An Individual Coverage Health Reimbursement Arrangement (ICHRA) provides employers with a flexible and tax-advantaged way to reimburse employees for individual health insurance premiums and eligible medical expenses. As ICHRA adoption continues to grow, employers are looking for the most effective strategies to structure their reimbursements.
Setting up an ICHRA is straightforward, but choosing the right reimbursement strategy can help employers control costs while ensuring their employees receive meaningful benefits. Below are three key reimbursement strategies that employers can leverage in 2025.
ICHRA Reimbursement Strategy #1: Flat Dollar Amount
One of the simplest methods, this strategy allows employers to set a fixed reimbursement amount per employee class. The employer determines a flat dollar budget and applies it to different classes of employees as permitted by ICHRA regulations.
For example:
- Salaried employees: $650 per month
- Full-Time Hourly employees: $450 per month
This approach offers predictability for budgeting but does not account for variations in premium costs based on employee demographics.
ICHRA Reimbursement Strategy #2: Percentage-Based Reimbursement
This method aligns with traditional group insurance models, where the employer reimburses a percentage of the premium rather than a fixed dollar amount. The percentage is typically based on a specific carrier’s individual health insurance rate table.
For example, an employer might choose to cover 50% of an employee’s premium cost, regardless of their age or plan selection. It is important to remember, this is not 50% of any plan the employee chooses it is merely a way of getting a contribution amount by using an existing Bronze, Silver or Gold Individual Policy.
This strategy allows for more flexibility and can help employers manage costs dynamically while providing equitable contributions across employees.
ICHRA Reimbursement Strategy #3: Tiered Contributions Using the 3:1 Ratio
The 3:1 ratio rule is a built-in feature of ICHRA regulations designed to mitigate premium cost differences due to age-banded rates in the individual market. This strategy ensures that the oldest employee receiving ICHRA funds does not receive more than three times the reimbursement of the youngest employee.
Example of a Tiered ICHRA Reimbursement Plan:
| Employee Age | Monthly ICHRA Reimbursement |
|---|---|
| Up to age 29 | $150 |
| 30-45 | $300 |
| 46+ | $450 |
