Eligible expenses for ICHRA reimbursement

As healthcare costs continue to rise, employers and their broker consultants are searching for benefit solutions that protect their budgets while still giving employees access to meaningful coverage. The individual coverage health reimbursement arrangement (ICHRA) has quickly become one of the most powerful tools for achieving both.

With an ICHRA, employers can reimburse employees tax-free for qualified medical expenses. But understanding exactly what counts as an eligible expense is essential for staying compliant and maximizing your benefit.

In this article, we’ll break down the types of expenses eligible for reimbursement through an ICHRA and how offering an ICHRA works with Remodel Health.

In this blog post, you’ll learn:

• How the individual coverage health reimbursement arrangement (ICHRA) works.
• The benefits of ICHRA for employers and employees.
• What expenses are eligible and ineligible for ICHRA reimbursement.

Find out how ICHRA can boost employee satisfaction and retention at your organization.

What is ICHRA?

The individual coverage HRA (ICHRA) is an employer-funded benefit. It allows organizations of any size to reimburse employees for more than 200 eligible medical expenses, including individual health insurance premiums.

Unlike traditional, one-size-fits-all group health insurance, an ICHRA allows employees to shop for and enroll in the coverage that fits their needs and budget. Employees get more choice, and employers get budget control and predictability.

Why are more employers choosing ICHRA?

ICHRA adoption continues to climb as organizations of all sizes shift away from unpredictable group health plans. According to the HRA Council, ICHRA adoption grew 34% among large employers from 2024 to 2025.

Here’s why:

• ICHRA provides predictability. Costs don’t fluctuate with claims, renewals, or participation levels.
• ICHRA provides budget control. Employers set an allowance amount and never pay more than what they budgeted.
• ICHRA empowers employees. Employees choose their own individual health plans rather than being locked into a single group option.
• ICHRA offers tax advantages: Allowances are tax-deductible for employers and tax-free for employees.
• ICHRA offers flexibility. Employers can design benefit allowances and vary eligibility based on 11 employee classes, such as full-time, part-time, salaried, or seasonal. They can also vary allowances by employee age and family size.

How ICHRA reimbursement works

The traditional ICHRA reimbursement process is straightforward.

Here’s how it works:

• Employers set a monthly contribution. Employers decide how much they want to reimburse each employee class. According to Remodel Health’s 2024 ICHRA Report, the average allowance that applicable large employers (ALEs) offer is $448 per month. There is no minimum or maximum allowance.
  • ALEs must offer health coverage that satisfies the employer mandate. An ICHRA can satisfy this if you offer an affordable allowance.
• Employees enroll in individual coverage. To participate, employees must have a qualifying individual health plan that provides minimum essential coverage (MEC). This includes Affordable Care Act (ACA) marketplace plans, individual off-exchange plans, and Medicare coverage. If employees don’t have their own individual plans already, they don’t have to wait until the next Open Enrollment period to secure coverage. Offering an ICHRA triggers a special enrollment period (SEP). Employees covered by a spouse’s or parent’s group health plan are not eligible for the ICHRA unless they enroll in an individual plan.
• Employees submit proof of qualified expenses. Receipts and premium invoices all count as documentation.
• Employers, or an ICHRA administrator like Remodel Health, review and reimburse expenses. Employees receive tax-free reimbursements up to their allowance amounts.

However, Remodel Health has a more modern approach to handling individual health insurance premiums. Rather than having employees front the cost of their premiums and request reimbursement for their expenses, we’ve automated the process. Employers deposit their employees’ ICHRA contributions into an account with Remodel Health. We split these funds into FDIC-insured accounts for each employee. Then, we pay the carrier directly for employees’ premiums. 

This saves employers and employees the hassle of reviewing reimbursement requests and waiting for reimbursement each month. Plus, when an employee enrolls in an off-exchange plan, the employer can establish a pre-tax deduction for any excess the ICHRA contribution doesn’t cover.

While most employers choose to only provide ICHRA contributions for premiums, they can also reimburse employees for qualified out-of-pocket medical expenses.

Eligible ICHRA expenses

Employers can reimburse employees for qualified medical expenses listed in Internal Revenue Code §213(d). IRS Publication 502 outlines these qualified medical expenses. An ICHRA can reimburse any of these expenses, as long as the employer chooses to allow them.

Let’s review some of the most commonly reimbursed categories. This is not an exhaustive list. For the full list, see IRS Publication 502.

1. Individual health insurance premiums

Premiums are the most frequently reimbursed ICHRA expense.

