How to Set Up an ICHRA: A Practical Guide for Employers and Brokers

Employer-sponsored health benefits are expensive, and employers feel it. According to KFF, the average cost for a family premium has increased 24% between 2019 and 2024, outpacing inflation. 

Small and mid‑sized organizations with tight budgets often can’t absorb those increases, yet employees increasingly view health benefits as table stakes when considering which jobs to apply to. In fact, according to the U.S. Chamber of Commerce, 96% of Americans believe it’s important for a job to offer health insurance. 

Those expectations put plan sponsors and brokers in a tough spot. How do you offer meaningful coverage without blowing up your budget?

There is one possible solution: the individual coverage health reimbursement arrangement (ICHRA). This modern alternative to traditional group coverage allows employers to escape recurring, unpredictable rate increases while offering their workers a robust benefit that provides more choice.  

While adoption of this model has accelerated since its introduction in 2020, many employers and their trusted advisors have several questions about the ICHRA, including how to set up this type of health benefit. In this article, we’ll cover the following: 

• What an ICHRA is 
• Why organizations should consider this health benefits model
• How to set up an ICHRA
• How Vitable Health’s ICHRA is different

What is an ICHRA? 

An individual coverage health reimbursement arrangement (ICHRA) is a formal, defined-contribution health benefit that allows employers to give their employees a tax-free monetary allowance to pay for an individual health policy that best fits their needs. 

An increasing number of employers are adopting an ICHRA in lieu of traditional group health insurance. According to the HRA Council, uptake of this benefit among applicable large employers (ALEs) increased 34% between 2024 and 2025, while adoption among small employers in the same time frame jumped 52%.

Notably, 83% of employers offering an ICHRA or a qualified small employer HRA (QSEHRA)  in 2025 had never offered health benefits before—evidence that these defined‑contribution benefits are opening the door for businesses that previously priced out of coverage.

Why consider an ICHRA?

Traditional group plans continue to strain budgets. Between 2023 and 2024, the rise in employer-sponsored health premiums outpaced the growth of wages, and employers are bracing for another 6.5% increase in health benefits costs heading into 2026. 

These increases hit small and midsize employers hardest, who then pass on some of the increased financial burden onto their employees, leading to lower participation. This might be why participation in employer-sponsored health benefits for small employers dropped 33% between 2014 and 2024. 

An ICHRA offers a way out of this cycle thanks to several of its features: 

• Budget control: Employers offering an ICHRA can choose how much they’d like to offer to their employees, and can differentiate their defined allowances by employee age, family size, and even job-based criteria. While ALEs (employers with at least 50 full-time equivalent employees (FTEs)) need to abide by ACA affordability thresholds, smaller employers can offer and much or as little as they’d like. 
• Flexibility for employees: Employees with an ICHRA get to pick the individual plan that suits their needs instead of being stuck with a one‑size‑fits‑all group plan.
• Helps employers comply with the ACA: An ICHRA enables ALEs to satisfy the ACA employer mandate as long as, after taking into consideration the employer-provided ICHRA allowance, employees pay no more than 9.02% of their income toward insurance coverage in 2025 (9.96% in 2026).
• Offers employees choice: Many employers who offer traditional health coverage only offer one plan type, according to KFF. With an ICHRA, employees aren’t stuck with limited options. They have the ability to choose from up to dozens of individual plans that are available in their area. 
• Can be used to cover more than health insurance premiums: Employers can choose to leverage ICHRA as a way to simply replace a group health plan, or they can expand the ICHRA to cover employees’ out-of-pocket expenses as well. This means employees can use their allowance to pay for co-pays, prescriptions, acne treatment, and much more. 

How to set up an ICHRA

At its core, an ICHRA is simple: an employer contributes a fixed amount of funds toward the individual health insurance policies (and optionally other medical expenses) their employees choose. Here’s the process: 

