How to set up an ICHRA: A step-by-step guide for employers

Finding a health benefit that balances cost control and employee satisfaction can be difficult for employers and HR teams. Traditional group plans may be restrictive and costly, making them an option that doesn’t work for everyone. Thankfully, the individual coverage health reimbursement arrangement (ICHRA) is a modern alternative that can meet every business’s needs. 

The ICHRA is a flexible benefit solution that allows employers to give employees a set amount of tax-free money to pay for their individual health plan premiums. But as exciting as it sounds, implementing it at your company for the first time can feel daunting — especially if you’re new to personalized health insurance benefits.

This ten-step guide will provide a practical roadmap outlining everything you need to know to successfully design, launch, and manage a compliant ICHRA at your organization.

In this blog post, you’ll learn:

• The step-by-step process of setting up an ICHRA that meets your budget.
• How to communicate the ICHRA to employees and guide them in selecting individual health insurance.
• How Remodel Health can simplify ICHRA setup and administration so you can provide flexible, personalized employee benefits.

1. Decide when your ICHRA will take effect

The first step is choosing the date on which you want your ICHRA plan to begin. An ICHRA can start any time during the year. You don’t have to wait for January 1 or the annual Open Enrollment Period. If your group plan is up for renewal mid-year, you can switch to an ICHRA at that time instead of waiting.

The federal government also considers offering an ICHRA as a qualifying event that triggers a special enrollment period. This gives your employees 60 days to enroll in individual health coverage so they can participate in the benefit.

If you’re moving from a group health insurance plan to an ICHRA, be sure the new benefit starts the day after your group policy ends to avoid any coverage gaps for your staff. You must generally give your employees written notice of their ICHRA eligibility at least 90 days before the start date, so plan your timing accordingly.

2. Set your employee eligibility rules

Once you’ve set your start date, the next step is deciding which employees can participate in the benefit. The ICHRA gives employers significant customization options, allowing you to create eligibility rules and waiting periods, as long as they’re non-discriminatory. For example, you can require a waiting period of up to 90 days for newly eligible employees, like new hires. 

ICHRA also has 11 employee classes that you can use to customize eligibility. For example, you can offer both a group plan and an ICHRA at the same time, but you can’t give employees in the same class the option to choose between the two. So, you could offer an ICHRA to hourly employees and a group plan to salaried employees.

If you only offer an ICHRA, there are no minimum class size rules. However, suppose you’re offering both group health insurance and an ICHRA, and you split eligibility by factors such as job type or by location that’s smaller than the state level. In that case, federal guidelines require that those classes meet minimum size thresholds.

3. Create employee classes

You can also use the 11 different employee classes to vary allowances. Examples include full-time vs. part-time employees, salaried vs. hourly staff, or temporary and seasonal workers. Similar to varying eligibility rules for your workers, this approach makes it possible to customize your benefits strategy to fit your organization’s structure.

By law, all employees within a given class must receive the ICHRA benefit on the same terms. While you can design different benefits for different groups, federal rules prohibit discriminatory practices that would unfairly favor specific individuals within a class.

4. Determine eligible medical expenses

An important step in designing your ICHRA is determining what expenses you want eligible for reimbursement. Most employers choose to cover only individual health plan premiums. However, others opt to include qualified out-of-pocket expenses as well. This flexibility allows you to craft a benefit that balances your team’s needs and your company’s budget. 

If you’re working with Remodel Health, our specialists and platform will walk you through your design options to ensure your benefit gives your staff the most value.

5. Pick your contribution amounts

After choosing eligible medical expenses, you’ll need to establish how much monthly contributions employees in each class will receive. 

When setting allowance levels, keep in mind three key factors:

1. Your health benefits budget
   1. There’s no maximum limit on what you can contribute. But you’ll need to set a clear allowance cap for each class.
2. Your company size, industry, and location
   1. Our 2024 ICHRA report shows that the average ICHRA allowance for companies with fewer than 50 full-time equivalent employees (FTEs) was $600/month. The average contribution was $448/month for companies with 50 or more FTEs. 
   2. The engineering industry gave employees the highest average ICHRA allowance of $1,126/month.
   3. Employers in the District of Columbia offered workers an average monthly allowance of $1,115, compared to Maryland, which provided the least, at $282 per month.
3. Employee age and family status
   1. You can vary amounts based on age and family status to account for higher costs among older employees or families. However, federal rules specify that the allowance for your oldest workers can’t exceed three times the amount offered to your youngest employees.

6. Establish plan documents

The next step is to create formal plan documents for your ICHRA. Under the federal Employee Retirement Income Security Act of 1974 (ERISA), all group health plans, including ICHRAs, must have written plan documents. They should clearly define important details such as the plan start date, the reimbursement process, claim procedures, and rollover rules for unused funds.

You’ll also need:

• A summary plan description (SPD). This is an employee-friendly document that explains how the ICHRA benefit works and what it covers in plain language.
• A summary of benefits and coverage (SBC). This document provides a quick snapshot of the plan’s features, including exclusions and cost-sharing responsibilities, so employees can compare healthcare options.

Employers must also distribute an ICHRA notice to their employees at least 90 days before each benefit plan year starts, if possible. For new hires or when offering the benefit for the first time, you can deliver the notice before the employee’s effective date. However, giving earlier notice is always best to give employees time to prepare.

