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ICHRA in California

As healthcare costs continue to climb and California insurance mandates evolve, more benefits consultants and employers are turning to individual coverage health reimbursement arrangements (ICHRAs). ICHRAs are flexible alternatives to traditional group health plans. With a strong individual insurance market, broad carrier participation across 19 geographic rating areas, and popular carrier options like Kaiser Permanente available across most of the state, California is uniquely positioned for ICHRA success.

Remodel Health helps brokers and businesses across California offer personalized ICHRAs that support a wide range of budgets, workforce structures, and employee healthcare needs.

ICHRA in California

Why California employers are rethinking traditional group coverage

California employers and brokers are facing increasing pressure to manage the rising cost of employee health benefits. Many organizations are seeing significant year-over-year premium increases, making it difficult to plan budgets and maintain competitive benefits packages.

According to KFF’s 2025 California Health Benefits Survey1, the average employer-sponsored single coverage premium was $10,033, higher than the national average of $9,325. Family coverage was also higher at $28,397 annually compared to a national average of $26,993. This followed an average 7% increase across the state.

Those with self-funded plans may also be experiencing rising stop-loss costs or increased volatility due to high medical claims.

At the same time, traditional group health insurance plans often come with structural limitations. Participation requirements and limited plan choices can leave employers with little flexibility to meet the needs of a diverse workforce.

As a result, many California businesses are exploring alternatives that offer more predictable costs and greater flexibility for employees.

“The California benefits landscape is growing more complex and costly by the day, and that's exactly what drives my passion for getting ICHRA right. When it's done well, ICHRA can reduce costs, give employees the freedom to choose plans that truly fit their health needs, and keep employers compliant. This is all supported by our expert team members at Remodel Health, who are here throughout the implementation process, providing clear guidance and technology that make the transition so simple. California brokers, let's partner to bring your employer clients a modern benefits solution that actually works and creates a happy and healthy workforce.”
Sabrina N Staff Photo

Sabrina Navarro

Territory Sales Lead for California & Hawaii, Remodel Health

Chapter 1: What is an ICHRA, and how does it work for California employers?
    
Chapter 1

What is an ICHRA, and how does it work for California employers?

An individual coverage health reimbursement arrangement (ICHRA) is an employer-funded health benefit. It allows California businesses to provide employees a tax-free contribution for individual health insurance premiums and potentially other eligible medical expenses.

Instead of offering a traditional group health plan, employers provide employees with a monthly allowance. This can be a set dollar amount or a contribution percentage based on a benchmark plan. Employees then choose a qualifying individual health insurance plan that meets the minimum essential coverage (MEC) requirements. They can buy a plan through Covered California, directly from a health insurance carrier, or with the help of a broker. With Remodel Health, employees can shop for plans directly from our ICHRA+ platform.

With most administrators, once enrolled, employees submit proof of coverage, and employers reimburse them tax-free up to their allowance amount. With Remodel Health, our AutoPay feature for employee premiums removes the burden of employees fronting the cost. Instead, we process premiums automatically for off-exchange plans, and employees can pay any difference from their premiums and their contributions with pre-tax payroll deductions.

With an ICHRA, California employers gain more predictable medical costs and administrative flexibility, while employees can choose the health coverage, provider network, and carriers that best fit their needs.

   
Chapter 2

Why California employers are switching to ICHRA

Many California employers are moving away from traditional group health plans because of rising premiums, limited plan flexibility, and expanding state mandates.

Flexible employee classes and employer contribution strategies

The ICHRA offers unmatched flexibility for employers. They can customize benefit eligibility and ICHRA allowances for different groups of employees using employee classes.

The ICHRA employee classes are:

  • Full-time employees
  • Part-time employees
  • Seasonal employees
  • Temporary employees
  • Salaried employees
  • Hourly employees
  • Employees covered under a collective bargaining agreement
  • Employees in a waiting period
  • Foreign employees who work abroad
  • Employees working in different geographic locations, such as a state or rating area
  • A combination of two or more of the above

This flexibility helps employers design a benefits strategy that better fits diverse and distributed workforces.

California’s individual mandate and ICHRA

Under the Affordable Care Act's (ACA) employer mandate, applicable large employers (ALEs) must offer affordable coverage with MEC and minimum value to at least 95% of their employees. Aside from federal regulations, California has its own state-specific regulations.

Under the California individual mandate, residents must maintain qualifying health insurance coverage or pay a state tax penalty.

Because ICHRA requires employees to enroll in qualifying individual health insurance coverage, employees can use their ICHRA benefit to help satisfy California’s individual mandate requirements.

This gives employers a compliant way to offer health benefits while helping employees maintain compliant coverage.

New California healthcare mandates

California continues to introduce new healthcare regulations that can impact employer-sponsored health plans.

