Group Benefits · Wisconsin
ICHRA in Wisconsin: How an Individual Coverage HRA Works
An ICHRA — an individual coverage health reimbursement arrangement — lets you give employees a defined dollar amount toward health insurance they buy themselves on the individual market, instead of buying a group health plan for them. There is no minimum employer size and no cap on what you may contribute. In exchange, federal regulation imposes four hard conditions: employees must actually be enrolled in individual coverage, you may not offer anyone a choice between the ICHRA and a group plan, everyone in a class must be offered the same terms, and every employee must get a written notice at least 90 calendar days before the plan year starts. Here is how each rule works, and the arithmetic that decides whether your contribution helps or hurts your employees.
TL;DR — Key takeaways
- An ICHRA reimburses employees for individual health insurance. Employees must be enrolled in it every month they use the HRA, or they forfeit it (26 CFR § 54.9802-4(c)(1)).
- You may never offer a choice between an ICHRA and a traditional group plan to the same class of employees (§ 54.9802-4(c)(2)).
- There are eleven permitted classes to split on — and combinations of them (§ 54.9802-4(d)(2)).
- Splitting a group plan and an ICHRA across classes triggers a minimum class size: 10, 10 percent, or 20, by employer size (§ 54.9802-4(d)(3)(iii)(A)).
- The regulation sets no dollar cap on your contribution — but within a class the terms must be the same, and the oldest employee's amount may not exceed three times the youngest's.
- Written notice is due at least 90 calendar days before each plan year (§ 54.9802-4(c)(6)(i)(A)). Missing it shrinks your employees' enrollment window.
- Affordability decides who keeps the premium tax credit. For 2026 the Required Contribution Percentage is 9.96% (Rev. Proc. 2025-25 § 3.02).
- In La Crosse County, the lowest-priced 2026 silver plan for a 40-year-old non-tobacco user runs $637.16/month — the number the affordability test starts from here.
What is an ICHRA, exactly?
It is a defined-contribution approach to health benefits. Rather than choosing a group plan, paying a premium the carrier sets, and absorbing whatever renewal arrives each year, you decide the dollar amount you will put toward each employee's coverage. The employee buys an individual policy — through the Marketplace or off-exchange — and the HRA reimburses them up to your amount.
The arrangement exists because of a tri-agency final rule, Health Reimbursement Arrangements and Other Account-Based Group Health Plans, issued jointly by the Treasury Department and IRS, the Labor Department and EBSA, and the Department of Health and Human Services. It was published on June 20, 2019 at 84 FR 28888 and took effect on August 19, 2019. The operating rules now live in the Code of Federal Regulations at 26 CFR § 54.9802-4, with parallel text in titles 29 and 45.
Two things follow from that structure, and they are the reason employers look at it at all.
- Your cost is a number you choose, not a number a carrier renews. Budget predictability is the point.
- Your employees pick their own plan and network. Nobody is forced onto a single company-wide network — which matters in a market where households split between health systems.
And two things follow that are less advertised: the employee bears the shopping burden, and the arrangement's value depends entirely on what the individual market in your county actually offers. Both are covered below.
The regulation's own framing. § 54.9802-4(b) says the conditions in the rule are "intended to prevent an HRA plan sponsor from intentionally or unintentionally, directly or indirectly, steering any participants or dependents with adverse health factors away from its traditional group health plan, if any, and toward individual health insurance coverage." Nearly every restriction below exists to serve that one purpose. Read them in that light and they stop looking arbitrary.
The four conditions every ICHRA must meet
Paragraph (c) of § 54.9802-4 sets out the conditions an HRA must satisfy to be integrated with individual coverage. Four of them do the practical work.
1. Employees must be enrolled in individual health insurance coverage
Under § 54.9802-4(c)(1)(i), the HRA "must require that the participant and any dependent(s) are enrolled in individual health insurance coverage" for each month they are covered by the HRA. Coverage consisting solely of excepted benefits does not count.
