion of HRA flexibility since the Affordable Care Act (ACA). They allow employers of any size to use tax-free employer dollars to fund individual market coverage for defined groups of employees.
What an ICHRA Is
An ICHRA is an employer-funded reimbursement allowance offered in place of a traditional group health plan for one or more designated employee classes. Employees use the allowance to purchase ACA-compliant individual health insurance, either on or off the Marketplace.
Key characteristics
- Employer-funded only
Employees cannot contribute. Employers set the allowance amount and reimburse only after substantiated claims. - No federal maximum contribution limit
Employers may fund any amount, provided all employees within the same class are treated uniformly. - Reimburses premiums for ACA-compliant individual health plans
Eligible policies include Marketplace (on-Exchange) plans and off-Exchange individual plans
Employers may also choose to reimburse other Section 213(d) expenses, though many limit ICHRAs to premiums only for simplicity.
- Employees must enroll in individual medical coverage
Coverage must meet ACA Minimum Essential Coverage (MEC) standards.
Short-term plans, health sharing ministries, indemnity plans, and other non-MEC coverage types do not qualify. - Cannot be offered alongside a group plan to the same employee class
An employer may offer a group plan to one class, and an ICHRA to another class – but not both to the same class. - Ongoing substantiation required
Employers must verify continued enrollment in a qualified individual MEC plan before reimbursing premiums.
How an ICHRA Works
- Employer sets allowance levels, which may vary by employee class or family size (e.g. Employee or Employee+Dependent(s)/Spouse/Family).
- Employees purchase individual coverage meeting MEC rules.
- Employees submit substantiation of premiums and enrollment.
- Employer reimburses allowable expenses tax-free.
- COBRA applies, since ICHRAs are group health plans under ERISA.
When Employers Use ICHRAs
ICHRAs are most effective for:
- Employers priced out of traditional group insurance
- Multi-state or remote workforces
- Industries with variable-hour employees
- Organizations seeking predictable healthcare budgeting
- Employers exiting group plan sponsorship while still offering tax-advantaged benefits