ICHRA Explained: A Broker's Guide to Selling Individual Coverage Plans 

Table of Contents

• What is an ICHRA?
• Is an ICHRA right for your clients?
• How does an ICHRA compare to QSEHRA and level-funded plans?
• How do you stay compliant with ICHRA?
• How can technology help you manage ICHRA plans?
• Frequently asked questions about ICHRA

One of the reasons ICHRAs have grown in popularity is because of their flexibility. Unlike some group health options, they work for businesses of nearly any size or structure.  

AgencyBloc surveyed group benefits agents and found that over 70% of respondents are already selling ICHRAs, plan to start, or are actively evaluating them as part of their product portfolio.

What Is an ICHRA?

An ICHRA, or Individual Coverage Health Reimbursement Arrangement, is an alternative to a traditional group health plan. The employer sets a monthly budget, employees use it to buy their own individual health insurance, and the employer reimburses them tax-free.      

Employers get a fixed, predictable cost, and their employees get to select a plan that fits their family, budget, and doctors. 

A few reasons ICHRAs are being considered by agencies:

• They open doors to employer groups who never offered benefits before, representing an entirely new market segment.
• They lessen the annual renewal concerns tied to unpredictable group plan rate increases.
• They create room to cross-sell ancillary and voluntary lines using dollars saved from switching away from a traditional group plan.

Is an ICHRA Right for Your Clients?

ICHRAs can be a flexible option for employers with different needs, depending on their size, workforce, and benefit goals. They can be especially useful for:

• Small businesses who want to offer meaningful coverage to their employees without the cost and complexity of a traditional group plan.
• Applicable Large Employers (ALEs) who meet ACA compliance requirements but want to keep a tighter grip on benefit costs.
• Remote and multi-state teams who want a solution that works for everyone, regardless of where employees live.
• Startups and nonprofits who need a more flexible budget year-to-year

While ICHRAs can be a strong fit for many employers, they aren’t the only alternative to traditional group coverage. QSEHRAs and level-funded plans offer different approaches that may also make sense depending on the employer.

How Does an ICHRA Compare to QSEHRA & Level-Funded Plans?

Each approach has its own advantages, requirements, and considerations. Understanding how they compare can help you determine which solution may be the best fit for your clients.

Here's a quick side-by-side comparison of each option:

Option 1: QSEHRA, Qualified Small Employer Health Reimbursement Arrangement

QSEHRAs are only available to employers with fewer than 50 full-time employees who aren't offering a group plan. They allow tax-free reimbursements for individual premiums and qualified medical expenses up to an IRS-set annual cap.

They're a great fit for small, local teams who want a simple, budget-friendly benefit.

Limitations of QSEHRA Plans:

• Contribution caps may be too restrictive for employees with higher coverage needs.
• One-size-fits-all design — no differentiation between employee roles or family needs.
• Must not offer any group health plan.

Advantages of QSEHRA Plans:

• Simple to set up and administer: QSEHRAs are a straightforward option for employers who don't have HR staff or a dedicated benefits consultant.
• Tax-free reimbursements: Contributions are tax-free for both the employer and employees, covering individual premiums and qualified medical expenses.
• Budget-friendly: IRS-set contribution caps make it easy to predict and control costs from year to year.
• Flexible for employees: Each person can choose the individual health plan that works best for their needs and budget.
• Great for small, local teams: When everyone lives and works in the same area, QSEHRA is a natural fit for keeping things simple.

If a client has fewer than 50 employees, has never offered benefits, and wants to keep things simple, QSEHRA is often the easiest place to start.

Option 2: Level-Funded Plans, a Hybrid Between Fully Insured & Self-Funded Group Insurance

Level-funded plans are self-funded arrangements with fixed monthly contributions. Level-funded plans use a fixed monthly payment to cover administrative costs, stop-loss coverage, and employee claims funding. If claims are lower than expected, employers may receive a refund at the end of their fiscal year. If claims are high, stop-loss insurance kicks in to reimburse the employer.

Limitations of Level-Funded Plans:

• Renewal volatility can strain budgets after high claims years.
• Administrative overhead still resembles a traditional group plan.
• There’s sometimes limited choice for employees tied to a specific carrier or network.

Advantages of Level-Funded Plans:

• Potential for premium refunds: Employers may get money back at the end of the year if claims come in lower than expected.
• Lower premiums than fully insured plans: Groups with generally healthy employees often see lower monthly costs compared to traditional coverage.
• Familiar experience: Employees get the feel of a traditional group plan, with networks, deductibles, and other attributes they’re used to.
• Access to provider networks: Depending on the plan, employees can still see their preferred doctors and hospitals.
• Predictable monthly costs: Stop-loss insurance caps the employer's financial exposure, so there are no surprise bills from a high-claims month.

Option 3: ICHRA, Individual Coverage Health Reimbursement Arrangement

With an ICHRA, employers set a monthly allowance for employees to use to purchase individual health insurance and/or get reimbursed for medical expenses, tax-free. Unlike QSEHRA plans, there are no caps, no minimums, and no participation requirements.

