What is an ICHRA?
An ICHRA (pronounced "ick-rah") is a formal, IRS-recognized benefit that lets a business of any size reimburse employees, tax-free, for individual health insurance they buy themselves. Instead of choosing one group plan for everyone, the employer decides on a monthly dollar amount — the allowance — and the employee chooses a plan that actually fits their family, doctors, and budget.
It became available to employers in 2020 and has grown quickly because it solves the two biggest headaches of traditional group coverage: unpredictable renewals and rigid, one-size-fits-all plans. The employer controls the cost; the employee controls the choice.
How an ICHRA works
- The employer sets an allowance. You decide how much to offer each month — and you can offer different amounts to different classes of employees (for example, full-time vs. part-time, or by location).
- The employee buys an individual plan. The employee shops the ACA marketplace or an off-exchange individual plan and enrolls in coverage that fits them.
- The employee submits proof. They show proof of coverage and the premium amount so reimbursements can be substantiated.
- The employee is reimbursed tax-free. The employer reimburses the premium up to the allowance — tax-free to the employee and tax-deductible to the business.
Why employers love ICHRA
- Predictable costs. You set a fixed monthly allowance, so your benefits budget is known in advance — no surprise double-digit renewals.
- No group-plan headaches. There are no minimum participation rules, no annual group renewals to negotiate, and no carrier shopping every fall.
- Scalable by class of employee. Offer different allowances to different employee classes, and add or remove people without re-rating an entire group.
- Tax-advantaged. Reimbursements are deductible to the business and don't count as taxable income to employees.
Why employees love ICHRA
- Real choice of plan and doctors. Employees pick the plan and network that fit their own family instead of being locked into one company plan.
- It's portable. Because the policy belongs to the employee, they keep it — same plan, same doctors — if they leave the job.
- Often a better fit. Younger, healthier, or budget-conscious employees can choose a leaner plan, while others can choose richer coverage — each spends the allowance the way that suits them.
ICHRA vs. traditional group health
| ICHRA | Traditional group health | |
|---|---|---|
| Cost predictability | Fixed monthly allowance you control | Subject to annual renewals & rate hikes |
| Plan choice | Employee picks their own plan | One plan (or a few) for everyone |
| Admin burden | No group renewals or participation rules | Renewals, census, participation minimums |
| Portability | Employee keeps the plan if they leave | Coverage ends with employment (COBRA aside) |
| Best for | Predictable budgets & employee choice | Employers wanting one uniform plan |
Wondering if an ICHRA fits your business?
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Talk to a licensed agentHow Honorbrook helps
We work both sides of an ICHRA so it actually runs smoothly. For employers, we help you design and launch the arrangement — choosing allowance amounts, setting up employee classes, and confirming the basics so it does what you need it to. For employees, we sit down (by phone) with each person to compare individual and ACA marketplace plans, check that their doctors and prescriptions are covered, and handle the enrollment. Our help is free, and we're licensed in 11 states — Virginia, Maryland, Georgia, Texas, Michigan, North Carolina, South Carolina, Alabama, Louisiana, Indiana, West Virginia, and beyond — so your whole team can be served by phone.