California-specific insurance laws taking effect in 2026 include:

  • SB 729: Expanded infertility and IVF coverage2. Beginning in 2026, California’s SB 729 expands infertility coverage requirements for many fully insured large-group health plans with 100+ covered employees, including coverage for IVF services. These expanded mandates may increase costs for employers sponsoring traditional group health plans. It doesn’t apply to self-funded plans.
  • SB 41: Pharmacy benefit manager (PBM) transparency reforms3. California’s SB 41 introduces additional oversight and transparency requirements for pharmacy benefit managers (PBMs). It bans PBM spread pricing. As prescription drug costs continue to impact employer-sponsored health plans, many organizations are looking for alternatives to traditional group insurance structures.

For employers struggling to afford group health insurance, ICHRA offers an alternative approach that provides more budget predictability.

The Kaiser Permanente advantage in California

California’s health insurance market is unique because many employees prefer Kaiser Permanente.

Kaiser Permanente provides care and coverage to nearly a quarter of the state, or roughly 10 million Californians4. One common concern employers have when considering ICHRA is whether employees will lose access to their Kaiser doctors and networks.

Fortunately, Kaiser Permanente offers individual and family plans in most California rating areas.

With an ICHRA, employees can often:

  • Keep their Kaiser doctors
  • Enroll in a Kaiser individual health insurance plan
  • Choose coverage through Covered California or off-exchange through a private insurer
  • Receive tax-free reimbursements for premiums and other medical expenses through their ICHRA

This flexibility allows employees to maintain continuity of care while giving employers more control over healthcare spending.

  
Chapter 3

California individual market carriers and health plans for 2026

California’s individual health insurance market offers broad carrier participation and plan availability across much of the state.

To help employees get the most value from an ICHRA, they must understand their health insurance carrier options and where they can buy individual health insurance.

Health insurance provider
On- or off-exchange
Anthem Blue Cross
On- and off- exchange
Blue Shield of California
On- and off- exchange
Health Net
On- and off- exchange
Chinese Community Health Plan
On- and off- exchange
Kaiser Permanente
On- and off- exchange
L.A. Care Health Plan
On- and off- exchange
Molina Healthcare of California
On- and off- exchange
Sharp Health Plan
On- and off- exchange
Sutter Health Plan
On- and off- exchange
Valley Health Plan
On- and off- exchange
Western Health Advantage
On- and off- exchange

All table data from Ideon’s Planwatch5.

  
Chapter 4

ICHRA adoption is growing across the U.S.

ICHRA to ICHRA pillar Remodel

Individual coverage health reimbursement arrangement (ICHRA) adoption continues to grow nationwide, especially among mid-size and large employers. Recent industry data from the HRA Council found that ICHRA adoption among large employers grew 34% from 2024 to 2025. The same report also found that 92% of employers who offered an HRA in 2024 chose to continue offering one. This highlights strong employer satisfaction and long-term confidence in the model.

     
Chapter 5

Why should California business owners work with Remodel Health?

As the nation’s largest ICHRA administrator by ARR and employee headcount, Remodel Health helps thousands of employers and brokers design, implement, and manage customized ICHRA solutions nationwide.

We bring deep experience supporting employers in complex markets like California, including navigating carrier networks and evolving state healthcare requirements.

Our team helps California employers build ICHRA strategies that balance cost control, compliance, and employee choice so benefits are both predictable and competitive.

We offer a full-service ICHRA+ solution, including:

  • Plan design and contribution strategy
  • Employee onboarding and ongoing support
  • Individual plan shopping right from our platform
    • Those with complex medical situations can also get one-on-one assistance from our licensed Benefits Advisors
  • AutoPay for off-exchange individual health insurance premiums
  • Compliance management year-round
  • Employer reporting support
  • Direct Payroll and HRIS integrations with ADP, Paylocity, and UKG. Connect with 200+ others through Finch

Whether you’re a California employer looking to reduce healthcare costs or a broker seeking a better solution for clients, Remodel Health provides the expertise and support to make ICHRA successful.

Are you a small business looking to offer benefits? Our PeopleKeep ICHRA product specializes in helping small businesses with fewer than 50 employees offer ICHRA to their employees.

Remodel-Health-Staff-2025

Ready to offer an ICHRA in California?

Schedule a call to learn how an individual coverage health reimbursement arrangement (ICHRA) can help your California organization control healthcare costs while offering employees personalized health coverage.

California ICHRA FAQs

How is ICHRA affordability calculated in California?

For an ICHRA to be considered affordable under the ACA’s employer mandate, an employee can’t be expected to pay more than 9.96% of their household income toward the lowest-cost silver plan available to the employee on the exchange. You calculate this after subtracting the employee’s ICHRA contribution from the LCSP premium. You can use IRS safe harbors, such as the W-2 rate of pay, instead of household income.

Does an ICHRA satisfy the California individual mandate?

Yes. An ICHRA requires participating employees to enroll in a qualifying individual health plan. These plans satisfy the state’s individual mandate.

Contributors:

Holly B Staff Photo

Holly Bengfort

Content Marketing Specialist

Sources: