An individual coverage health reimbursement arrangement (ICHRA) is a great way for business owners to offer a comprehensive health benefit to their workforce. But determining how much to contribute to an ICHRA can be tricky. You want to provide a competitive benefit that covers your employees’ medical costs. But it must also work with your company’s budget.
With an ICHRA, you can tailor contributions by employee classes and other factors. But that flexibility also raises important questions, such as how much is enough to make coverage affordable and how to design a cost-effective benefit that supports your staff’s needs.
In this article, we’ll go over what you need to consider when setting the right ICHRA contribution amount for your team and budget.
In this blog, you’ll learn:
- How an individual coverage health reimbursement arrangement (ICHRA) works for employers and employees.
- What key factors to consider when determining ICHRA allowances.
- Why creating an ICHRA contribution strategy can help you offer an attractive and meaningful health benefit.
Check out Remodel Health’s 2024 ICHRA Report to learn more about how this health benefit can support your organization.
How does the ICHRA work?
An ICHRA is an employer-funded health benefit for businesses of any size or industry. It’s an excellent alternative to group coverage for W-2 workers. Instead of choosing a one-size-fits-all group health plan, employers provide their employees with tax-free contributions — called an allowance — that they can use to buy their own individual health insurance.
Here’s a basic rundown of how the ICHRA works:
- You decide how much tax-free money to offer your W-2 employees each month to cover their health insurance costs. There’s no cap on annual contributions, and you can adjust the allowance at the end of each plan year.
- As an alternative to group health insurance coverage, employees with an ICHRA can choose and enroll in an individual health plan. They can shop for a health plan on a public or private exchange. But, they must have a qualifying form of individual health coverage that provides minimum essential coverage (MEC) to use the benefit.
- With Remodel Health, employees can shop for off-exchange individual health plans directly from our platform.
- Your ICHRA allowance can also support employees’ spouses and qualified dependents if you choose. You can also vary eligibility and allowance amounts by employee classes, age, and family status.
- Then, employees pay for their health insurance plan’s monthly premiums with their allowance. From a tax perspective, ICHRA contributions are exempt from employers’ payroll taxes and employee income taxes.
Because of the ICHRA’s flexibility, your team can select the health insurance that best suits their and their families’ specific needs. At the same time, you’ll have better cost control over your benefits budget.
Six tips for choosing the right ICHRA allowance for your employees
Choosing an ICHRA over traditional group health insurance is an excellent first step toward offering a more personalized employee benefit. But if you want your ICHRA to truly make an impact, offering your staff a good allowance is key.
Let’s walk you through the six factors you must consider when choosing your ICHRA contribution amounts.
1. Review your budget
First, you must consider how much your business can contribute to your employees. You can do this by reviewing your current benefits budget, intended company goals, and your staff’s medical needs.
You should also consider the sustainability of your contribution over time. For example, think about your growth plans, potential future profits, and other financial obligations that could impact your ability to offer the benefit each year. Setting a monthly allowance that works with your budget helps create a reliable benefit design with medical cost predictability for employees.
2. Research the cost of individual health insurance
Because your employees will use their ICHRA allowance to buy individual health insurance, it’s vital that you understand what those plans typically cost in your region. This is especially true if you have a remote workforce in multiple states.
In 2025, the average monthly cost of a benchmark silver health plan is $497, according to KFF1. Our 2024 ICHRA Report found that the monthly ICHRA allowance was $524 on average. But the cost of individual coverage varies depending on your location.
For example, in 2025, individual coverage in Minnesota costs $363 a month on average. But in Vermont, the cost is $1,277 monthly on average. By researching current rates and knowing about health plan premium increases, you can choose an allowance that allows your staff to get proper coverage.
In addition to location, monthly premiums will also differ based on other factors like your employee’s age, family size, and health plan type.
You don’t have to offer an allowance that covers 100% of employees’ premiums. With traditional group coverage, employers typically cover at least 70% of the premiums. You’ll just need to ensure that you’re offering an affordable allowance.
If your allowance doesn’t cover a significant portion of health insurance premiums, your staff may struggle to afford health coverage, making your ICHRA less valuable and potentially subjecting you to tax penalties.
