ICHRA compliance hub

Proper plan design is the foundation of a compliant ICHRA. Employers must define employee classes correctly, offer allowances fairly, and follow minimum class size and nondiscrimination rules, if applicable.

Employee class design

With ICHRA, employers can vary benefit eligibility and contributions using 11 different classes or a combination of those classes¹. These classes include job-based criteria, such as full-time employees, salaried employees, or location. You can’t create additional classes other than those prescribed in the ICHRA final rules. All employees within each class must also receive the ICHRA benefit on the same terms (though you can still customize allowances by age or family status).

The Affordable Care Act requires organizations with 50 or more full-time equivalent employees (FTEs) to offer affordable health insurance coverage that meets minimum essential coverage (MEC) and minimum value standards to at least 95% of their full-time employees and their dependents². This is known as the employer mandate or the employer shared-responsibility provisions (ESRP).

If an applicable large employer (ALE) fails to satisfy these standards and at least one employee receives a premium tax credit to purchase individual health coverage, the IRS may fine them one of two tax penalties. 

The ICHRA can satisfy the employer mandate if employers offer it to at least 95% of their employees. Employees enroll in qualifying individual health insurance plans that already meet the MEC and minimum value standards. 

Affordability, therefore, is the most crucial piece for employers to consider. To comply with the mandate, the ICHRA contribution must meet affordability standards. For 2026, the amount an employee pays for the lowest-cost self-only silver plan can’t exceed 9.96% of their household income after applying their ICHRA contribution³. 

Since employers likely don’t know their employees’ household incomes, they can use IRS-approved safe harbors to determine the affordability of their contributions⁴. 

The ACA safe harbors include:

• The federal poverty level
• The employee’s rate of pay
• The employee’s W-2 wages

As long as the employee isn’t expected to pay more than 9.96% of their income using one of these safe harbors after factoring in their ICHRA allowance, the ICHRA satisfies the affordability requirement.

When offering the ICHRA to employees, there are some required notices and details that employers must provide to employees.

Under the Employee Retirement Income Security Act of 1974 (ERISA), group health plans, including the ICHRA, must include a formal written plan document and a summary plan description (SPD). But, the ICHRA final rules also require employers to distribute an ICHRA notice to all employees.

ICHRA plan documents

ERISA Section 402(a) requires employers offering group health plans, like ICHRA, to provide their employees with a written plan document upon request. They must also make it available at certain locations specified in CFR § 2520.104b-1(b)⁵.

This document should include the following:

• The plan’s eligibility rules
• Defined employee classes
• Contribution amounts
• Reimbursement rules and limitations
• Claims and appeals procedures 
• Procedures for plan terminations
• HIPAA and privacy provisions, including identifying HIPAA privacy officers
• Plan year dates and effective dates, including any applicable waiting periods
• How the plan is administered and who is responsible for managing the plan

ICHRA is subject to COBRA and state continuation of coverage requirements if they apply to your organization⁸. All employers with 20 or more employees who offer a group health plan under ERISA (including ICHRA) are subject to federal COBRA. Additionally, many states have continuation (mini-COBRA) laws that may apply to fully insured plans covering smaller employers. Because ICHRAs are typically self-funded, state continuation requirements often won’t apply. You should confirm this based on your structure and state guidance.

COBRA applies when an employee or qualified dependent elects COBRA coverage after they experience a qualifying event. For example, if you terminate an employee for any reason other than gross misconduct, they can elect COBRA.

IRS Notice 2002-45 and the ICHRA Final Rules outline how ICHRA interacts with COBRA. If an employee opts to continue their ICHRA coverage under COBRA, they’re responsible for paying a premium and a 2% surcharge. Organizations can use either the past-cost method or the actuarial method to calculate this amount.

The past-cost method

With this method, organizations use the plan’s prior costs for similarly situated participants to determine the COBRA applicable premium, plus the permitted 2% administrative fee. For example, rather than pricing COBRA based on a single employee’s prior reimbursements, the premium is based on the plan’s historical cost experience for a comparable group.

Employees enrolled in Medicare can participate in an ICHRA. But organizations need to follow Medicare compliance rules.

ICHRA eligibility

To participate in an ICHRA, employees with Medicare must have Medicare Parts A and B together or Medicare Part C. 

Medicare Part D compliance

Employers and plan sponsors that provide prescription drug coverage to Medicare-eligible individuals must provide Part D creditable coverage disclosures. Because an ICHRA doesn’t directly provide prescription drug coverage, employers typically treat it as non-creditable for Part D and disclose accordingly (unless combined with other drug coverage).

