Key ICHRA compliance requirements for employers

Offering an individual coverage health reimbursement arrangement (ICHRA) is a personalized and cost-effective way to provide employee health benefits. However, even this flexible alternative to traditional group health insurance has compliance regulations you must follow. 

Understanding the ICHRA’s compliance rules is essential to implementing a legally sound benefit. But even once it’s up and running, staying on top of the legal requirements is key to avoiding penalties, supporting your employees, and keeping your ICHRA operating smoothly. 

From start to finish and managing the employee benefit in between, you must follow several key steps to keep your ICHRA compliant. This article will break down the main compliance rules of the ICHRA to help you stay on the right side of legal requirements.

In this blog post, you’ll learn:

• What documents you must create and distribute for your ICHRA benefit to stay compliant with federal regulations.
• How to properly design and administer your ICHRA, including employee class rules, affordability standards, and required advance notices to employees.
• Which reporting and recordkeeping requirements apply to you, so you can avoid fines and stay audit-ready.

1. Plan documents

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that applies to most employer-sponsored retirement and health benefit plans¹. Since the federal government considers ICHRAs as group health plans, they must comply with ERISA requirements.

According to Section 402(a) of ERISA, employers offering plans like an ICHRA must create a formal written plan document. You must share the ICHRA’s plan document with your participating employees and their dependents and make it available upon request.

The plan document must clearly outline the following information:

• The individuals or entities responsible for managing the plan and their roles.
• Benefit eligibility rules, including the available job-based employee classes.
• The ICHRA’s effective date, including any applicable waiting periods.
• A summary of the ICHRA’s benefits.
• How the benefit administrator will handle ICHRA reimbursements and payments.
• The procedures for making claims, plan amendments, and plan terminations.
• Rules for protecting health information (PHI) and identifying HIPAA privacy officers.
• Information on how the ICHRA interacts with specific federal laws, such as the Affordable Care Act (ACA) and the Family and Medical Leave Act (FMLA)

While ERISA doesn’t impose direct penalties for not having a legal plan document, you may be subject to costly tax penalties if a benefit enrollee requests a copy of the document and you fail to provide it.

2. Summary plan description (SPD) and summary of benefits and coverage (SBC)

In addition to the formal plan document, you must provide two overviews to all employees participating in the ICHRA: a summary plan description (SPD) and a summary of benefits and coverage (SBC).

Here’s what each one does:

1. The SPD explains the benefit plan in a simplified format, detailing what the plan offers and what it must do. It’s the primary tool for informing employees of their rights and responsibilities under the ICHRA. Unlike the legal plan document, the SPD is explicitly written for employees and should be easy to read and understand.
   • If you offer an ICHRA without distributing an SPD, your benefit isn’t compliant with federal rules. The Department of Labor can impose fines of up to $110 per day if you fail to provide the SPD within 30 days of an employee’s request. 
   • You may face additional penalties if you don’t distribute the SPD within 120 days after establishing the ICHRA. New employees joining an ICHRA mid-year must receive the SPD within 90 days after enrolling in the employee benefit.
2. The SBC document helps employees and their families evaluate and compare their health coverage options. It gives a quick overview of what a plan covers, limitations or exclusions, cost-sharing requirements, and other key information. By law, SBCs must be no more than four pages long, use at least 12-point font, and use clear, straightforward language.
   • As of 2024, the insurance carrier and the plan sponsor may face a maximum fine of up to $1,406 per violation (up from $1,326) for failing to provide an SBC².
   • Since an ICHRA doesn’t provide direct health insurance coverage, the SBC typically focuses on how an ICHRA works, what allowance you provide to employees, and what types of expenses, such as premiums, are eligible. Employees’ individual health plan carriers will also issue SBCs about their plan specifics.

3. ICHRA notices

It’s crucial to give your employees enough time to decide whether they want to participate in the benefit. That’s why the ICHRA Final Rules require that employers generally deliver a written notice to each eligible employee at least 90 days before the start of each plan year³.

Suppose a newly hired employee joins the benefit, or you’re offering the ICHRA for the first time. In these cases, you can provide notice any time before the employee’s effective date. But it’s recommended that you give notice as early as possible.