Limitations of ICHRA Plans:

• Employees must purchase their own individual insurance, and some may find this unfamiliar or intimidating without guidance.
• Not compatible with traditional group plans (though group benefits like dental and vision are allowed).
• Requires employees to enroll in a qualified health plan to receive reimbursements. Without a plan, employees receive no payout.
• Employer reimbursements must be consistent within defined employee classes (part-time, full-time, etc.), which adds some initial setup planning.

Advantages of ICHRA Plans:

• Unlimited employer contributions: Employers set their own reimbursement budget with no federal caps limiting how much they can offer.
• Flexible benefit design: Allowance amounts can be tailored by job class, location, hours worked, and more, giving employers real control over how benefits are structured.
• Supports remote & part-time employees: ICHRAs are built for today's workforce, making it easy to extend benefits across diverse employment types and locations.
• Employee choice: Employees choose the plan that fits their family, preferred doctors, and budget.
• Reduced compliance risk: Because employees purchase their own individual coverage, employers carry less liability compared to sponsoring a traditional group plan.
• Tax-advantaged for all: Reimbursements are tax-free for both employers and employees, making ICHRAs financially beneficial on both sides.
• Scalable as your group grows: Whether a business has two employees or 200, the ICHRA model adjusts without requiring a complete benefits overhaul.
• Compatible with other benefits: Dental, vision, disability, and other supplemental coverage can be layered in alongside an ICHRA.

How Do You Stay Compliant with ICHRA?

ICHRA gives employers flexibility in how they structure their health benefits, but that flexibility comes with important compliance requirements. Understanding these requirements can help your team guide clients through the process.

Key compliance areas to understand include:

• Employee class definitions: Employers can offer ICHRAs to different employee classes, such as full-time, part-time, seasonal, or geographically defined groups. Once employee classes are established, the ICHRA generally must be offered on the same terms to employees within each class.
• ACA affordability: Applicable Large Employers (ALEs) must ensure their ICHRA offering meets applicable ACA affordability requirements to help satisfy the employer shared responsibility provisions and avoid potential penalties.
• Employee notices: Employers generally must provide eligible employees with the required ICHRA notice at least 90 days before the beginning of the plan year. Employees who become eligible later must receive the notice by the date their ICHRA coverage can begin.
• Enrollment verification: Employees must be enrolled in individual health coverage to receive ICHRA reimbursements. Without individual coverage, they cannot receive reimbursements.

Understanding these requirements can help your agency advise on ICHRAs successfully for your clients while keeping them compliant.

How Can Technology Help You Manage ICHRA Plans?

For agents who are already selling or looking to sell ICHRAs, a strong client and policy management system isn't optional. AgencyBloc surveyed agents and found that nearly 65% of AgencyBloc survey respondents rated technology as "very important" in supporting ICHRA sales and management.

An industry-specific agency management system (AMS), like AMS+ is built specifically for health insurance agencies and supports compliance, communication, and workflow management.

AMS+, can help your team by:

• Maintaining a clear, organized view of client and policy information across your entire book of business.
• Automating key touchpoints throughout the policy lifecycle, including renewals and onboarding.
• Accessing built-in compliance documents like ACA Consent to Contact and ACA Attestations.
• Keeping your whole team working from a single, reliable source of data.

When your technology is built for your agency, managing ICHRAs (and all of the other lines of business you sell) becomes a lot more straightforward and a lot less stressful.

FAQ

What does ICHRA stand for?

ICHRA stands for Individual Coverage Health Reimbursement Arrangement. It's a type of employer-funded benefit that allows businesses to reimburse employees tax-free for individual health insurance premiums and eligible medical expenses.

Is an ICHRA the same as a group health plan?

No, an ICHRA is not a group health insurance plan. It's a reimbursement arrangement. Employees purchase their own individual or family health plans and are reimbursed by the employer up to the set monthly allowance.

Who is eligible to offer an ICHRA?

Any employer with at least one full-time employee (who isn't a self-employed owner or sole proprietor) can offer an ICHRA. There are no size restrictions.

Are ICHRA reimbursements tax-free?

Yes. As long as the employee is enrolled in qualifying individual health coverage, ICHRA reimbursements are tax-free for both the employer and the employee.

Can employees choose any health plan with an ICHRA?

Employees can pick any ACA-compliant individual or family plan available where they live. They can shop for it either through the ACA Marketplace or directly from an insurance company, whichever works best for them.

What's the difference between an ICHRA and a QSEHRA?

The main differences are size eligibility and contribution caps. QSEHRAs are only available to employers with fewer than 50 full-time employees and have IRS-set annual contribution limits. ICHRAs are available to employers of any size and have no contribution caps.

Can an employer offer both an ICHRA and a group health plan at the same time?

Not to the same class of employees. However, an employer can offer a group plan to one class of employees (such as full-time workers) and an ICHRA to another class (such as part-time or remote workers).

What happens if an employee doesn't enroll in a qualified health plan?

If an employee doesn't maintain qualifying individual coverage, they're not eligible to receive reimbursements under the ICHRA. No plan, no payout.

Posted by Shannon Beck on Friday, August 28, 2026 in Health Insurance