How Much Does ICHRA Cost an Employer?
An Individual Coverage Health Reimbursement Arrangement (ICHRA) lets employers set a fixed monthly allowance that employees use to buy their own individual health insurance. Typical employer contributions range from $400 to $750 per employee per month, depending on company size, industry, and local market conditions. The key advantage for employers is cost predictability: you set the budget, and your monthly spend never exceeds it.
Unlike traditional group plans where premiums can spike at renewal, an ICHRA gives you a defined contribution model. You decide how much to offer. Employees choose the individual plan that fits their needs. You reimburse them tax-free. That simplicity is driving adoption. HHS projects hundreds of thousands of employers will offer ICHRAs in the coming years.
What Is an ICHRA?
An ICHRA is a type of employer-funded health benefit that works on a reimbursement model. Here is how it works:
- The employer establishes a monthly allowance — for example, $500 per employee.
- Employees purchase individual health insurance on the open market or through a state exchange.
- The employer reimburses the employee for premiums and qualified medical expenses, tax-free.
- Unused funds stay with the employer — there is no “use it or lose it” pressure.
ICHRAs are available to employers of any size. They were established by the 21st Century Cures Act in 2016 and expanded under federal regulations finalized in 2019.
How Much Do Employers Typically Contribute?
There is no IRS cap on how much an employer can contribute through an ICHRA — unlike the Qualified Small Employer HRA (QSEHRA), which has annual limits set by the IRS. Your contribution amount is entirely up to you.
Based on industry data, here is what employers are actually offering:
| Industry | Average Monthly Allowance |
|---|---|
| Retail | ~$735 |
| Education | ~$719 |
| Healthcare | ~$535 |
| Business Services | ~$474 |
| Manufacturing | ~$463 |
The overall average across industries is approximately $524 per employee per month, according to Remodel Health’s 2024 industry report. That works out to roughly $6,300 per employee per year — significantly less than the national average employer contribution of $7,034 per employee for traditional group coverage (Kaiser Family Foundation, 2023).
The actual amount you set will depend on:
- Your local market. Individual plan premiums vary widely by state. In Minnesota, the average benchmark silver plan costs around $363 per month. In Vermont, it can exceed $1,200.
- Your workforce demographics. ICHRAs allow age-based variations on a 3:1 ratio between the youngest and oldest employees.
- Your budget goals. You control the spend. Unlike group plans, you never pay more than your set allowance.
Does an ICHRA Satisfy the ACA Employer Mandate?
If you are an Applicable Large Employer (ALE) with 50 or more full-time equivalent employees, the Affordable Care Act requires you to offer affordable health coverage or face potential penalties.
An ICHRA can satisfy this mandate — but it must be “affordable” under IRS rules.
For 2026, the affordability threshold is 9.96% of an employee’s household income. In practical terms, this means the employee’s monthly cost for the lowest-cost silver plan in their area, after your ICHRA contribution is applied, must not exceed that percentage.
The IRS offers safe harbors to simplify this calculation:
- Federal Poverty Line (FPL) safe harbor: An employee pays no more than $129.89 per month.
- W-2 safe harbor: Based on the employee’s W-2 wages.
- Rate of pay safe harbor: Based on the employee’s hourly rate.
If your ICHRA allowance is set appropriately, your employees can purchase individual coverage on the marketplace and you satisfy the ACA mandate — often at a lower total cost than a traditional group plan.
ICHRA vs. Traditional Group Plans: Cost Comparison
The real cost question is not just “how much is the allowance” but “how does total cost compare to what we are paying now?”
Here is the typical comparison:
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Traditional group plan: Employers pay an average of $7,034 per employee annually for individual coverage (KFF, 2023). Premiums increase unpredictably at renewal, often 5-15% per year. Employers also face participation requirements — typically 70%+ enrollment — and bear the risk of an aging or high-utilization workforce.
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ICHRA: Employers set a fixed monthly allowance — say $500 per employee per month, or $6,000 annually. Premiums are the employee’s responsibility to manage. No participation requirements. No renewal surprises. Unused funds stay with the employer.
For many small and mid-sized employers, the ICHRA model results in a 10-30% reduction in total benefits spending compared to group coverage, while still providing employees with a meaningful health benefit.
Can I Offer an ICHRA to Some Employees but Not Others?
Yes — but there are rules. ICHRAs can be offered to different employee classes based on legitimate job criteria:
- Full-time vs. part-time employees
- Salaried vs. hourly workers
- Employees in different geographic locations
- Seasonal employees
- Union vs. non-union employees
You can also vary contribution amounts by age — within the 3:1 ratio — and family size. This flexibility means a remote employee in a high-cost state can receive a higher allowance than an employee in a low-cost area, all within IRS rules.
However, you cannot offer an ICHRA to the same class of employees that is eligible for your group health plan. Employees must choose one or the other.
What Are the Tax Benefits?
ICHRA contributions are:
- Tax-deductible for the employer as a business expense.
- Tax-free for the employee — reimbursements are not counted as taxable income.
There is no cap on how much you can contribute. This makes the ICHRA one of the most tax-efficient ways to provide health benefits.
How Do I Get Started?
Setting up an ICHRA involves a few key steps:
- Decide on your budget. Determine what you can sustainably contribute per employee per month.
- Choose an ICHRA administrator. You will need a platform to manage reimbursements, compliance, and employee enrollment.
- Design your plan. Decide which employee classes are eligible and set contribution amounts.
- Communicate to employees. Offering an ICHRA triggers a 60-day Special Enrollment Period, giving employees time to shop for individual plans.
- Stay compliant. Ensure your contribution meets ACA affordability requirements if you are an ALE.
A licensed benefits advisor can walk you through the process and help you design a plan that fits your workforce and your budget.
Next Steps
If you are exploring ICHRA as an alternative to traditional group coverage — or if your group plan renewal is coming up and you want to understand your options — a conversation with a Trek Insurance Solutions advisor can help you map out what works for your specific situation.
Call us at 888-960-0442 or visit trekis.net/services/employee-benefits to learn more.
Trek Insurance Solutions is a licensed insurance agency. This article is for informational purposes only and does not constitute tax, legal, or insurance advice. ICHRA rules and affordability thresholds are subject to change. Consult the IRS or a qualified professional for guidance specific to your situation.