The teeth are in (c)(1)(ii). If an individual stops being covered by individual health insurance, the HRA may not reimburse expenses incurred after that coverage ends — and if the participant and all covered dependents lose individual coverage, "the participant must forfeit the HRA." Expenses incurred before the lapse still get reimbursed, though the plan may set a reasonable deadline to submit them.
2. No choice between an ICHRA and a traditional group plan
Section 54.9802-4(c)(2) is blunt: "a plan sponsor may not offer a choice between an individual coverage HRA or a traditional group health plan to any participant or dependent." You may run both arrangements in the same company — but each class of employees gets one or the other, never a menu. The single exception is the new-hire rule discussed below.
3. Employees must be able to opt out
Under § 54.9802-4(c)(4), a participant otherwise eligible for the HRA "must be permitted to opt out of and waive future reimbursements ... once, and only once, with respect to each plan year." In general the chance to opt out has to come before the first day of the plan year. This is not a formality — it is the mechanism that lets an employee facing an unaffordable ICHRA go get a premium tax credit instead. The same paragraph also requires that on termination of employment, remaining amounts are either forfeited or the participant may permanently opt out.
4. Coverage has to be substantiated — twice
Section 54.9802-4(c)(5) requires reasonable procedures to substantiate enrollment, and it operates at two moments. First, at the start: substantiation that the participant and dependents are or will be enrolled in individual coverage, generally due no later than the first day of the plan year. Second, and the one employers underestimate, at every reimbursement: under (c)(5)(ii), the HRA "may not reimburse a participant for any medical care expenses unless, prior to each reimbursement, the participant substantiates that the individual ... continues to be enrolled in individual health insurance coverage for the month during which the medical care expenses were incurred." That ongoing attestation may be built into the reimbursement form itself, and (c)(5)(iii) lets the HRA rely on the employee's documentation or attestation unless it has actual knowledge to the contrary.
What this means operationally: an ICHRA is a group health plan in its own right — for most private employers an ERISA plan — with a plan document, a notice obligation, and a monthly substantiation workflow. The individual policies your employees buy are separate and are generally not ERISA plans where the conditions in 29 CFR 2510.3-1(l) are met. Most employers run the HRA through a third-party administrator for exactly that reason. Budget for the administration, not just the contribution.
Which employees can you treat differently?
You may vary who gets an ICHRA, who gets a group plan, and how much each group is offered — but only along class lines the regulation names. Section 54.9802-4(d)(2) lists them, and the list is closed. You cannot invent a class based on job title, department, tenure, or performance.
| Cite | Class | Note |
|---|---|---|
| (d)(2)(i) | Full-time employees | Defined at the sponsor's election under § 4980H or § 1.105-11 |
| (d)(2)(ii) | Part-time employees | Same election; must be consistent with the full-time definition chosen |
| (d)(2)(iii) | Employees paid on a salary basis | — |
| (d)(2)(iv) | Non-salaried employees | Hourly employees, for example |
| (d)(2)(v) | Employees whose primary worksite is in the same rating area | Rating area as defined in 45 CFR 147.102(b) |
| (d)(2)(vi) | Seasonal employees | Sponsor elects the § 4980H or § 1.105-11 definition |
| (d)(2)(vii) | Employees in a collective bargaining unit | Under an agreement the sponsor participates in |
| (d)(2)(viii) | Employees who have not satisfied a waiting period | Waiting period must comply with § 54.9815-2708 |
| (d)(2)(ix) | Non-resident aliens with no U.S.-based income | — |
| (d)(2)(x) | Staffing-firm employees placed at another entity | Where that entity is not the common law employer |
| (d)(2)(xi) | Any combination of two or more of the above | Combinations can trigger the minimum class size — see below |
Former employees, if offered the HRA, stay in the class they were in immediately before separation. Source: 26 CFR § 54.9802-4(d)(2).
