More employers are replacing traditional group health plans with Individual Coverage Health Reimbursement Arrangements (ICHRAs). If your employer is making this switch, here's what you need to know about how it works, what changes for you, and how to choose the right health plan.
If your employer recently announced they're switching from a traditional group health plan to an Individual Coverage Health Reimbursement Arrangement (ICHRA), you're not alone. ICHRA adoption has grown significantly—up 34% among large employers and 52% among small employers from 2024 to 2025, according to the HRA Council.
This shift can feel unsettling, especially if you've had employer-provided health insurance for years and never had to shop for coverage on your own. But an ICHRA isn't necessarily bad news—in fact, it can give you more control over your healthcare. Here's what you need to know.
An ICHRA is a way for your employer to help pay for your health insurance without offering a traditional group plan. Instead of everyone at your company being on the same insurance policy, you choose your own individual health plan from the marketplace or directly from an insurance company. Your employer then reimburses you tax-free for some or all of your premium costs.
Think of it this way: with a traditional group plan, your employer picks the plan and you're along for the ride. With an ICHRA, you're in the driver's seat—you pick the plan that works best for you, and your employer helps pay for it.
Your employer sets a monthly allowance. This is the amount they'll reimburse you for health insurance premiums each month. The amount may vary based on factors like your age, family size, or work location.
You shop for and purchase your own health plan. You can buy a plan through the ACA Marketplace (HealthCare.gov), directly from an insurance company, or through an insurance broker. You choose the plan, carrier, and network that works best for you.
You submit proof of coverage. Once enrolled, you provide documentation to your employer or their ICHRA administrator showing you have qualifying health coverage.
You get reimbursed tax-free. Your employer reimburses you up to your monthly allowance. If your premium costs less than your allowance, you may be able to use the remainder for other qualified medical expenses (depending on how your employer set up the plan). If your premium costs more, you pay the difference.
| Traditional Group Plan | ICHRA |
Who chooses the plan | Your employer | You |
Plan options | Usually 1-3 plans | Dozens of plans in most areas |
Network flexibility | Limited to the employer's chosen network | Choose any network/carrier available in your area |
Keep doctors? | Only if they're in-network | Pick a plan that includes your doctors |
Coverage if you leave your job | Ends (COBRA available at full cost) | Keep your plan; just pay full premium yourself |
Shopping required | No | Yes—you must choose a plan |
Tax treatment | Pre-tax premiums | Tax-free reimbursements |
More Choice and Control
With a traditional group plan, your employer decides which insurance company, network, deductible, and benefits you get. With an ICHRA, you choose from all the individual plans available in your area—which can mean dozens of options. You can pick the plan that best matches your healthcare needs, preferred doctors, and budget.
Keep Your Doctors
One of the biggest frustrations with employer health plans is when your favorite doctor isn't in the network. With an ICHRA, you can specifically choose a plan that includes the providers you want to keep seeing.
Portable Coverage
If you leave your job, you keep your health plan—you just start paying the full premium yourself instead of being reimbursed. There's no COBRA paperwork, no coverage gap, and no need to switch doctors. This can be especially valuable if you change jobs frequently or are considering self-employment.
Tax-Free Reimbursements
The money your employer reimburses you through the ICHRA is not taxable income. You don't pay federal income tax, state income tax, or FICA taxes on these reimbursements—just like you wouldn't pay taxes on employer-paid premiums under a traditional group plan.
You Have to Shop for Insurance
This is the biggest adjustment for most people. If you've never shopped for individual health insurance, the process can feel overwhelming. You'll need to compare plans, understand terms like deductibles and out-of-pocket maximums, and make sure your doctors and medications are covered. The good news: you can get free help from a licensed insurance agent or broker.
Your Costs May Change
Depending on your employer's ICHRA allowance and the cost of plans in your area, you might pay more—or less—than you did before. Individual plan premiums are based on your age and location, while group plan premiums spread costs across all employees. Younger employees often find individual plans cheaper; older employees may find them more expensive.
You May Lose Access to ACA Premium Tax Credits
If your employer offers an "affordable" ICHRA (meaning your share of the lowest-cost silver plan premium is less than 9.02% of your household income in 2025), you're not eligible for premium tax credits through the Marketplace—even if you decline the ICHRA. If the ICHRA is unaffordable, you can opt out and claim tax credits instead. We'll explain this more below.
Some Coverage Types Don't Qualify
To participate in an ICHRA, you must have qualifying individual health coverage. This includes ACA-compliant plans from the Marketplace or insurance companies, as well as Medicare. It does not include short-term health plans, health-sharing ministries (such as Medi-Share), coverage through a spouse's employer plan, or TRICARE. If you're currently on your spouse's group plan, you'd need to switch to an individual plan to use your ICHRA.