3. Compare your benefit to competitors in your industry
To attract and retain good workers, you should know what similar employers in your area are offering. Study what companies in your industry, size range, and location contribute to employee health insurance, especially if they also provide an ICHRA.
Below are the average ICHRA allowances among Remodel Health customers in the top five most employed industries in 2024:
| Industry | ICHRA allowance | |
| 1 | Education | $719/month |
| 2 | Healthcare | $535/month |
| 3 | Business services | $474/month |
| 4 | Retail | $735/month |
| 5 | Manufacturing | $463/month |
If competitors offer larger HRA allowances or more robust benefits in general, a small ICHRA allowance may weaken your recruiting efforts. Contributing a higher amount can set your company apart. But if you think you don’t have the budget to do so yet, keep in mind that you can adjust your contribution amount little by little in future plan years.
4. Test your ICHRA for affordability
In 2025, companies with 50 or more full-time equivalent employees (FTEs) are the fastest-growing cohort that’s providing their staff with an ICHRA. These organizations, also known as applicable large employers (ALEs), had an average ICHRA allowance of $448 per month according to our 2024 ICHRA Report. But offering an ICHRA as an ALE means you must comply with specific rules under the Affordable Care Act (ACA).
The ACA’s employer mandate requires ALEs to provide at least 95% of their full-time workers and their eligible dependents with affordable health coverage with minimum value and MEC. The individual health plan employees enroll in will provide minimum value and MEC. But it’s up to the ALE to ensure their ICHRA allowance is affordable to comply with the employer mandate.
In 2025, the federal government will consider your ICHRA affordable if an individual employee doesn’t pay more than 9.02% of their total income for the lowest-cost silver health plan on a public exchange after factoring in their allowance. If it isn’t affordable, they can opt out of the benefit and collect any subsidies (if they qualify) for discounted health coverage.
There are affordability calculators and safe harbors that you can use to test your ICHRA amounts beforehand. This ensures you stay compliant with federal regulations and helps employees receive subsidized individual coverage if your ICHRA isn’t affordable.
When offering an ICHRA with Remodel Health, we’ll conduct affordability calculations for you during the plan design process.
5. Add flexibility by using employee class options
One of the best features of the ICHRA is that it has customization options called employee classes. This means you can give different contributions to different employees, such as full-time, part-time, or seasonal.
You can also vary allowances by employee age on a 3:1 ratio between your youngest and oldest employees and by family status. Using classes lets you offer higher contributions to key job types while balancing costs across other parts of your workforce.
Reminder, there is no maximum limit on employer contributions. You can select your annual limits for each employee class. For instance, you can give salaried employees a bigger allowance (such as $500 per month) than your hourly employees (say, $300 per month).
You can also give workers in more expensive areas more help affording coverage than employees in other regions. This makes ICHRA a great customizable option for multi-state workforces and remote workers.
6. Gather employee feedback
Your employees are the best source of information when it comes to their medical needs. Understanding what they’re looking for in their healthcare benefits, what plan types they want, and whether they’ve had issues affording care in the past can guide your ICHRA planning. Consider anonymous surveys, focus groups, or one-on-one chats for targeted feedback.
At the plan year’s end, gather your employees’ thoughts again. You can adjust your contributions if you get lots of feedback that their allowance wasn’t enough to cover their premiums, or they didn’t use all their ICHRA dollars on average.
By taking employee feedback into account, you can establish ICHRA contribution amounts that genuinely address the needs of your workforce.
Conclusion
Choosing the right ICHRA contribution amount can feel daunting at first. But it’s still a better option long-term compared to other, more traditional options, like a group health insurance plan. By following the above tips, you can build a personalized health benefit that supports your staff and keeps your company competitive.
Better yet, you don’t have to manage your ICHRA alone! Remodel Health is here to help you create a sustainable ICHRA benefit that grows with your business. Regardless of your budget or company size, we work with you so you can offer the best possible benefit to your team.
This article was originally published on April 12, 2023. It was last updated on July 7, 2025.
Download our guide to learn everything you need to know about the ICHRA.