What Is an ICHRA? Individual Coverage HRAs Explained

On this page

• How an ICHRA works
• Rules employers have to follow
• What it means for you
• ICHRAs and the premium tax credit
• ICHRA vs. QSEHRA
• How common are ICHRAs?
• Pros and cons for workers
• Frequently asked questions

How an ICHRA works

Your employer sets a monthly allowance, which can differ by class of worker. You choose and buy an individual health plan. Then you show proof of coverage and get reimbursed for your premiums, and sometimes other medical expenses, up to the allowance. Some employers pay the insurer directly.

The money is tax-free to you as long as you have qualifying coverage. Your employer gets a tax deduction, just as it would for a group plan. For how this compares with a traditional group plan, see is it cheaper to get health insurance through your employer.

Rules employers have to follow

• Any size. Small and large employers can offer an ICHRA.
• No double offers. An employer can’t offer the same worker a choice between an ICHRA and a traditional group plan.
• Classes. Employers can offer different amounts, or different benefits, to classes like full-time, part-time, salaried, hourly, seasonal, union workers, or workers in different rating areas. Within a class, amounts can go up with age and family size.
• Notice. Employers must give workers a written notice at least 90 days before each plan year, or when a new worker becomes eligible.
• Opting out. You must be allowed to opt out and waive reimbursements once a year.

An ICHRA counts as an employer-sponsored plan for the employer mandate, so large employers can use one to meet that requirement if it’s affordable. For more on employer options, see small business health insurance.

What it means for you

1. You need your own plan. Buy an individual health insurance plan, on or off the Marketplace, or have Medicare. See health insurance for individuals.
2. You get a special enrollment period. You can sign up from 60 days before to 60 days after the date your ICHRA can start. On HealthCare.gov, you have to call the Marketplace Call Center to finish enrolling this way; you can’t do it online. See qualifying life events.
3. You choose the plan. Pick the metal level, network and insurer that fit you. If the plan costs more than your allowance, you pay the difference.
4. Paying your share. If you buy a plan off the Marketplace, your employer may let you pay your share of the premium with pre-tax payroll deductions. That isn’t allowed for Marketplace plans. See how to buy health insurance outside the ACA’s exchanges.

ICHRAs and the premium tax credit

You can’t use an ICHRA and get a Marketplace premium tax credit for the same month. Whether you can choose the tax credit instead depends on whether the ICHRA is affordable.

The test works like this: take the price of the lowest-cost silver plan for just you, subtract your monthly ICHRA allowance, and compare what’s left with 9.96% of your household income divided by 12. For 2027, the percentage is 10.22%.

	ICHRA of $300 a month	ICHRA of $100 a month
Lowest-cost silver plan for you	$600	$600
What’s left after the ICHRA	$300	$500
9.96% of $50,000 income, per month	$415	$415
Result	Affordable: no tax credit	Not affordable: you can opt out and may get a tax credit

• If the ICHRA is affordable, you can’t get a tax credit, whether you take the ICHRA or not.
• If it’s not affordable, you can opt out and get a tax credit if you otherwise qualify.
• The test looks only at the cost for the worker, so family members can be locked out of tax credits even when family coverage costs a lot.

For the same kind of question with a traditional job-based plan, see can I get Marketplace coverage if my employer offers insurance. For how the credit works, see what is a subsidy in health insurance.

ICHRA vs. QSEHRA

Small employers with fewer than 50 full-time-equivalent workers can offer a qualified small employer HRA (QSEHRA) instead. It has yearly limits, $6,450 for a single worker and $13,100 for a family in 2026, and has to be offered to all eligible full-time workers on the same terms. An ICHRA has no dollar limit and allows different amounts for different classes.

How common are ICHRAs?

Still a small slice of the market, but growing fast. The HRA Council reported that the number of employers offering ICHRAs grew 99% from 2025 to 2026, and large employers offering them grew 108%. About two-thirds of small employers offering an ICHRA in 2026 hadn’t offered health coverage before. Estimates of people using ICHRA benefits in 2026 range from about 800,000 to 1 million.

A House version of the 2025 budget bill included changes to ICHRA rules, but they weren’t in the final law. Indiana and Mississippi give small businesses a state tax credit for starting an ICHRA.

Pros and cons for workers

Pros: you choose your own plan and network, the plan is yours even if you leave the job, and the money is tax-free.

Cons: individual-market networks can be narrower than group plans, the allowance may not cover the whole premium, and an affordable ICHRA can block you from a tax credit that might have been worth more.

Offered an ICHRA? Compare individual plans in your area.

Frequently asked questions

Is ICHRA money taxable?

No, as long as you have qualifying individual coverage or Medicare. Reimbursements for premiums are tax-free.

Can I use an ICHRA with a Marketplace plan?

Yes. You can buy any individual plan, on or off the Marketplace. You just can’t also get a premium tax credit for the months the ICHRA covers.

What happens if I turn down my ICHRA?

If it’s unaffordable, you may qualify for a premium tax credit instead. If it’s affordable, you won’t get a tax credit, so you’d pay the full premium on your own.

Can I use an ICHRA if I’m on Medicare?

Yes. Medicare counts as qualifying coverage, and your employer’s ICHRA can reimburse eligible expenses if its plan allows it.

This article is general information, not tax or legal advice. Employers should talk with a benefits advisor before setting up an ICHRA. Last reviewed September 2026.