ICHRA explained: How it works, benefits, and why employees like it

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Health insurance can be confusing and expensive. If you get your coverage through work, you’ve probably been offered a “group plan” where everyone in the company has the same options. But there’s a newer kind of benefit more employers are turning to, called an Individual Coverage Health Reimbursement Arrangement — or ICHRA (pronounced ick-rah).

ICHRA is changing the way some workers get their health insurance by giving employers the option to reimburse employees for individual plans instead of offering a traditional group policy.

What exactly is ICHRA?

With ICHRA, your employer gives you money each month to help pay for your own health insurance plan. Instead of being limited to just one or two company-selected options, you can shop on the Affordable Care Act (ACA) marketplace or purchase coverage directly from insurance companies.

You still get help from your employer with the bill, only now you get to choose the plan that makes the most sense for you and your family.

How does ICHRA work?

Instead of giving you a one-size-fits-all group plan, your employer gives you money each month to put toward coverage you choose. Here’s how it works step by step:

Your employer sets an allowance. This is the amount they’ll contribute toward your health coverage each month.
You choose a plan. You can shop on Healthcare.gov (or your state’s ACA marketplace) or buy directly from an insurance company.
You pay premiums, then get reimbursed. The employer’s money is tax-free, so it goes farther toward covering your monthly costs.

A quick example of how ICHRA works

Imagine your employer gives you $400 a month through an ICHRA. You find a health plan on the ACA marketplace that costs $500 a month. You pay the $500 premium, send proof to your employer, and they reimburse you $400 tax-free. In the end, your plan only costs you $100 out of pocket each month.

If you had chosen a less expensive plan — say $350 a month — your employer would have covered the full amount, and you’d pay nothing.

A quick example of how ICHRA works

If you had chosen a less expensive plan — say $350 a month — your employer would have covered the full amount, and you’d pay nothing.

ICHRA vs. traditional group plans

Choosing between ICHRA and a traditional group health plan comes down to flexibility and control. With a group plan, your employer makes most of the decisions — which plans are available, how much it costs, and what happens if you leave the job. With ICHRA, your employer still helps pay, but you get to decide which plan works best for you and your family.

The chart below highlights the biggest differences so you can see how the two options compare side by side.

Feature	ICHRA	Traditional Group Plan
Who picks the plan	You choose your own plan on the ACA marketplace or directly from insurers	Employer picks one or two options for everyone
How costs are set	Employer sets a fixed allowance	Costs can rise each year with premiums
Employee flexibility	High — you pick coverage that fits your family’s needs	Limited — you’re stuck with what the employer offers
Portability	You keep your plan if you leave your job	You lose coverage when you leave the employer
Participation rules	No minimum number of employees required	Often requires a certain percentage of employees to enroll
Tax advantages	Employer contributions are tax-free — reimbursements are tax-free	Employer-paid premiums are tax-free

What to watch for with ICHRA

While ICHRA can be a great option, there are a few details to keep in mind:

ACA subsidies. If your employer offers you an ICHRA, you usually can’t also claim premium tax credits (subsidies) on the ACA marketplace. You’ll want to compare whether the employer allowance is better or worse than what you might have received in subsidies.
Budget limits. Your employer decides how much money to give you. If their allowance is low, you could still end up paying more out of pocket than you expected.
Shopping responsibility. Unlike group insurance — where your employer handles the setup — with ICHRA you’ll need to shop for and manage your own plan each year. Some people like the control; others may find it overwhelming.
Network differences. Not all ACA or individual plans cover the same doctors and hospitals, so double-check that your preferred providers are included before enrolling.

Why more people are turning to ICHRA for health benefits

Here’s why people like ICHRA:

It lets you pick a plan that fits. You can choose coverage that includes your doctors, hospitals, and prescriptions.
You decide how much coverage you want. That means more say in how much you spend and what’s included.
You don’t lose it when you change jobs. Since the plan belongs to you, it comes with you if you leave your employer.

For employers, it’s also a win. They get to control costs by setting a budget rather than worrying about big group plan price increases every year.

ICHRA gives employees more freedom and employers more cost control. But before enrolling, make sure the allowance works for your budget and that the plan you choose covers the doctors and benefits you need. For many families, ICHRA can be a smart way to get coverage that actually fits their lives.

Frequently asked questions

Can I use ICHRA if I’m on Medicare?

Yes. Employers can offer ICHRA to employees on Medicare, and you can use the allowance to pay for Medicare premiums (Part A, B, C, or D).

What happens if I don’t use the full allowance?

You only get reimbursed for actual insurance costs. Any unused money typically goes back to your employer, it doesn’t roll over like an HSA.

Can my employer give different amounts to different employees?

Yes, but only by broad categories — like full-time vs. part-time, salaried vs. hourly, or geographic location. They can’t pick and choose individual employees.

Will I lose my plan if I leave my job?

No. Since you purchased the plan in your name, you keep it. The only thing you lose is your employer’s reimbursement.

Do I have to shop every year?

Yes, just like anyone buying an ACA plan. Open enrollment happens once a year, and you’ll want to review your options to make sure your plan still meets your needs.

Farzin Espahani

Farzin Espahani is a thought leader in the health insurance and Medicare space, with over a decade of consumer advocacy and driving performance marketing and marketplace strategy. As the general manager of Health at QuinStreet, which owns and operates Insure.com, Espahani oversees one of the largest insurance marketing platforms in the U.S., helping connect millions of consumers each year with trusted, compliant insurance solutions. Known for his sharp industry insight and commitment to integrity in Medicare marketing, Farzin’s columns break down complex policy trends and provide actionable guidance for individuals navigating their health coverage choices.