ICHRA: how an individual coverage HRA works

How an ICHRA works, step by step

1. The employer sets a monthly or yearly amount for each class of employees for a 12-month plan year. HealthCare.gov says there are no annual minimum or maximum contribution requirements.
2. The employer gives written notice. Current employees get it 90 days before each plan year starts. New hires get it as soon as they become eligible. For a January 1 plan year, the 90-day mark falls in early October of the year before.
3. Employees buy their own individual coverage: a Marketplace plan, a private individual plan bought off the Marketplace, or Medicare (Part A and Part B, or Part C). Short-term plans and dental-only or vision-only plans don't qualify.
4. Employees submit proof of premiums and eligible expenses and are reimbursed tax-free. The employer must have reasonable procedures to confirm each person is enrolled in qualifying coverage.
5. Employees can decline. They must get a chance to opt out each year before the plan year, or when first offered mid-year. That choice matters for premium tax credits (below).

Owners who are self-employed, and their spouses, can't use an ICHRA. HealthCare.gov says the employer needs at least one employee who isn't a self-employed owner or an owner's spouse.

Employee classes and how amounts can vary

You can offer an ICHRA to all eligible employees or only to certain classes. HealthCare.gov lists the classes CMS allows:

• Full-time, part-time or seasonal employees
• Employees covered by a collective bargaining agreement
• Salaried or non-salaried (hourly) employees
• Employees who haven't finished a waiting period
• Non-resident immigrants with no U.S.-based income
• Employees in different work locations
• A combination of these

Within a class, everyone gets the same terms, except that amounts can rise with age (up to a 3 to 1 ratio, oldest to youngest) and with the number of dependents covered. You can't let the same class choose between your group plan and an ICHRA.

The affordability rule and premium tax credits

For 2026, HealthCare.gov says an ICHRA offer is affordable if the employee's monthly cost for the lowest-cost Silver plan for self-only coverage in their area, after your reimbursement, is less than 9.96% of one-twelfth of household income. For plan years beginning in 2027, the IRS set the figure at 10.22% (Rev. Proc. 2026-26).

Hypothetical example: an employee's household income is $48,000 a year, or $4,000 a month. 9.96% of that is $398.40. If the lowest-cost Silver self-only plan where they live costs $600 a month and the ICHRA gives $300, their net cost is $300. That is below $398.40, so the offer is affordable.

• Affordable offer: the employee and their household can't get a premium tax credit, even if they don't use the ICHRA.
• Unaffordable offer: the employee chooses the ICHRA or the premium tax credit, not both. To claim the credit, they must decline the ICHRA.
• Pre-tax payroll for the rest of the premium is allowed only for coverage bought outside the Marketplace.

For employers with 50 or more full-time employees (including full-time equivalents), the IRS tests an ICHRA's affordability under the employer mandate against the lowest-cost Silver self-only plan where the employee lives, or, under a location safe harbor, where they work. Have a benefits advisor run the numbers. See premium tax credit for how the credit works.

Example: an ICHRA for a 20-person company

Say a company has 14 full-time and 6 part-time employees and no group plan. This is a general illustration, not advice for your company.

1. No mandate. With fewer than 50 full-time employees, the company isn't subject to the employer mandate, so the ICHRA is optional.
2. Pick classes. It could set one amount for full-time and a smaller one for part-time. Because it offers no group plan, minimum class sizes don't apply.
3. Vary by age if you want. Older employees face higher premiums, so the company can give them more, up to 3 times the youngest employee's amount.
4. Time it with Open Enrollment. A January 1 start lines up with Marketplace Open Enrollment, which HealthCare.gov lists as November 1 to January 15, with December 15 the last day to pick a plan for January 1 coverage. If your state runs its own exchange, check its dates.
5. Compare with a QSEHRA. At 20 people, the company could also use a QSEHRA, which has a 2026 cap but fewer rules. See ICHRA vs QSEHRA.

One trade-off: HealthCare.gov says enrolling in SHOP coverage is generally the only way to get the Small Business Health Care Tax Credit, and an ICHRA can't be combined with SHOP coverage. See small business health insurance.

Where Gabriel fits

Employees using an ICHRA still have to pick an individual plan. Gabriel can quote Marketplace plans for their ZIP code and household, then open their own application with a licensed agent in most states. Employers with 25 or more employees can also add Gabriel for Teams, a care membership, alongside a health plan. It is not group health insurance and not an HRA or ICHRA, it doesn't replace a health plan, and it never satisfies the ACA employer mandate.

Gabriel is not an insurer. Health insurance quotes and enrollment are handled by Gabriel Labs, Gabriel's separately licensed insurance agency. For plan design and tax questions, talk to a benefits attorney or tax advisor.