For many employers, Individual Coverage Health Reimbursement Arrangements (ICHRAs) represent a potential alternative to traditional group healthcare insurance plans. Though employers are adopting them and plan to adopt them in increasing numbers over the next few years, ICHRA healthcare still brings new and complex regulations to employee benefits planning.
Employers seeking healthcare cost reductions and lighter administrative loads need to know how compliance requirements apply to ICHRA healthcare plans, including the risk of penalties. An ICHRA can be a cost-effective benefits solution, but employers, HR directors, and other leaders need to know how to remain secure and compliant when changing their plans.
What is an ICHRA Health Plan?
An ICHRA is an alternative employee benefits plan that allows employers to avoid the pitfalls of traditional group health plans by reimbursing employees for individual health insurance premiums and, if the plan allows, other qualified medical expenses. ICHRAs are employer-funded, tax-advantaged health benefits that reimburse employees for eligible medical expenses and premiums for individual health insurance coverage, rather than the employer sponsoring a traditional group health plan.
Since ICHRAs have only been around for about 5 years, many providers, employers, and employees are not aware of the requirements or options when using them.
Why are Employers Offering ICHRA Plans?
Despite being relatively new offerings, ICHRAs offer several potential benefits for employers, including:
- The ability to customize healthcare plans more easily, offering different levels of medical reimbursement to different groups, such as part-time and full-time employees, rather than trying to fit everyone into one plan
- Tax-free reimbursements that benefit both employers and employees
- Prioritizing individual coverage levels with more flexible reimbursement options, giving employees choices, and improving their satisfaction levels
Around 18% of employers with 10-199 employees now report being likely to offer ICHRA plans in the next two years, signalling a shift in how employee benefits are budgeted and reimbursed.
What are the Minimum Requirements for ICHRA Health Plans?
Though ICHRA health plans offer advantages, they also add regulatory steps to employers’ healthcare planning. Employers and directors should know these minimum requirements when researching their options:
- Employers may only reimburse employees who are enrolled in individual, ACA-compliant health insurance coverage (on- or off-exchange), excluding arrangements such as health care sharing ministries.
- Employees within an organization can be split into multiple healthcare groups, with only some receiving an ICHRA plan. However, an employer generally can’t offer both a traditional group plan and an ICHRA to the same class of employees. They can offer both benefits to the company overall by creating separate, distinct employee classes (e.g., full-time vs. part-time). For larger employers, certain employee classes must meet minimum size requirements under IRS regulations.
- Employers must provide their employees with an ICHRA notice generally at least 90 days before the plan’s starting date.
Meeting these compliance requirements can require extra verification steps. For example, employeesrs must provide proof of their individual health insurance enrollment, such as an insurance card or policy statement. Employees can also verify the individual health plan by signing a prepared document.
Large Businesses Must Meet Affordability Requirements
For businesses with at least 50 full-time workers, an ICHRA requires meeting certain affordability limits. To avoid ACA-related federal penalties, employers at larger organizations should understand how affordability compliance works.
The primary affordability requirement is a ratio of the employee’s household income compared to their required contribution for the proposed ICHRA. For 2026, the ACA affordability threshold increases to 9.96% of household income, up from 9.02% in 2025. Affordability percentages are indexed annually by the IRS and are subject to change.
This increase makes the margin for compliance much tighter for larger businesses. For example, if an employee’s household income is $55,000, the ICHRA’s yearly premium cannot exceed $5,478 ($465.50 per month) under the 2026 affordability threshold of 9.96%. For context, that limit would have been $4,961 ($413.42 per month) in 2025, when the threshold was 9.02%.
Compliance Mistakes to Avoid When Switching to ICHRAs
To meet compliance requirements when setting up ICHRAs in 2026, businesses should try to avoid these common logistical mistakes:
- Failing to define eligibility and reimbursement details in a formal plan clearly
- Not providing employees with an ICHRA notice on time (no more than 90 days from the plan’s start)
- Failing to communicate with employees about how to get individual coverage plans that will be eligible for reimbursement
- Exceeding affordability requirements based on employee household income and ACA compliance rules
- Failing to apply the rules of reimbursement equally to all employees within an employee grouping
These are not the only compliance mistakes that employers can make. That’s why a local employee benefits consulting firm is a significant resource to help make sure ICHRA plans are compliant with ACA requirements, satisfying to employees, and flexible enough for employers seeking to lower healthcare administration costs and complexity in the coming years.
Local Employee Benefits Consultants Help Employers Stay Compliant
Employers are switching to ICHRAs to make their employee healthcare plans more manageable in terms of budget, flexibility, and administrative workload. However, because ICHRAs are new, many HR leaders, CFOs, and owners struggle with compliance requirements, risking penalties and employee dissatisfaction. At New City Insurance, our team of benefits consultants draws on years of expertise in HR compliance to equip organizations with the tools and technology they need to keep their benefits plans compliant.
Contact us today to learn how to stay compliant, recognize upcoming rule changes for ICHRAs, and achieve a cost-effective benefits solution in 2026 and beyond.