Two procedural points in the same paragraph are easy to miss and expensive to get wrong. Before each plan year you must decide which classes you will treat separately and how you define them. And once the plan year is under way, "a plan sponsor may not make changes to the classes of employees or the definitions of those relevant classes with respect to that plan year." Class design is an annual decision, locked at the start.
One more, from § 54.9802-4(d)(1): for this purpose the employer is the common law employer, determined without the controlled-group aggregation rules of sections 414(b), (c), (m), and (o). Related entities that get combined for other benefit tests are not automatically combined here.
When does the minimum class size apply?
This is the rule employers most often assume applies to them when it doesn't — and occasionally the reverse.
Section 54.9802-4(d)(3)(ii)(A) is the gate: "The minimum class size requirement applies only if a plan sponsor offers a traditional group health plan to one or more classes of employees and offers an individual coverage HRA to one or more other classes of employees." If every employee at your company is offered an ICHRA and nobody is offered a traditional group plan, the minimum class size never comes up. Subparagraph (B) adds that the requirement never applies to a class offered a traditional group plan, or to a class offered no coverage at all.
When the gate is open, the rule attaches to five of the eleven classes — full-time, part-time, salaried, non-salaried, and same-rating-area — and to combination classes built from them. The numbers are in § 54.9802-4(d)(3)(iii)(A):
Applicable class size minimum, by employer size
Source: 26 CFR § 54.9802-4(d)(3)(iii)(A). The 10 percent figure is rounded down to a whole number. Employer size is determined in advance of the plan year based on the number of employees the employer reasonably expects to employ on the first day of that year. The minimum applies only where a traditional group health plan is offered to one class and an ICHRA to another.
Two clarifications worth having in writing. First, under (d)(3)(iv), whether a class meets the minimum is measured by the number of employees offered the ICHRA on the first day of the plan year — not the number who enroll, and it is not disturbed by headcount changes during the year. Second, a same-rating-area class is exempt from the minimum if the geographic area defining it is an entire state or a combination of entire states.
The new-hire exception
Section 54.9802-4(d)(5) carves out the one situation where a single class can be split. A sponsor offering a traditional group plan to a class may prospectively offer employees in that class hired on or after a future date an individual coverage HRA, while employees hired before that date stay on the group plan. That "new hire subclass" is not subject to the minimum class size. The new hire date must be prospective and no earlier than January 1, 2020, and inside the subclass the same-terms rule still applies — you still cannot offer anyone a choice between the two.
This is the practical path for an employer that wants to move to defined contribution without pulling existing staff off a plan they rely on.
How much can you contribute, and to whom?
The regulation sets no maximum. That is the single biggest structural difference between an ICHRA and a QSEHRA, and it is why larger contributions are possible here. What § 54.9802-4(c)(3) constrains is not the size of the amount but its evenness: "the HRA must be offered on the same terms to all participants within the class."
Only a narrow set of variations survives that rule. Under (c)(3)(iii) the maximum dollar amount may increase as the number of a participant's covered dependents increases, and it may increase with participant age — but (c)(3)(iii)(B) fences the age variation in two ways:
- "The same maximum dollar amount attributable to the increase in age is made available to all participants who are the same age"; and
- "The maximum dollar amount made available to the oldest participant(s) is not more than three times the maximum dollar amount made available to the youngest participant(s)."
That 3:1 ceiling deliberately mirrors the age-rating band insurers may use in the individual market, so an age-graded ICHRA can track premiums without becoming a proxy for health status.
The regulation's own Example 5 at (c)(3)(vii)(E) settles a question employers ask constantly: an ICHRA satisfies the same-terms rule "notwithstanding that some employees receive a greater amount of reimbursement than others based on the cost of the individual health insurance coverage selected by the employee." Different employees drawing different dollar amounts from an identical offer is fine. Offering different amounts inside one class is not.
One trap in the same-terms rule. Under (c)(3)(ii), letting employees pay the uncovered part of their premium through a section 125 salary reduction arrangement is itself treated as a term of the HRA. If you make that option available to anyone in a class, you must make it available to everyone in the class on the same terms. And it is only available for off-Exchange coverage — a cafeteria plan cannot be used to pay Marketplace premiums.