Employees may use ICHRA funds to pay for:

• On-exchange individual major medical plans that comply with the Affordable Care Act (ACA)
• Off-exchange individual medical plans
• Premiums for certain types of Medicare coverage
• Individual dental and vision insurance premiums
• COBRA premiums (if the employee also has individual coverage, thereby participating in the ICHRA)
• Student health insurance plans

2. Medications

This is a significant benefit given the rising cost of medications. According to the American Journal of Health-System Pharmacy¹, the U.S. spent more than $722 billion on prescription drugs in 2023. That’s a 13.6% increase from 2022, marking the largest uptick in spending in 20 years.

Employees can receive reimbursement for:

• Prescription drugs
• Over-the-counter medications (thanks to the CARES Act)
• Vaccines
• Allergy medication
• Pain relievers
• Cold medicines

3. Dental care expenses

An ICHRA can reimburse individual dental insurance premiums. It can also reimburse dental expenses.

Even without a dental insurance plan, employees can receive reimbursement for:

• Exams and cleanings
• X-rays
• Fillings, root canals, and extractions
• Orthodontics (braces and Invisalign)
• Dentures and dental implants

4. Vision care expenses

On top of individual vision insurance premiums, employees can receive reimbursement for vision expenses.

ICHRA reimbursement can also include:

• Comprehensive eye exams
• Eyeglasses and frames
• Contact lenses and prescriptions
• Contact cleaning solutions
• LASIK or PRK corrective eye surgery

5. Preventive care

Preventive care is a key part of maintaining long-term health.

Eligible expenses include:

• Preventive screenings
• Annual wellness visits
• Vaccinations
• Copays, coinsurance, and amounts applied to the deductible
• Out-of-pocket costs for chronic disease management

6. Mental health services

According to a 2024 National Alliance on Mental Illness² (NAMI) poll, 92% of employees said mental healthcare coverage is important for creating a positive workplace culture. About one in five said it’s difficult to find mental healthcare that’s affordable through their employer.

With mental health needs growing nationwide, ICHRAs provide coverage for:

• Licensed therapy
• Teletherapy or virtual counseling
• Substance use disorder treatment
• Psychiatric visits
• Medical management of conditions like anxiety, depression, and ADHD

7. Alternative medicine

Some employees may seek nontraditional or holistic treatments. However, they need a doctor’s note for some treatments to verify medical necessity.

With proper documentation, an ICHRA can reimburse:

• Chiropractic care
• Alternative healers
• Acupuncture
• Herbal or homeopathic remedies
• Dietitian or nutritionist services

8. Family member expenses

This is an important difference from group health plans, which often require higher premiums for dependents.

An ICHRA can reimburse eligible expenses for:

• Spouses
• Children
• Dependents
• Any person claimed as a dependent on the employee’s tax return

What expenses are not eligible under ICHRA?

While hundreds of items and services are eligible for reimbursement under an ICHRA, some exclusions do apply.

The IRS excludes certain expenses, including:

• Cosmetic procedures
• Gym memberships
• Childcare
• Household help
• Maternity clothes
• Employer-sponsored group health insurance premiums

Offering an ICHRA through Remodel Health

Remodel Health’s ICHRA+ solution eliminates tedious administrative tasks, giving employers more time to focus on other aspects of their businesses.

Our experts handle:

• Onboarding and support
• Plan design
• Legal plan documents
• Autopay for employee individual health insurance premiums
• Required ICHRA plan notices
• Providing necessary data and instructions for compliance filings

Our platform integrates with more than 200 payroll and HRIS systems to further streamline processes and enhance your team’s efficiency. Additionally, employees can conveniently shop for individual health plans directly through their Remodel Health accounts.

Conclusion

The individual coverage health reimbursement arrangement (ICHRA) gives employers a modern, flexible alternative to traditional health insurance. It prioritizes budget stability while empowering employees with meaningful choice. Understanding which expenses qualify for reimbursement is central to keeping your benefit compliant and effective.

At Remodel Health, we make the entire process easier. Our platform helps employees choose the best individual plan and ensures every reimbursement aligns with IRS regulations.

What are employers in different industries offering for allowances? Download our 2024 ICHRA Report to find out.

References

1. https://academic.oup.com/ajhp/advance-article-abstract/doi/10.1093/ajhp/zxae105/7657643?redirectedFrom=fulltext&login=false
2. https://www.nami.org/support-education/publications-reports/survey-reports/the-2024-nami-workplace-mental-health-poll/