ICHRA for Dummies: A Plain-English Guide for Employers

The whole thing in one breath

You decide a monthly dollar amount, your employees go buy their own individual health plans, they show you proof, and you pay them back — tax-free. That''s it. You control the budget; they choose the plan that fits their family.

Why bother instead of a group plan?

• Your cost is fixed — you set it, and it doesn''t jump at renewal.
• There''s no minimum number of employees who have to sign up.
• It''s tax-free for both sides, unlike handing out a taxable bonus.
• It works in all 50 states, which is great for remote teams.

The catches, plainly

Employees have to actually buy individual coverage and show proof (a broker makes this painless). And if your ICHRA is generous enough to count as ''affordable,'' employees generally take it instead of an Obamacare subsidy. For most small businesses, the trade is well worth it.

How to get started

Pick your monthly allowance, decide who''s eligible, send the required notice, help your team enroll, and reimburse them. If that still sounds like a lot, that''s exactly what an ICHRA broker handles — usually at no direct cost to you.

The three moving parts

Strip away the jargon and an ICHRA is just three steps. You set a monthly allowance. Your employee buys their own individual health plan. You reimburse them, tax-free, up to the allowance. That is the whole machine.

A plain example

Illustrative only. You offer 400 dollars a month. An employee buys a plan that costs 380. They submit proof, and you reimburse the 380 tax-free. If their plan cost 450, you would reimburse the full 400 allowance and they would pay the extra 50 themselves.

Words you'll hear

A tiny glossary so nothing sounds intimidating.

• Allowance — the monthly amount you offer.
• Class — a group of employees (like full-time or part-time) you can fund differently.
• Substantiation — proof that coverage and the expense are real.
• Affordability — whether the offer meets the IRS threshold for larger employers.