The 90-day notice — and why the date matters
Section 54.9802-4(c)(6)(i)(A) requires written notice to each participant "at least 90 calendar days before the beginning of each plan year." Two variations apply: an employee not eligible at the start of the plan year gets the notice no later than the date the HRA may first take effect for them, and an employer first established less than 120 days before the start of the HRA's first plan year gets the same later deadline for that first year only.
The content requirements in (c)(6)(ii) run to seven subparagraphs, and they are more demanding than a benefits summary. The notice must state the maximum dollar amount available, whether dependents are eligible, the plan year dates, and — critically — the premium tax credit consequences. Subparagraph (D) requires a statement that if the participant accepts the HRA, they may not claim a premium tax credit for any month the HRA may reimburse their expenses. Subparagraph (C) requires a description of when the credit might still be available if they opt out, together with a statement that even after opting out, the offer still blocks the credit "for any month that the HRA is affordable." Subparagraph (E) requires telling the employee they must report the HRA to any Exchange where they apply for advance credit payments.
In other words, the notice is where your employees learn the trade-off. Sending it late, or sending a thin version of it, transfers a tax problem onto the people you were trying to help.
Why 90 days, specifically. The deadline is wired into Marketplace enrollment. Under 45 CFR § 155.420(b)(3), an employee gaining access to an ICHRA gets 60 days before the triggering event to select a plan — unless the HRA was not required to provide the 90-day notice, in which case the window is 60 days before or after. Giving notice on time is what lets an employee line up coverage to start the same day the HRA does, with no gap.
The affordability math, with real La Crosse numbers
This is the calculation that determines whether your contribution is generous enough to matter, and it is worth doing before you pick a number rather than after.
Under 26 CFR § 1.36B-2(c)(5)(i), an ICHRA is affordable for a month if the employee's required HRA contribution does not exceed one twelfth of the product of their household income and the Required Contribution Percentage. And under (c)(5)(ii), the required HRA contribution is the excess of:
- the monthly premium for the lowest cost silver plan for self-only coverage offered on the Exchange for the rating area where the employee resides, over
- the monthly self-only HRA amount you make available.
Three details in that formula catch people out. The benchmark is the lowest-cost silver plan, not the plan the employee actually buys. It is keyed to where the employee lives, not where they work. And under (c)(5)(iii)(A), if premiums differ for tobacco users, you use the non-tobacco rate.
For plan years beginning in 2026, Rev. Proc. 2025-25 § 3.02 states: "For plan years beginning in calendar year 2026, the Required Contribution Percentage for purposes of § 36B(c)(2)(C)(i)(II) and § 1.36B-2(c)(3)(v)(C) is 9.96%."
What the benchmark actually is in La Crosse County
La Crosse County (FIPS 55063) sits in Wisconsin rating area 6. Pulling the 2026 individual-market plan list from the CMS Marketplace API for ZIP 54650 on September 7, 2026, a 40-year-old non-tobacco user has 12 silver plans available. The lowest-priced of them is the Quartz Gundersen Performance Silver $8,000 Ded HMO at $637.16 per month before any subsidy.
That $637.16 is the number the affordability test starts from for a 40-year-old living in the county. It changes with age, and it changes with the employee's county of residence — an employee commuting in from Vernon or Trempealeau County has a different benchmark than a colleague in Onalaska.