The notice should include the following information about the ICHRA⁴: 

1. An overview of the ICHRA, including key terms, monthly reimbursement amounts, and whether dependents are eligible to participate in the benefit.
2. A statement explaining that employees can opt in or out of the benefit, including that opting out means giving up future ICHRA funds for the plan year.
3. Instructions explaining how employees can enroll in qualifying individual health coverage.
4. An explanation of how employees will substantiate their individual health coverage and how the attestation process works.
5. Details on how enrolling in the ICHRA could impact an employee’s eligibility for premium tax credits and other subsidies.
6. A reminder that employees must report certain ICHRA-related information to the public health exchange if they’re applying for advance premium tax credits.
7. Information about a special enrollment period that becomes available to employees and their dependents when they’re newly eligible for the ICHRA.
8. Guidance on where to get help determining if an employee’s ICHRA allowance is affordable. 
9. This is a note that explains how the ICHRA coordinates with Medicare.
10. Contact information for employees who have questions about their ICHRA benefit.

Not providing your legal plan documents and notices can result in IRS penalties. While these documents can be difficult to create on your own, Remodel Health’s ICHRA+® administration solution makes it easy. During setup, we help you generate all required documentation, including the ICHRA notice, SPD, and SBC, making compliance stress-free and reducing administrative burden.

4. Benefit plan design

ICHRA allows employers to tailor benefits by dividing employees into up to 11 different classes based on specific job-related criteria. The classes include categories like full-time and part-time workers, salary and hourly employees, and temporary staff members.

However, you must avoid discrimination when using employee classes. For example, you can offer the ICHRA on different terms to different classes, but all employees within the same class must receive the benefit under the same conditions. 

Beyond class-based customization, you can vary ICHRA contribution amounts by age and by family status (such as single or married). This helps better support older employees and families with higher health insurance premiums and greater out-of-pocket expenses. But you must comply with federal limits on age-based contributions. 

Under this rule, the healthcare allowance you give your oldest employees can’t exceed three times the amount given to your youngest workers.

5. The ACA’s employer mandate

Businesses classified as applicable large employers (ALEs) — which are companies with 50 or more full-time equivalent employees (FTEs) — must provide an affordable health plan that meets minimum essential coverage (MEC) and minimum value standards to at least 95% of their full-time workers and their legal dependents. These requirements are known as the employer mandate under the ACA.

If an ALE fails to meet these standards and at least one employee receives a subsidy to buy individual health coverage through a public marketplace, the IRS may fine them one of two tax penalties⁵.

Here’s how the ICHRA can help ALEs comply with the employer mandate:

1. Affordability. To stay compliant, the ICHRA allowance must make health coverage affordable. This means that the amount an employee pays for the lowest-cost silver plan (after applying their ICHRA allowance) can’t exceed 9.02% of their household income. Employers must base this calculation on health insurance premiums for a non-tobacco user’s lowest-cost silver plan available through the employee’s local exchange. Since employers may not know their employees’ household incomes, they can use affordability safe harbors in their calculations.
2. Minimum essential coverage. ICHRAs allow employees to choose an individual health plan. Participation in the ICHRA requires enrollment in a qualifying policy that includes MEC. 
3. Minimum value. Most health insurance plans with MEC also provide minimum value, meaning they must cover at least 60% of an enrollee’s expected healthcare costs. Nearly all major ACA-compliant plans sold on public or private health exchanges meet minimum value standards.

When offering an ICHRA with Remodel Health, our team works with you to design an affordable health benefit.

6. Medicare

Business owners who offer a group health plan and have had 20 or more employees for at least 20 weeks in the current or prior calendar year must follow the Medicare Secondary Payer (MSP) rules. These regulations apply to employees eligible for Medicare due to their age.

Under MSP regulations, employers must adhere to the following:

1. They must offer Medicare-eligible employees the same group health coverage on the same terms as all other eligible workers.
2. They can’t offer any financial or other incentives to encourage Medicare-eligible employees to opt out of the group health plan.
3. Depending on the ICHRA’s design, they may need to report coverage details to the Department of Health and Human Services to help coordinate with Medicare benefits.

Businesses with fewer than 20 employees or those offering an ICHRA with annual allowances below $5,000 per person are generally not required to submit MSP reports.

Additionally, the Medicare Modernization Act (MMA) requires employers with an ICHRA to notify Medicare-eligible employees whether their coverage qualifies as “creditable” or “non-creditable.” Creditable coverage means the prescription drug plan offers benefits that are expected to pay out at least as much as Medicare’s standard prescription drug coverage⁶.

Since ICHRAs don’t directly include drug coverage, they’re usually not considered creditable. Employers must send a written disclosure notice detailing this to affected employees and the Centers for Medicare & Medicaid Services (CMS) before October 15 annually.

Remodel Health can help you by providing proactive Medicare support. This includes communication with employees approaching Medicare eligibility and access to in-house Medicare enrollment specialists. We also provide creditable coverage documentation for CMS reporting and employee notices.

7. COBRA

The Consolidated Omnibus Budget Reconciliation Act (COBRA) gives eligible employees, former employees, and their dependents the right to continue their employer-sponsored group health coverage after losing it due to certain qualifying life events. 