This is one of the most important things to understand about ICHRA: you generally cannot receive both ICHRA reimbursements and ACA premium tax credits. You have to choose one or the other.
Here's how it works:
If your ICHRA is "affordable": You cannot claim premium tax credits through the Marketplace, even if you decline the ICHRA. Your best option is usually to accept the ICHRA.
If your ICHRA is "unaffordable": You can choose to decline the ICHRA and claim premium tax credits instead. You'll need to calculate which option saves you more money.
An ICHRA is considered "affordable" if, after applying your employer's contribution, your cost for the lowest-cost silver plan in your area is less than 9.02% of your household income (for 2025). This calculation can be complex, and the HealthCare.gov application process will help determine your eligibility.
Important: If you're married and your spouse has an ICHRA offer, but the ICHRA doesn't cover dependents, your spouse and children may still be eligible for premium tax credits on their own coverage.
Shopping for individual health insurance may feel daunting at first, but you have more help available than you might think:
1. Use HealthCare.gov or Your State Marketplace
You can browse and compare all available plans in your area, see estimated costs, and check if your doctors and medications are covered. Even if you ultimately buy off-exchange, the Marketplace is a good place to start comparing options.
2. Work with a Licensed Insurance Agent or Broker
Insurance agents and brokers can help you compare plans, explain the differences, check that your doctors are in-network, and assist with enrollment—at no cost to you. They're paid by the insurance companies, so their services are free. Your employer may provide contact information for a broker, but you can choose to work with any agent you want.
3. Use Your Employer's ICHRA Administrator
Many employers work with ICHRA administrators who offer shopping tools and support to help employees find plans. Some administrators provide personalized recommendations based on your doctors, prescriptions, and budget.
Key factors to consider when choosing a plan:
Monthly premium: How much will you pay each month? Compare this to your ICHRA allowance.
Deductible: How much do you pay out-of-pocket before insurance kicks in?
Out-of-pocket maximum: The most you'll pay in a year for covered services. For 2025, individual plans cap this at $9,200 for individuals and $18,400 for families.
Network: Are your current doctors and hospitals included?
Prescription coverage: Are your medications covered, and at what cost?
One advantage of your employer switching to ICHRA is that it triggers a Special Enrollment Period (SEP). This means you can enroll in an individual health plan outside of the normal Open Enrollment window (November 1 – January 15).
You typically have 60 days from the date you become eligible for the ICHRA to enroll in a qualifying health plan. Your employer should provide notice of the ICHRA at least 90 days before it takes effect, giving you time to research your options.
Don't wait until the last minute. Shopping for health insurance takes time, especially if you want to verify that your doctors are in-network and your medications are covered.
Good news: ICHRA works with Medicare. If you're enrolled in Medicare Part A and Part B (or Part C), you can use your ICHRA allowance to help pay for Medicare premiums, including Part B, Part D prescription drug plans, Medicare Supplements (Medigap), and Medicare Advantage plans.
For Medicare enrollees, ICHRA reimbursements are limited to premium expenses only—you cannot use ICHRA funds for out-of-pocket costs like copays and deductibles. However, the tax-free reimbursement for premiums can significantly reduce your Medicare costs.
Before your ICHRA starts, make sure you understand the details:
What is my monthly ICHRA allowance? This determines how much of your premium will be covered.
When does the ICHRA start? You need to have coverage in place by this date to receive reimbursements.
Can I use unused allowance for medical expenses? Some ICHRAs allow reimbursement for copays, prescriptions, and other qualified expenses; others cover premiums only.
Do unused funds roll over? Some plans allow monthly rollovers; others don't.
Who is the ICHRA administrator? This is who you'll work with for reimbursements and questions.
Is help available to choose a plan? Many employers provide access to brokers or shopping tools.
Switching from a traditional group health plan to an ICHRA is a significant change, but it's not necessarily a bad one. While you'll need to take a more active role in choosing your coverage, you'll also gain more control over your healthcare decisions. You can choose a plan that fits your specific needs, keep your preferred doctors, and take your coverage with you if you change jobs.
The key is to take advantage of the resources available to you—whether that's your employer's ICHRA administrator, a licensed insurance agent, or tools like HealthCare.gov—to find the plan that works best for your situation.
Our licensed insurance agents in North Carolina can help you compare individual health plans and find coverage that fits your needs and budget—at no cost to you. Whether your employer is switching to ICHRA or you're shopping for coverage on your own, we're here to help.