Two worked examples
Take an employee, age 40, living in La Crosse County, with household income of $60,000. Their affordability threshold is one twelfth of $60,000 × 9.96%, or $498.00 per month.
| Step | Employer offers $500/mo | Employer offers $100/mo |
|---|---|---|
| Lowest cost silver plan, self-only | $637.16 | $637.16 |
| Less: monthly HRA amount | −$500.00 | −$100.00 |
| Required HRA contribution | $137.16 | $537.16 |
| Affordability threshold (9.96% ÷ 12) | $498.00 | $498.00 |
| Result | Affordable — employee cannot claim a premium tax credit | Not affordable — employee may opt out and claim the credit instead |
The $500 and $100 employer contributions are illustrative plan-design choices, not quotes or recommendations. The $637.16 benchmark is a CMS Marketplace figure for one age, county, and plan year, pulled September 7, 2026; your employees' benchmarks will differ. Affordability turns on each employee's own household income, which you generally will not know — request a quote and a per-employee affordability model before setting a contribution.
The crossover point for this particular employee is $139.16 per month: at or above it, the ICHRA is affordable and the credit is off the table; below it, the employee can opt out and go to the Marketplace with a subsidy. That single threshold is why picking a contribution amount is a design decision with tax consequences, not just a budget line.
Required HRA contribution vs. the 2026 affordability threshold — age 40, La Crosse County, $60,000 household income
Sources: benchmark premium of $637.16 from the CMS Health Insurance Marketplace API (La Crosse County, WI; 2026 plan year; lowest-cost silver plan, self-only, age 40, non-tobacco; retrieved September 7, 2026); 9.96% Required Contribution Percentage from Rev. Proc. 2025-25 § 3.02; formula from 26 CFR § 1.36B-2(c)(5)(ii). Employer contribution amounts are illustrative.
The premium tax credit trade-off
Here is the part that decides whether an ICHRA is a good deal for a particular workforce, and the part employees will ask about first.
Under 26 CFR § 1.36B-2(c)(3)(i)(B), an employee offered an ICHRA is treated as eligible for minimum essential coverage under an employer plan — which blocks the premium tax credit — for any month that either the ICHRA is affordable under (c)(5), or the employee does not opt out. Read that carefully, because it cuts both ways:
- If the ICHRA is affordable, the employee cannot claim a premium tax credit, whether they accept the HRA or opt out of it. Opting out does not restore the subsidy. The same paragraph also treats an affordable ICHRA as providing minimum value.
- If the ICHRA is not affordable, the employee has a real choice: take the HRA, or opt out under § 54.9802-4(c)(4) and claim the credit on Marketplace coverage. They cannot do both.
There is a safe harbor for the employee at § 1.36B-2(c)(5)(iv): if, when they enroll in a qualified health plan, the Exchange determines the ICHRA is not affordable for the enrollment period, it is not affordable — with exceptions for automatic redeterminations the employee did not respond to, and for information the employee gave the Exchange with intentional or reckless disregard for the facts.
Two more provisions worth knowing. Under (c)(5)(v), only amounts newly made available for the plan year count in the affordability test; carryover balances from a prior year do not. And under (c)(5)(viii), an ICHRA offered to a former employee only blocks the credit if the former employee neither forfeits nor opts out — the affordability test does not apply to them the same way.
The honest summary for a lower-wage workforce. If most of your employees would qualify for a substantial premium tax credit on their own, a modestly funded ICHRA can leave them worse off than no offer at all — affordable enough to disqualify them from the credit, small enough not to replace it. That is the scenario to model before you commit, not after. It is also the scenario where the answer may honestly be "don't do this."
How employees actually enroll
An ICHRA only works if employees can get individual coverage timed to the HRA's start date. Federal rules provide for that with a dedicated special enrollment period.
Under 45 CFR § 155.420(d)(14), a qualified individual, enrollee, or dependent who "newly gains access to an individual coverage HRA" has a triggering event for a special enrollment period. The triggering event is the first day the ICHRA coverage can take effect. The paragraph is explicit that this works even for someone who was previously offered or enrolled in an ICHRA, so long as they are not enrolled in one on the day immediately before the triggering event — so this is available at each new offer, not only the first.
Timing is governed by (b)(3): the individual "has 60 days before the triggering event to select a QHP," unless the HRA was not required to give the 90-day notice, in which case it becomes 60 days before or after. And under (b)(2)(vi), if the plan is selected before the day of the triggering event, coverage starts the first day of the month following the event — or on the event date itself, if the event falls on the first of a month.
