February 17, 2025
ICHRAs: A Flexible, Tax-Free Solution for Employer-Sponsored Health Benefits
There’s been a lot of buzz lately about Individual Coverage Health Reimbursement Arrangements (ICHRAs). These flexible, employer-funded benefits allow businesses to reimburse employees—tax-free—for individual health insurance premiums and qualified medical expenses. If you’re facing large price hikes for your employee health benefits plan, ICHRAs could be worth considering.
How ICHRAs Work
- Employers Set a Budget – You decide how much to contribute toward employees’ health insurance costs. There are no minimum or maximum contribution limits.
- Employees Choose Their Own Plan – Employees purchase an individual health insurance plan that fits their needs, either through the Health Insurance Marketplace or directly from an insurance carrier.
- Reimbursement for Eligible Expenses – Employees are typically provided a debit card to use their allotted funds towards insurance premium payments and other qualified medical expenses.
Why Choose ICHRAs
- Cost Control – Employers set their own budget, avoiding unpredictable group health insurance rate increases.
- Flexibility – Different employee classes (e.g., full-time vs. part-time, salaried vs. hourly, remote vs. on-site) can receive different contribution amounts.
- Tax Advantages – Reimbursements are tax-free for both you and your employees.
Why Employees Like ICHRAs
- More Choice – Employees select a plan that meets their personal needs rather than a one-size-fits-all group plan.
- Portability – Since employees own their individual insurance policies, they can keep their coverage even if they leave the company.
Who is a Good Fit for an ICHRA?
- Small and mid-sized businesses looking for a cost-effective alternative to traditional group health plans.
- Employers with diverse workforces, including remote employees, part-time workers, or contractors.
- Companies that want to offer benefits without the administrative burden of managing a group plan.
ICHRAs provide a modern, customizable approach to employee health benefits, giving both employers and employees greater control over their health care choices. Want to learn more? One of Nova’s experts gives his take on ICHRAs in this recent article published in The Self-Insurer magazine.