ICHRA: fund an allowance, let your team pick the plan.

How an ICHRA actually works

You fund an allowance. Employees buy their own coverage. You reimburse what they can document.

There are four moving parts, and none of them require you to become a benefits expert.

• You define who is eligible. Everyone, or specific classes such as full-time, part-time, seasonal, salaried, hourly, or employees in a particular rating area.
• You set the allowance. There is no federal minimum and no federal maximum. You can vary it by class, and within a class you may vary it by age and by family size.
• Employees enroll in their own individual coverage. An individual market plan on or off the Marketplace, or Medicare. They own the policy, so it goes with them if they leave.
• You reimburse tax-free against proof. Money only leaves your account against a substantiated premium or expense. Whatever an employee does not use stays with you.

The subsidy tradeoff nobody leads with

An affordable ICHRA takes the Marketplace subsidy off the table for that employee. That is the whole decision for a lot of small teams.

Here is the rule, and it is the first thing we check. If you offer an employee an ICHRA and it is considered affordable, that employee cannot claim a premium tax credit on a Marketplace plan. If it is unaffordable, the employee may opt out of the ICHRA and take the subsidy instead. They do not get both, ever.

Affordability is measured against a specific benchmark: the monthly premium for the lowest-cost self-only silver plan available where that employee lives, minus your allowance. What is left is compared against a set percentage of the employee’s household income. Because the benchmark is tied to local silver pricing, the same allowance can be affordable for one employee and unaffordable for their coworker in another rating area.

Why this matters more than the brochures admit: in the individual market a large share of enrollees qualify for a substantial subsidy. If your team would have received meaningful help on their own, a mid-sized allowance can land in the worst possible place, large enough to be judged affordable and disqualify the subsidy, but smaller than the subsidy it just replaced. Your employees end up worse off and you are paying for the privilege.

Who it fits, and who it does not

ICHRA is strongest where a single group plan fits nobody well.

It tends to fit employers offering coverage for the first time, teams spread across several states or rating areas where one network cannot serve everyone, groups with a wide age spread where community-rated group pricing punishes the young or the old, and owners who want benefits to be a predictable budget line rather than a renewal surprise.

It tends not to fit teams where most employees would qualify for a large Marketplace subsidy on their own, markets where the individual networks are materially thinner than the group networks, and employers who specifically want one card, one network, and one HR conversation. Some owners simply value the simplicity of a group plan, and that is a legitimate answer.

Classes: how you can split your team

You can treat different groups differently, but you cannot offer the same class both a group plan and an ICHRA.

The rules let you divide employees into classes and set a different allowance for each. Common ones include full-time, part-time, seasonal, salaried, hourly, employees in a waiting period, and employees grouped by the rating area where they live. You can also combine some of these.

Two guardrails matter. First, a class gets either the ICHRA or a traditional group plan, never a choice between them. Second, if you offer a group plan to some classes and an ICHRA to others, minimum class size requirements kick in for certain splits, scaled to your headcount. This is the part where employers most often build something that does not hold up, and it is the part we handle for you.

ICHRA, QSEHRA, or traditional group

Three different tools. The right one depends on headcount, budget, and whether you already offer a plan.

QSEHRA is the simpler small-employer version. It is limited to businesses with fewer than 50 full-time equivalent employees, you cannot offer a group health plan alongside it, contributions are capped by statute, and you cannot vary the benefit by class the way an ICHRA allows. For a very small team that offers nothing today and wants the least complexity, it is often the better on-ramp. See our group and small business page for how we compare the two against your headcount.

ICHRA has no size limit and no contribution cap, and it lets you vary the allowance by class. It carries more administrative structure in exchange for that flexibility.

Traditional group coverage still wins on simplicity and on network depth in many markets, and participation requirements are usually manageable. It is not obsolete, and we will say so when it is the better answer for you.

What our team does, and what it costs you

Nothing. The carrier pays us, and we are independent, so we are not paid more to steer you toward any one answer.

We run the affordability test against real local silver pricing for each employee location, model what different allowance levels actually do to your people and your budget, compare that honestly against a group quote and against QSEHRA, and if ICHRA is the answer we handle the plan document, the required employee notice, and enrollment.

If the math says a group plan serves your team better, we will tell you that and quote it. We would rather place the right thing once than the interesting thing and lose you at renewal.