Practically: give the notice on time, and your employees can shop in the 60 days before the plan year and have coverage effective on day one. Give it late, and you have handed them a coverage gap to manage.
ICHRA vs. group plan vs. QSEHRA
These three are not variations on one thing. They are separate arrangements with different eligibility rules, and the choice is usually decided by employer size and by whether you want to keep a group plan at all.
| Traditional group plan | ICHRA | QSEHRA | |
|---|---|---|---|
| Who may offer it | Employers meeting the carrier's group size and participation rules | Any employer size — no minimum, no maximum | Employers that are not applicable large employers and offer no group health plan to any employee |
| Employer contribution cap | Set by premium, not by rule | None in the regulation | Statutory annual limits, indexed by the IRS |
| Who picks the plan | Employer picks one plan or menu | Employee picks on the individual market | Employee picks on the individual market |
| Can classes be treated differently | Limited by carrier and nondiscrimination rules | Yes — eleven named classes, plus combinations | Generally must be offered to all eligible employees on the same terms |
| Effect on the premium tax credit | Affordable, minimum-value coverage blocks the credit | Blocks the credit if affordable, or if the employee does not opt out | Reduces the credit rather than blocking it outright |
| Employee must buy individual coverage | No | Yes — every month, or the HRA is forfeited | Yes, to be reimbursed tax-free |
QSEHRA eligibility and limits: 26 U.S.C. § 9831(d) — an eligible employer is one that "is not an applicable large employer as defined in section 4980H(c)(2)" and "does not offer a group health plan to any of its employees," with base annual reimbursement limits of $4,950 self-only and $10,000 family that § 9831(d)(2)(D)(ii) indexes for inflation each year (the current-year indexed amounts are published by the IRS). ICHRA rules: 26 CFR § 54.9802-4 and § 1.36B-2. Applicable large employer status: an average of at least 50 full-time employees, including full-time equivalents, during the preceding calendar year (IRS).
The dividing line is usually simple. If you have no group plan and fewer than 50 full-time equivalents, both a QSEHRA and an ICHRA are open to you, and the QSEHRA's caps versus the ICHRA's administrative load decide it. If you want to keep a group plan for some employees and move others to defined contribution, only the ICHRA can do that — and the minimum class size rules become live. If you are an applicable large employer, the QSEHRA is off the table entirely.
An ICHRA can satisfy the employer mandate — but only if it is affordable. An applicable large employer offering an ICHRA is making an offer of coverage, and § 1.36B-2(c)(3)(i)(B) treats an affordable ICHRA as also providing minimum value. An ICHRA priced below the affordability line still leaves the employer exposed under section 4980H. This is a calculation to run with your CPA or benefits counsel against your actual census, not a rule of thumb.
Where an ICHRA fits — and where it doesn't
After the rules, the judgment. An ICHRA tends to work when several of these are true:
- Your renewals have become unpredictable and a fixed per-employee number is worth more to you than a richer plan.
- Your employees are geographically spread, so a single group network fits some of them badly. The same-rating-area class exists precisely for this.
- Your workforce splits across health systems. In the Coulee Region, households divide between Gundersen Health System and Mayo Clinic Health System, and one group network rarely satisfies everyone. Individual plans let each employee follow their own doctors — the lowest-cost 2026 silver plan in La Crosse County happens to be a Gundersen-network Quartz HMO, but employees choose for themselves.
- You couldn't sustain a group plan anyway, and the realistic comparison is an ICHRA versus offering nothing.
- You want to keep existing staff on a group plan while moving future hires to defined contribution — the (d)(5) new-hire path.
It tends to work badly when:
- Most of your employees would qualify for a meaningful premium tax credit. An affordable ICHRA takes that credit away. Model it first.
- Your individual market is thin. The arrangement is only as good as the plans actually sold in your employees' counties. Twelve silver plans in La Crosse County for 2026 is a workable shelf; a county with two is a different conversation.