These rules could change starting in 2027. According to a proposed new rule from CMS, the federal government may exempt ICHRA and other account-based plans from providing creditable coverage disclosures⁹. The proposed change would modify regulations in § 423.56(b)(3).

When offering an ICHRA, there are ACA and ERISA reporting requirements that you must follow to maintain compliance.

Forms 1094 and 1095

Employers offering an ICHRA must complete Forms 1094 and 1095. These forms show that an employer offered the ICHRA to employees in line with the ACA’s employer mandate. 

Form 1094 is a cover sheet for the employer’s annual filing. It provides summary information about the employer, including whether they’re an ALE, how many employees they have, and the type of coverage they offer (in this case, an ICHRA). Small businesses with fewer than 50 FTEs use Form 1094-B while ALEs use Form 1094-C.

Employers must also file a Form 1095 for each employee. This allows the IRS to verify that the employee and any dependents had coverage with MEC. The form includes the individual’s contact information, a letter code for the source of health coverage (in this case, code G for the ICHRA), employer details, and more. For ALEs filing Form 1095-C, you must also include affordability and safe harbor information. 

ALEs can use the following ICHRA-specific relief codes to detail how they determined affordability:

The ICHRA requires plan administrators to substantiate all qualifying health coverage and reimbursement requests.

Employees must submit proof of qualifying individual health insurance coverage to participate in the ICHRA¹. The ICHRA final rules state that “an individual coverage HRA would be required to implement, and comply with, reasonable procedures to verify that individuals whose medical care expenses are reimbursable by the individual coverage HRA are, or will be, enrolled in individual health insurance coverage during the plan year.”

There are two acceptable methods for substantiating individual coverage. The first is for the employee to submit an attestation of coverage to the employer. This is a letter stating that the employee is enrolled in qualifying coverage for the plan year. The second is proof of coverage, like an insurance card or direct premium payment confirmation. 

All enrolled employees and dependents must complete an Annual Coverage Substantiation Requirement form to show proof of coverage. They must also submit an attestation of coverage every time they request reimbursement. The ongoing substantiation of coverage requirement is an HRA rule from IRS Notice 2002-45, which the ICHRA final rules also included.

If your organization uses an administrator like Remodel Health, where employees enroll in coverage directly through the platform, the HRA administrator already has proof of coverage for employees who shop directly through the software. Remodel Health satisfies the substantiation process for these employees because we directly pay the carrier for the premiums through the employer’s ICHRA contributions and any payroll deductions.  

IRS Notice 2002-45 also requires ICHRA participants to provide substantiation for qualifying medical expenses before they can receive reimbursement. Examples of documentation include receipts and explanation of benefits (EOBs).

An employer can design an ICHRA to be compatible with health savings accounts (HSAs). To participate in an ICHRA and an HSA, the individual would need coverage under a qualifying individual health plan that’s also an HSA-qualified high deductible health plan (HDHP). 

However, Revenue Ruling 2004-45 requires that employers offer either a limited-purpose HRA or a post-deductible HRA to any individuals participating in an HSA. IRS Notice 2008-59 further clarified that offering a limited-purpose HRA that also pays premiums doesn’t disqualify eligible individuals from contributing to an HSA. The ICHRA final rules state that this applies to all HRAs, including ICHRAs.

So, employers have two options when looking to offer an ICHRA to employees who contribute to an HSA:

1. Offer a limited-purpose ICHRA that only provides reimbursement or contribution toward individual health insurance premiums.
2. Offer a post-deductible ICHRA that provides tax-free reimbursement or contribution toward individual health insurance premiums. The ICHRA can then reimburse employees for qualified out-of-pocket medical expenses after the employee meets their annual deductible for their individual health plan under Code section 223(c)(2)(A)(i).

While employers generally have to offer benefits on the same terms to a class of employees, the final rules provide some flexibility for offering an HSA-compatible ICHRA and a non-HSA-compatible ICHRA. Employers can give their employees a choice between each type of ICHRA within the same class.

The ICHRA final rules state, “While some employers may offer all employees in a class of employees an HSA-compatible individual coverage HRA, some employers may want to offer employees in a class of employees a choice between an HSA-compatible individual coverage HRA and an individual coverage HRA that is not HSA compatible. In response to this comment, the final rules clarify that an employer that offers employees in a class of employees a choice between an HSA-compatible individual coverage HRA and an individual coverage HRA that is not HSA compatible does not fail to satisfy the same terms requirement provided both types of individual coverage HRAs are offered to all employees in the class on the same terms.”