Health benefits can be one of the biggest expenses for a small business. But what if there was a way to offer your employees tax-free reimbursement for health insurance without the complexities of traditional group plans? That’s where an Individual Coverage Health Reimbursement Arrangement (ICHRA) comes in.
An ICHRA is a type of employer-funded arrangement that reimburses employees for their individual health insurance premiums and qualified medical expenses. Rather than offering a one-size-fits-all group plan, employers provide a set monthly allowance. Employees then choose their own ACA-compliant individual plans, pay their premiums, and get reimbursed.
This model gives both the employer and employee more flexibility. It was created in 2020 under a federal rule to expand access to affordable coverage without the administrative burden of managing a group plan.
Employer sets a monthly allowance (no minimum or maximum)
Employees purchase individual health insurance plans (on or off Covered California or the federal marketplace)
Employees submit proof of insurance and expenses
Employer reimburses expenses tax-free, up to the allowance amount
Employers can offer different allowances based on job classifications (e.g., full-time vs part-time, salaried vs hourly, geographic location, etc.)
Small businesses that can’t afford traditional group coverage
Large employers seeking cost control and compliance with the employer mandate
Self-employed individuals with W-2 employees
Nonprofits and startups looking for a benefits alternative
To participate, employees must be enrolled in a qualifying individual health plan. ICHRA is not compatible with sharing ministries or short-term plans.
Cost control – You decide the reimbursement cap
Flexibility – Employees choose the plan that suits their needs
Tax benefits – Reimbursements are usually tax-free for both parties
Compliance – Meets ACA employer mandate for large businesses
No participation minimums like traditional group plans
More employee responsibility – Workers must shop for and manage their own coverage
Setup and compliance – May require help from a broker or third-party administrator (TPA)
No group rate discounts – Premiums are based on the individual market
You control the budget. There is no required minimum contribution, and you can vary allowances by class. You may also pay a small administrative fee if using a platform or TPA to manage reimbursements.
If you're a California business owner in Los Angeles, Ventura County, or the San Fernando Valley, and you want to offer flexible health benefits without breaking the bank, an ICHRA may be worth exploring. It's also an excellent option for employers with remote teams in multiple states.
Ready to design a flexible benefits solution? Book a free consultation to find out if an ICHRA is the right fit for your business.
Although this article focuses on California-based coverage, I’m also licensed in AZ, GA, FL, IL, MI, NM, NV, OK, and TX, and can assist with multi-state ICHRA setups.