For employers, sponsoring health care benefits has never been simple. But it’s become even more complicated in recent years, with many different strategies available and persistently rising costs.
One option attracting attention lately is the Individual Coverage Health Reimbursement Arrangement (ICHRA). It may give you more control over costs and simplify administration, but recent research suggests many organizations remain cautious about rolling one out.
How it works
Under an ICHRA, the employer-sponsor reimburses eligible employees for qualifying individual health insurance premiums. Reimbursements are generally tax‑free as long as the ICHRA meets applicable IRS and Affordable Care Act (ACA) requirements. Depending on the plan, you may also reimburse certain other medical expenses.
To participate, employees must enroll in qualifying individual health insurance coverage of their own choosing, which may include Medicare. As the employer-sponsor, you generally determine the reimbursement amount, subject to certain rules.
Such an arrangement may offer more predictable costs and could reduce some of the administrative burdens associated with a traditional group health plan. Participants shop for and buy their own insurance — whether from private insurers or a Health Insurance Marketplace (commonly called an “exchange”) created under the ACA. You commit to reimbursing a stated amount of their premiums, giving you clearer cost visibility.
You may even have flexibility in determining which groups of employees to offer an ICHRA. However, federal rules govern how employers may classify employees. Employers generally can’t offer an employee both an ICHRA and a traditional group health plan, though you may offer different types of coverage to different permitted classes of employees.
Growing interest, limited implementation
In July 2026, the Employee Benefit Research Institute and Morgan Health published a survey that illustrates current interest in ICHRAs. More than a third of employers surveyed said they were evaluating or actively planning one. However, in this case, “actively planning” doesn’t mean “setting up.” Only 11% reported actively planning implementation, suggesting many organizations’ interest remains exploratory.
Among employers already providing health benefits, one-third said they were likely to adopt an ICHRA within two years after reviewing a description of the arrangement. Interest was highest among organizations with at least 100 employees. Meanwhile, among small businesses that didn’t offer health coverage, one-quarter preferred an ICHRA to a traditional group plan — though 55% weren’t previously aware of ICHRAs.
As to why they’d consider one, respondents most frequently cited affordability, design flexibility and greater employee choice. Those features could support broader objectives for many employers, such as controlling benefits costs, competing to hire and retain employees, and designing compensation packages that fit financial resources.
Concerns and considerations
However, in practice, an ICHRA may not always be a less expensive or simpler replacement for group health insurance coverage. Much depends on the insurance market where your employees shop. Survey respondents expressed major concerns about individual-market premiums and employees’ out-of-pocket costs, as well as plan quality, provider networks and employees’ ability to choose suitable coverage.
Such concerns help explain the interest vs. implementation gap mentioned above. The survey found that 85% of employers said they’d be more likely to adopt an ICHRA if they could be assured of provider network quality and options comparable to group coverage. Respondents were also worried about compliance requirements, implementation complexity and adequate staff resources to administer an ICHRA.
Then there’s the tax angle. ICHRA participants generally aren’t eligible for a premium tax credit for Health Insurance Marketplace coverage if the ICHRA offer is considered “affordable” under ACA standards or if they actually enroll in the ICHRA. When an ICHRA is deemed unaffordable, employees who opt out may qualify for the credit if they meet other requirements.
Applicable large employers (ALEs) must consider how an ICHRA would interact with the ACA’s employer shared responsibility provisions. The law defines ALEs as those with an average of 50 or more full-time or full-time equivalent employees during the previous calendar year.
Potential impacts
An ICHRA could become a useful piece of your overall employee benefits strategy. But whether it truly makes sense depends on much more than the reimbursement amount. We can model potential impacts of an ICHRA, assess the financial implications, and work with your benefits and legal advisors to determine whether this approach fits your organization.
© 2026 TopLine Content Marketing Team
