What Is ICHRA
ICHRA stands for Individual Coverage Health Reimbursement Arrangement. It's a tax-advantaged employer-sponsored program that lets companies of any size reimburse employees for individual health insurance premiums and out-of-pocket medical expenses. Unlike traditional group health plans, ICHRA gives employees the flexibility to choose their own coverage instead of enrolling in a company plan.
The IRS formalized ICHRA rules in 2020, and employers began offering them in 2021. An employer sets aside a fixed monthly amount per employee (for example, $300 to $600), and employees use those pre-tax dollars to pay for qualified health insurance. The employee must have minimum essential coverage, which includes plans purchased on the individual market, Medicare, Medicaid, VA coverage, or certain other arrangements.
ICHRA and Government Benefits Interaction
If you receive ICHRA reimbursements, this can affect your eligibility for programs like Medicaid, SNAP, TANF, and WIC. Here's why: when calculating your household income for these benefits, most states count ICHRA contributions as income. An employer contribution of $400 per month ($4,800 annually) could push your household above income thresholds for assistance programs.
For example, if you're a single parent with one child and your income is near the Medicaid limit (typically 138% of federal poverty line, or around $1,900 monthly in 2024), an ICHRA arrangement could disqualify you from coverage. Similarly, ICHRA income affects SNAP eligibility (gross income limit of 130% of poverty line) and TANF and WIC programs, which have their own income caps.
You must disclose ICHRA contributions when applying for or recertifying any means-tested benefits. Failing to report this can result in overpayment recovery or benefit termination.
How ICHRA Works in Practice
- Employer setup: Your employer establishes the ICHRA plan and determines the monthly allowance amount.
- Your choice of coverage: You select an individual health insurance plan from the ACA marketplace, Medicare, Medicaid, or another qualified source. The employer reimburses you for premiums or eligible medical expenses.
- Tax treatment: ICHRA contributions are pre-tax, meaning you avoid federal income tax and payroll taxes on the reimbursement amount.
- Reimbursement process: Most employers use third-party administrators to handle claims. You submit receipts or premium invoices, and the administrator reimburses you or pays the vendor directly.
- Annual limits: In 2024, employers can contribute up to $2,850 per employee annually for individual coverage. Family members are not covered separately.
Common Questions
- Does ICHRA count as income for Medicaid? Yes, in most states. Employers report ICHRA contributions to the IRS on Form 1095-B, and this is included in your household income calculation. Check with your state Medicaid agency about how they treat ICHRA contributions specifically.
- Can I use ICHRA to buy coverage for my spouse or children? No. ICHRA covers only the individual employee. Your spouse and dependents cannot be covered under your ICHRA; they need separate individual policies or Medicaid/CHIP coverage if eligible.
- What happens if my employer ends the ICHRA program? You may qualify for a Special Enrollment Period on the ACA marketplace within 60 days of losing your coverage. This lets you enroll outside the annual open enrollment window. Check if you're eligible for advance premium tax credits at that time.