1. Define your budget: Decide how much you’ll offer employees. If you have fewer than 50 FTEs, there are no contribution minimums or caps. If you are an ALE who is using an ICHRA to comply with the ACA employer mandate, you need to make sure your allowance meets the affordability threshold. In 2025, an affordable allowance is one that enables an employee to pay no more than 9.02% of their own household income toward the lowest-cost Silver plan in their area. 
2. Design your benefit: Determine your benefit start date and whether you’ll be covering only health insurance premiums or premiums plus out-of-pocket expenses. Decide who is eligible and how allowances will differ based on your employees’ age, family status, and employee class. Employees can be separated into the following classes:
   Full-time employees
   Part-time employees
   Seasonal employees
   Employees covered under a collective bargaining agreement
   Employees in a waiting period
   Foreign employees who work abroad
   Employees working in the same geographic location
   Salaried employees
   Hourly employees
   Temporary employees of staffing firms
   A combination of two or more of the above
   If you want to offer an ICHRA to some employees and a group health plan to others, you need to make sure you’re separating your employees based only on the job-based criteria listed above, and that you’re meeting minimum class size requirements. 
3. Launch with employees: When launching an ICHRA, you need to provide your employees with a written notice of the benefit at least 30 days before your ICHRA plan begins. Aside from providing this notice, it’s a good idea to educate your employees about how this benefit works and what is expected of them if they’d like to participate. If they want to opt-into the benefit, they will need to enroll in an ICHRA-eligible plan and provide proof of that coverage. With Vitable Health’s ICHRA solution, employees can shop for and enroll in an eligible plan right from their dashboard. 
4. Review employee-submitted expenses and approve: Once employees have opted into your ICHRA benefit and enrolled in a plan, they can use their ICHRA allowance toward the cost of their plan. If you’ve set up your ICHRA with Vitable Health, the distribution of ICHRA funds toward plan costs happens automatically through our streamlined payment process. Employees can also request reimbursement for out-of-pocket expenses if your ICHRA is set up to cover premiums plus these costs. 
5. Maintain annual compliance requirements: In addition to ensuring ICHRA-eligible costs are covered, there are ongoing compliance needs. You’ll need to file the appropriate 1094/1095-B and 1094/1095-C forms each year, as well as Form 720 with a PCORI fee payment. More forms may be required if your organization meets certain size thresholds. 

With the right software or administrator, these steps can be handled in minutes per month. Groups who offer an ICHRA through Vitable Health’s platform get assistance with plan documents, payment processing, and compliance. They also have access to robust customer support. 

ICHRA adoption trends 

The ICHRA market is no longer a niche. Data from the HRA Council shows that adoption is spreading across industries, employer sizes and states. Recent findings include:

• Near‑even adoption across employer sizes: ICHRA adoption grew almost evenly between small employers and ALEs. This means decision makers at 20‑employee firms and 500+‑employee firms are using ICHRAs to meet diverse workforce needs.
• Coverage expansion and retention: 450,000 individuals were covered by an ICHRA or QSEHRA in 2025—a 50% increase from the previous year. Importantly, 83% of small employers offering an HRA in 2025 had not previously offered health benefits, and 92% of employers that offered an HRA in 2024 continued doing so in 2025. 
• Savvy consumer behavior: As workers learn to navigate the individual market, roughly 60% select silver or gold plans with richer benefits, while about one‑third choose bronze plans, often paired with a health savings account.

These statistics underscore that ICHRAs are no longer a fringe benefit. Employers of all sizes and industries are turning to them for cost control and employee choice. 

Why Partner with Vitable Health

While you can self‑administer an ICHRA, compliance and employee support require time and expertise. That’s where Vitable Health’s care‑backed ICHRA comes in. Vitable combines ICHRA administration with direct primary care, creating a unique solution that goes beyond a basic health plan reimbursement process:

• Integrated primary care and mental health: When you choose to pair an ICHRA with Vitable Primary Care, every member receives unlimited virtual primary care visits, mental health coaching and access to over 1,000 prescriptions and lab tests at zero out‑of‑pocket cost. This ensures employees actually use their benefit instead of deferring care.
• Compliance and administration handled for you: Our team helps with ICHRA set-up, drafts plan documents, sends required notices, and helps groups manage IRS filings. Payment for individual health policies is streamlined. This frees your time so you can focus on core work.
• Tailored for high‑turnover industries: Vitable’s integrated model is designed for sectors like home health, construction and hospitality where traditional plans are often unaffordable and employees lack the ability to easily access routine care. By merging ICHRA with direct primary care, Vitable helps employers better care for their teams. 
• Choice and affordability: Employers control the budget and employees choose the coverage. Vitable’s solution meets ACA requirements and can scale from a handful of employees to enterprise groups across multiple states. As adoption grows, the economies of scale make allowances go further.

The bottom line

Employer‑sponsored coverage remains an important recruitment and retention tool, but rising premiums and participation requirements make traditional group plans increasingly untenable. An ICHRA offers a way out: you set a budget, employees choose coverage, and both parties enjoy tax advantages. 

Implementing an ICHRA doesn’t have to be complicated. With Vitable Health, plan sponsors and brokers can offer a simple, compliant health benefit that includes built‑in care, freeing you to focus on your business while still meeting employee expectations. 

If you’d like to see how a care‑backed ICHRA could work for your organization, reach out to Vitable Health for a custom scenario. A little planning today could deliver big cost savings and happier employees tomorrow.