How ICHRA works for business owners

By Holly Bengfort on Oct 9, 2025 8:45:00 AM

Traditional group health insurance has met its match. The individual coverage health reimbursement arrangement (ICHRA) is a game-changer for business owners. It offers you a flexible, affordable solution for employer-sponsored health insurance. Plus, in many cases, both you and your employees can often take advantage of the benefits ICHRA offers.

In this article, we’ll explain how ICHRA works and whether you can participate in the benefit alongside your employees.

In this blog post, you’ll learn:

How ICHRA compares to a traditional group health plan.
The benefits of ICHRA for employers.
Business owner eligibility under ICHRA.

What is ICHRA?

Introduced in 2020, the individual coverage HRA (ICHRA) is a modern alternative to a group health insurance plan that puts personalization back into the hands of both you and your team. ICHRA allows employers of any size to offer their employees a monthly allowance for their individual health insurance premiums.

How does ICHRA work?

With the individual coverage HRA (ICHRA), business owners get the best of both worlds: an affordable employee benefit that’s easy to manage.

Here’s a breakdown of how it works:

You set your budget. As the employer, you determine how much tax-free money you want to contribute toward your employees’ health benefits. You can vary allowances using 11 employee classes, such as full-time and part-time. You can also base it on factors like employee age and family size. There are no annual caps on employer contributions with ICHRA.
You maintain compliance. As long as you offer an affordable allowance, ICHRA meets the Affordable Care Act’s (ACA) employer mandate for applicable large employers (ALEs).
Employees shop for coverage. Offering ICHRA triggers a special enrollment period (SEP) for your employees. This makes it possible to secure comprehensive coverage on the ACA health insurance marketplace outside of Open Enrollment.
Employees purchase individual plans. Instead of being locked into a single group health plan, employees purchase their own individual health insurance through the federal Health Insurance Marketplace, a state exchange, directly from a carrier, or a broker. This lets each employee choose the health plan that best fits their unique needs and family situation. Your employees need individual health plans to participate in the ICHRA. Traditional group health plan coverage through a spouse’s or parent’s policy doesn’t qualify.
Employees pay the difference. If your employees choose individual health insurance plans with monthly premiums greater than the allowance you offer, they have to pay the difference as an out-of-pocket cost.

Can business owners participate in ICHRA?

Whether you, as the business owner, can participate in the individual coverage HRA (ICHRA) depends on your business structure.

Ultimately, it comes down to whether the IRS considers you a W-2 employee of the organization.

Business structure	ICHRA eligibility
C corporation owners	The IRS treats C corporations as separate legal entities from their owners. As a result, C corp owners count as W-2 employees of the business. They can use an ICHRA, and their spouses and dependents can join through the owner’s ICHRA.
S corporation owners	An S corporation is a pass-through entity, which means the IRS taxes the income directly to the owners and shareholders. The IRS doesn’t treat shareholders as W-2 employees, so if you own more than 2% of an S corp, you can’t use an ICHRA yourself.
Partners	In a partnership, two or more people share ownership of the business, and the IRS taxes the partners instead of the business, similar to how an S corp works. Partners can’t use an ICHRA themselves, but they may qualify through their spouse if the spouse is a W-2 employee of the business.
Sole proprietors	Sole proprietors aren’t eligible for an ICHRA. They may be able to join through their spouse if the spouse is a W-2 employee of the business.
Limited liability company (LLC)	An LLC is a business structure recognized by every state, and its owners can choose how the IRS taxes it, either as a C corp, S corp, sole proprietorship, or partnership. Your federal tax classification determines whether you can participate in an ICHRA.

Why are business owners choosing ICHRA over group health insurance?

Even if you don’t qualify personally, ICHRA is still a powerful health benefit for your team. According to the HRA Council, the number of employers using individual coverage HRAs (ICHRAs) grew by 21% from 2024 to 2025.

Key factors behind its growing popularity include:

Cost control. You control your healthcare costs since you set your own budget and avoid unexpected premium increases.
Flexibility for employees. Employees pick individual plans tailored to their own needs and financial situations.
Scalability. Whether you have a handful of employees or hundreds, ICHRA works for your business.
Recruitment and retention. Offering health benefits makes you more competitive. According to PeopleKeep by Remodel Health’s 2024 Employee Benefits Survey, 92% of employees consider health benefits important.
No administrative headaches. The right ICHRA administration partner, like Remodel Health, can handle compliance and necessary documentation for you. Our experts ease the burden of managing complex plan rules and insurance premium payments. Plus, your employees can shop for individual plans right from their Remodel Health accounts.

Conclusion

The individual coverage health reimbursement arrangement (ICHRA) is reshaping how business owners think about health benefits. It gives employers control over costs, provides employees with freedom of choice, and can even cover some owners, depending on your business structure. If you’re looking for a modern, flexible way to care for your team, and possibly yourself, ICHRA may be the solution you’ve been searching for.