Employers with 20 or more FTE employees for over half of the previous calendar year and who currently offer a group health plan, like an ICHRA, must comply with COBRA regulations. This means they must allow former participants the option of continuing their ICHRA coverage if they lose access due to events like termination of employment or reduction in hours. 

Once a qualifying event occurs, the plan administrator has 14 days to inform eligible individuals of their right to elect COBRA coverage. After receiving the notice, employees or dependents have 60 days to decide whether to opt in.

If they choose to continue coverage using their ICHRA benefit, they must pay a monthly premium that includes the full ICHRA reimbursement amount plus up to a 2% administrative fee, payable to the employer or COBRA administrator. If their individual health insurance premium costs more than the ICHRA allowance, they must pay the difference directly to their insurance carrier to maintain active coverage. 

COBRA applies to the ICHRA benefit only, but not the employee’s individual health plan. They can continue to pay for their individual plan separately after losing the ICHRA benefit. For this reason, most ICHRA participants won’t want to elect COBRA coverage.

8. Recordkeeping and reporting

Although ICHRA contributions and reimbursements are exempt from payroll and income taxes, employers must still meet several reporting obligations. Staying on top of these requirements is key to maintaining compliance and avoiding steep penalties.

Below is a rundown of the required tax forms and deadlines:

• Form 1094-B and 1095-B (for small employers). If you’re a small employer offering an ICHRA, you must complete Forms 1094-B and 1095-B. You must file Form 1095-B with the IRS and enrolled employees by February 28 if filing by mail or by March 31 if filing electronically.
  • Form 1095-B reports the type of health coverage you offered to employees, any dependents covered by the plan, the period of coverage, and the codes you used to determine affordability. You must give this form to all full-time workers eligible for ICHRA coverage during at least one month of the plan year.
  • Form 1094-B is the transmittal summary report you must file with Form 1095-B.
• Forms 1094-C and 1095-C (for ALEs). If your business is an ALE, you must file Forms 1094-C and 1095-C. These share the same deadlines as above: February 28 for paper filers and March 31 for electronic submissions.
  • Form 1095-C details the coverage you offered to each full-time employee and whether your organization met the employer mandate under the ACA. It also includes information used to determine an employee’s affordability and eligibility for premium tax credits. You must give this form to every full-time employee who has worked at your organization for at least one month.
  • Form 1094-C summarizes the above information, and you must file it with the IRS alongside Form 1095-C. 
• Form 5500. If 100 or more employees participate in your ICHRA, ERISA rules require you to file Form 5500. This form provides a snapshot of the benefit plan’s financial status and operations. Form 5500 is due by the last day of the seventh month after the plan year ends, which is July 31 for calendar-year plans.
• Form 720. Employers offering self-funded plans, including ICHRAs, must pay the Patient-Centered Outcomes Research Institute (PCORI) fee and submit Form 720 annually. For plan years ending between October 1, 2024, and September 30, 2025, the PCORI fee is $3.47 per covered life due by July 31, 2025.
• Medicare reporting: If you have 20 or more employees and offer an ICHRA with an annual allowance of $5,000 or more, you must report quarterly whether your ICHRA serves as the primary payer for employees enrolled in Medicare. You must also provide affected employees with this information.

Lastly, you should keep thorough records of allowance amounts, employee claim documentation, and your decision to approve or deny each request. The IRS recommends a record retention period of seven years, so following this guideline can help you ensure full compliance in case of an audit.

Remodel Health can help you stay compliant by providing filing instructions, data, and coding recommendations for Forms 1094 and 1095. We also provide pre-filled Form 720s and calculated PCORI fee amounts.

Conclusion

Staying compliant with ICHRA regulations is just as important as choosing to offer the benefit in the first place. While the rules may seem complex, they’re designed to protect you and your employees, so you can provide a modern, flexible health benefit that meets all federal requirements.

Remodel Health makes it easy for every employer to offer a personalized ICHRA. Regardless of whether you’re an ALE or a small business with a limited budget, our team of benefit experts and full-service software solutions is here to help you craft a compliant ICHRA for your organization. Ready to get started? Chat with us today!

The information provided in this blog post is general in nature. For specific advice for your organization, contact a benefits advisor, tax professional, or legal professional.

This article was originally published on April 25, 2023. It was last updated on August 11, 2025.

1. Employee Retirement Income Security Act (ERISA)
2. Federal Register / Vol. 89, No. 8 / Thursday, January 11, 2024 
3. Code § 2590.702-2 
4. CMS – ICHRA Model Notice
5. IRS Revenue Procedure 2024-14 
6. Creditable coverage