How an Individual Coverage HRA works for an employer with 1 to 50 staff: the allowance, employee classes, the 2027 affordability test, who cannot take it, and what it buys in your county.
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An ICHRA turns the employer’s benefit from a plan into a budget. The employee buys a plan on the individual market, the employer reimburses up to an allowance, tax-free on both sides.
A group quote, an ICHRA costing and the owner’s own plan all start from the same census: who is on payroll, their ages and home counties. Enter your ZIP and a licensed agent runs all four routes for your business, free.
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The employer adopts a written plan, sets a monthly allowance (any amount, no federal cap), and offers it to one or more permitted classes of employees: full-time, part-time, salaried, hourly, seasonal, by location, and a few others. Employees buy individual coverage (marketplace or off-exchange) and submit proof; reimbursements are tax-free. An employee offered an ICHRA cannot also be offered a group plan.
If the allowance makes the lowest-cost Silver plan on the employee’s marketplace cost them 10.22%% of household income or less, the ICHRA is “affordable” and the employee loses the premium tax credit; if it is unaffordable, the employee can opt out of the ICHRA and keep the credit. For low-paid staff that opt-out is often the better deal, which is why the allowance should be set with the team’s pay in view.
More-than-2%% S-corporation shareholders (and their spouses and dependents), partners in a partnership and sole proprietors are not employees for this purpose and cannot receive reimbursements tax-free. The owner buys separately; Plans For 1099 covers that side.
The individual market in the employee’s county. The state pages on this site show the median Silver premium at 40 and the cheapest Silver filed in each of the 24 HealthCare.gov states for 2027; a 40-year-old’s price is the usual reference, and older employees cost up to three times a 21-year-old. In the eleven states with no marketplace PPO the plans employees can buy are HMOs and EPOs, which matters for staff who travel.
Plan document, notices 90 days before the plan year, substantiation of coverage, and reimbursement records. Many employers use an administrator for a few dollars per employee per month; a licensed agent sets up the allowance and helps each employee pick a plan.