- Nobody will own the administration. The monthly substantiation requirement in (c)(5)(ii) is real, ongoing work.
- Your employees expect a benefit they don't have to shop for. An ICHRA moves the choice — and the effort — onto them. That is a genuine cost, even when the dollars are the same.
Nine questions before you commit
- Will we keep a traditional group plan for anyone? If yes, the minimum class size rules in (d)(3) are live. If no, they never apply.
- Which of the eleven classes are we actually using, and how are we defining full-time, part-time, and seasonal? The definitions lock for the plan year.
- Does each ICHRA class clear its minimum, measured by employees offered on the first day of the plan year?
- What is the benchmark premium in each county our employees live in? Residence, not worksite, sets the number.
- At our proposed contribution, is the ICHRA affordable for most of our people? Run the (c)(5) test before setting the amount, not after.
- Would some employees do better with a premium tax credit? If so, say it out loud in the decision.
- Are we age-grading the contribution, and if so, does the oldest amount stay within three times the youngest?
- Who is sending the 90-day notice, with all seven content elements, and by what date?
- Who runs monthly substantiation and handles a mid-year coverage lapse and forfeiture?
Want the affordability math run against your actual census? We will pull the benchmark silver premium for each county your employees live in, test your proposed contribution under the 2026 rule, and show you which employees would be better off with a premium tax credit — including when that means an ICHRA is the wrong answer for your business. Call or text (608) 799-8434, or schedule a conversation. You can also start with our ICHRA savings estimator or the group vs. ICHRA comparison tool.
Frequently asked questions
What is an ICHRA?
An individual coverage health reimbursement arrangement is an employer-funded account that reimburses an employee for individual health insurance premiums and medical care expenses, instead of the employer buying a group health plan. It was created by a 2019 Treasury, Labor, and Health and Human Services final rule published at 84 FR 28888 and effective August 19, 2019. The employer sets the dollar amount and the employee chooses their own plan on the individual market. The arrangement only works if the employee is actually enrolled in individual health insurance coverage — 26 CFR § 54.9802-4(c)(1) requires it for every month the employee is covered by the HRA, and requires the employee to forfeit the HRA if that coverage ends.
Can I offer some employees a group health plan and others an ICHRA?
Yes, but only along the class lines the regulation permits, and never as a choice inside one class. 26 CFR § 54.9802-4(c)(2) prohibits offering a choice between an individual coverage HRA and a traditional group health plan to the same class of employees. Section 54.9802-4(d)(2) then lists the eleven classes you may split on — including full-time, part-time, salaried, non-salaried, seasonal, employees in a collective bargaining unit, employees in a waiting period, and employees whose primary worksite is in the same rating area. If you offer a traditional group plan to one class and an ICHRA to another, § 54.9802-4(d)(3) adds a minimum class size to the ICHRA class: 10 employees for an employer with fewer than 100 employees, 10 percent of total employees for an employer with 100 to 200, and 20 for an employer with more than 200.
How much can an employer contribute to an ICHRA?
The regulation sets no maximum dollar amount, which is the main structural difference from a QSEHRA. What it does constrain is fairness within a class. Under 26 CFR § 54.9802-4(c)(3)(i) the HRA must be offered on the same terms to everyone in a class, and the permitted variations are narrow: the amount may increase with the number of covered dependents, and it may increase with age, but § 54.9802-4(c)(3)(iii)(B)(2) caps that age variation — the amount made available to the oldest participants may not be more than three times the amount made available to the youngest. Note that an amount low enough to be unaffordable under the premium tax credit rules is still a legal ICHRA; it just changes what your employees can do about it.
Can employees still get a premium tax credit if I offer an ICHRA?
