How It Works

ICHRA plans allow businesses to set an allowance of tax-free money for their employees’ medical expenses. Employees make health care purchases, like individual insurance policies, and the business reimburses them up to the set allowance amount. There are no annual contribution limits, therefore allowances can roll over from year to year.

ICHRA allows some contractors, W-2, seasonal, and temporary employees to participate, though they must be of similar employment class, such as hourly or salary.

Employers may vary their contribution levels per employee. They can also limit the benefit to specific classes of employees, as well as offer different allowance amounts based on family size within those same employee classes. For example, they could offer $500 to full-time employees who are single and $800 to full-time employees who have a family.

When it comes to varying allowance amounts on age, businesses can only offer higher allowances to older employees. Businesses can offer allowances to the oldest employees in the employee class that are up to three times higher than the allowances offered to the youngest employees in the class. Beyond this, businesses must offer the HRA to each employee in the same class on the same terms.

The employer sets the amount of money they want to provide to employees to supplement health care premiums and/or qualified medical expenses. There are no participation requirements either. That means not all employees have to participate, making no real downside to the employer for offering the program.