ICHRA vs Obamacare: how they actually work together

They''re not opposites

Obamacare (the Affordable Care Act) created the individual marketplace where people buy their own health plans. An ICHRA is an employer benefit that reimburses employees, tax-free, for buying those very plans. So an ICHRA typically runs on top of the ACA marketplace rather than competing with it — the employer funds the coverage, the employee buys it on the exchange.

What the ACA marketplace is

The marketplace (healthcare.gov or a state exchange) is where individuals shop for and enroll in individual health plans, often with income-based premium subsidies. Plans are organized into metal tiers (Bronze, Silver, Gold), and a benchmark Silver plan is used to calculate both subsidies and ICHRA affordability.

The one thing to understand: subsidies

The ACA offers premium tax credits (subsidies) to people who qualify by income. If your employer offers you an ICHRA that''s considered affordable, you generally can''t also take a marketplace subsidy — you take the ICHRA instead. If the ICHRA is deemed unaffordable, you can waive it and keep your subsidy. This is the crux of the ICHRA-vs-marketplace decision.

How the affordability decision works

Affordability is calculated per employee, comparing the benchmark Silver plan available to them (by age and area) against the ICHRA allowance and an annually adjusted IRS percentage of income. A larger allowance makes the ICHRA more likely to be affordable — and more likely the better choice. A broker runs this calculation so each employee chooses correctly.

Which is better for an employee?

• If you get an affordable ICHRA, it''s usually the better deal — tax-free employer money toward a marketplace plan.
• If you''d qualify for a large subsidy and the ICHRA is small, waiving an unaffordable ICHRA to keep the subsidy can win.
• Either way you''re choosing a marketplace (Obamacare) plan — the ICHRA just changes who pays.

For employers: ICHRA runs on the marketplace

Offering an ICHRA doesn''t mean leaving the ACA behind — it means funding ACA marketplace (or off-exchange) coverage for your team, tax-free. For applicable large employers, an affordable ICHRA can also satisfy the ACA employer mandate. The marketplace is the rails; the ICHRA is how you pay for the ride.

Where employees actually buy the plan

An ICHRA reimburses individual coverage whether it is purchased on the ACA marketplace (on-exchange) or directly from an insurer (off-exchange). Employees keep the full individual market to choose from — the ICHRA simply funds it. The one catch: to take a premium tax credit, a plan must be bought on-exchange, and an affordable ICHRA generally replaces that credit.

How the affordability number is set — and why ZIP matters

Whether an ICHRA is affordable turns on the lowest-cost Silver plan available to the employee, which varies by their rating area (county and ZIP), age, and tobacco status. That is why a location-blind estimate is unreliable. Our ICHRA calculator pulls the real number for a given ZIP so you can see the actual affordability result.

What changes for the employee day to day

Very little about the coverage itself changes — employees pick from the same ACA-compliant individual plans, with the same essential health benefits and networks available in their area. What changes is the funding: instead of a group plan, they buy their own plan and get reimbursed tax-free.

Employer takeaways

A few points to keep straight as an employer.

• An ICHRA does not compete with Obamacare — it runs on the same individual market.
• Set the allowance with affordability in mind if you are an Applicable Large Employer.
• Employees who take an affordable ICHRA generally cannot also claim a subsidy.
• Give employees clear guidance so they enroll during their special enrollment period.