Only if the ICHRA is unaffordable for them and they opt out of it. Under 26 CFR § 1.36B-2(c)(5), an ICHRA is affordable for a month if the employee's required HRA contribution — the lowest-cost silver plan premium for self-only coverage in their rating area, minus the monthly HRA amount — does not exceed one twelfth of their household income times the Required Contribution Percentage. Rev. Proc. 2025-25 sets that percentage at 9.96% for plan years beginning in 2026. If the ICHRA is affordable, the employee is treated as eligible for employer coverage and cannot claim the credit, whether or not they accept the HRA. If it is unaffordable, the employee may opt out under § 54.9802-4(c)(4) and claim the credit instead.
When do employees have to be told about an ICHRA?
At least 90 calendar days before the start of each plan year, in writing, under 26 CFR § 54.9802-4(c)(6)(i)(A). New hires and employees who become eligible mid-year get the notice no later than the date the HRA can first take effect. The 90-day deadline is not just paperwork — it is tied to enrollment. Under 45 CFR § 155.420(b)(3), an employee gaining access to an ICHRA has 60 days before the triggering event to select a Marketplace plan, but if the HRA was not required to give the 90-day notice, that window becomes 60 days before or after instead. Miss the notice and you have compressed the time your employees have to shop and enroll.
Sources
- U.S. Department of the Treasury / Internal Revenue Service. 26 CFR § 54.9802-4 — Special Rule Allowing Integration of Health Reimbursement Arrangements (HRAs) and Other Account-Based Group Health Plans with Individual Health Insurance Coverage and Medicare. ecfr.gov
- Internal Revenue Service. 26 CFR § 1.36B-2 — Eligibility for Premium Tax Credit (see paragraphs (c)(3)(i)(B) and (c)(5)). ecfr.gov
- Internal Revenue Service. Rev. Proc. 2025-25, § 3.02 (Required Contribution Percentage for plan years beginning in 2026), Internal Revenue Bulletin 2025-32. irs.gov
- Centers for Medicare & Medicaid Services. 45 CFR § 155.420 — Special Enrollment Periods (see (b)(3) and (d)(14)). ecfr.gov
- Departments of the Treasury, Labor, and Health and Human Services. Health Reimbursement Arrangements and Other Account-Based Group Health Plans, final rule, 84 FR 28888 (June 20, 2019), effective August 19, 2019. federalregister.gov
- Centers for Medicare & Medicaid Services. Health Insurance Marketplace API — 2026 individual-market plans and premiums for La Crosse County, Wisconsin (FIPS 55063, rating area 6), retrieved September 7, 2026. developer.cms.gov
- Office of the Law Revision Counsel. 26 U.S.C. § 9831(d) — Qualified Small Employer Health Reimbursement Arrangement. uscode.house.gov
- Internal Revenue Service. Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act (applicable large employer definition). irs.gov
Important disclosures: This article is for general information only and is not insurance, tax, legal, or benefits-compliance advice. Individual coverage HRA design, eligibility, plan documents, notices, and reporting obligations vary by employer and by workforce, and an arrangement that is compliant for one employer may not be for another — consult a licensed agent, your CPA, and benefits counsel before adopting or amending a plan. The employer contribution amounts used in the examples above ($500 and $100 per month) are illustrative plan-design figures chosen to show the arithmetic; they are not quotes, recommendations, or benchmarks. The $637.16 benchmark premium is a specific CMS Marketplace figure for one age (40), one county (La Crosse County, Wisconsin), one plan year (2026), self-only non-tobacco coverage, retrieved September 7, 2026 — premiums differ by age, county of residence, tobacco status, and plan year, and no premium in this article is a quote for any individual. Affordability under 26 CFR § 1.36B-2(c)(5) depends on each employee's own household income, which employers generally do not know; the IRS provides separate affordability safe harbors for employer shared responsibility purposes. Regulatory citations reflect the Code of Federal Regulations as in force at the time of writing and Rev. Proc. 2025-25; federal rules, indexed percentages, and plan availability change annually. Hougom Insurance Agency is a licensed independent insurance agency (NPN 20742808) and does not offer every plan or product available in your area.