When working with an ICHRA administrator like Remodel Health, we handle drafting these documents for you.

7. Schedule employee communication

Once you draft all your necessary plan documents, it’s time to tell your staff about their new ICHRA plan. It’s crucial to ensure that your communication is timely, transparent, and ongoing. 

For instance, your employees should know: 

• The effective date
• Any eligibility rules
• Any waiting periods (if any)
• ICHRA allowance amounts for each employee class
• Instructions for selecting health insurance policies on the individual market
• How the ICHRA coordinates with premium tax credits
• Qualified medical expenses for reimbursement
• Claims processes
• How to submit proper attestation showing qualified health coverage (or if the process is automatic)
• Their ICHRA administrator and contact information

First, alleviate any fears of switching to a new health benefit by emphasizing that an ICHRA gives employees greater control by letting them select the individual health insurance plan that best fits their needs. Then, follow up with Q&A sessions, kickoff meetings, or written guides before the benefit launch to address questions and dispel concerns. 

Remodel Health makes this step easy by sending an ICHRA notice to your employees, holding kickoff meetings, and providing education materials.

8. Help employees choose qualifying individual health coverage

Once you onboard your employees to the ICHRA, they must enroll in a qualifying individual health insurance policy to use the benefit. Eligible plans include ACA-qualified health plans purchased on a public or private exchange, Medicare Parts A and B or Part C, most student health plans, and catastrophic policies for those who qualify.

Certain types of coverage don’t meet ICHRA requirements, such as: 

• Not having health insurance 
• Participation in a healthcare sharing ministry (unless they have other qualified individual health insurance coverage)
• Having coverage under a spouse’s group health insurance plan
• Short-term health insurance

While you, as the employer, can’t recommend specific policies or insurers, you can provide educational resources on where to shop for those unfamiliar with the individual market, along with information on plan types, metal tiers, and provider networks. You should also let employees know they can opt in or out of the ICHRA benefit depending on allowance affordability. Their decision can affect their eligibility for premium tax credits.

If you partner with Remodel Health, your team can work with our licensed benefit advisors to simplify the shopping process and provide personalized assistance. Your employees can shop for and compare plans right from their Remodel Health account. We even have in-house Medicare enrollment support for your employees who qualify.

9. Manage insurance premium payments

Once the ICHRA is active, one of your major ongoing tasks will be processing their health insurance premium payments and confirming that employees maintain qualified medical coverage. Following proper claim substantiation procedures ensures compliance with IRS requirements.

To take these tasks off your plate, Remodel Health offers technology tools and dedicated customer support to streamline payments, track claim documentation, and keep your ICHRA running smoothly. Remodel Health facilitates automated transfers of contributions for off-exchange employee premiums to employees’ insurance carriers.

10. Stay compliant

Compliance is the most critical aspect of successfully running an ICHRA. Applicable large employers (ALEs) must meet the ACA’s employer mandate by offering affordable coverage that provides minimum essential coverage (MEC) and minimum value to at least 95% of full-time workers and their dependents. An ICHRA can satisfy the employer mandate if its allowances are affordable.

Your ICHRA plan must comply with federal laws like the Affordable Care Act (ACA), ERISA, HIPAA, COBRA, and annual notice requirements. You also must fulfill certain tax reporting obligations. This includes filing IRS Forms 1094-C and 1095-C (for ALEs), Form 5500, and Form 720. Lastly, you’re responsible for maintaining complete records of allowances, claims, and approval or denial decisions in case of an audit. 

If you work with Remodel Health as your ICHRA administrator, our experts will assist in navigating these requirements so your benefit remains fully compliant year after year.

Check out our blog to learn more about the key ICHRA compliance rules you must follow.

How Remodel Health can help you set up and manage your ICHRA

Although administering an ICHRA on your own is possible, it can be risky. Managing the benefit on your own is time-consuming and has complex compliance rules and administrative details that may result in costly financial penalties if you make a mistake. That’s why employers turn to Remodel Health.

With years of experience guiding brokers and employers through ICHRA adoption, our team combines proven expertise with our powerful ICHRA+® solution to make the entire process smoother. 

We start by understanding your company’s unique goals, then design a benefit strategy tailored to your needs. From preparing legal documentation and employee notices to hosting a kickoff meeting to introduce the ICHRA to your staff, we handle the heavy lifting.

Then, our benefits specialists offer hands-on, quality support to help employees compare and select their individual health insurance coverage. Even after setup and launch, we stay by your side through onboarding, benefits administration, and ongoing compliance so you’re not alone in running a successful ICHRA benefit.

Conclusion

Setting up an ICHRA can be tricky if it’s your first time. But with the information and support, you can deliver cost-controlled, personalized benefits that your employees will truly value. By following the ten steps in this guide, you can set up and manage an ICHRA that meets compliance requirements while aligning with your company’s financial goals. 

With Remodel Health as your partner, you’ll have the tools, expertise, and guidance to make ICHRA implementation pain-free, so you can focus on providing flexible, modern benefits that keep your workforce engaged and happy. Ready to get started? Chat with us today!

The information provided in this blog post is general. It’s always a good idea to consult a qualified benefits consultant or legal counsel to ensure your ICHRA plan is set up correctly and complies with all regulations.

This article was originally published on April 10, 2023. It was last updated on September 10, 2025.