How to successfully implement an ICHRA and HSA together

As healthcare costs continue to rise, employers are looking for flexible, tax-efficient ways to support their employees and show them they care. Pairing an individual coverage health reimbursement arrangement (ICHRA) with a health savings account (HSA) can be a good way to accomplish this goal, as both benefits provide employers with predictable costs while giving employees greater control over their medical care. But you must coordinate these two benefits correctly to take advantage of their perks.

This article explains how ICHRAs and HSAs work, and how to implement both health benefits together compliantly.

In this blog post, you’ll learn:

• How an ICHRA and an HSA work, including their eligibility rules, tax advantages, and ownership details.
• The key differences between an ICHRA and an HSA for both employers and employees.
• The steps employers must take to successfully implement an ICHRA and an HSA together.

What is an ICHRA?

An ICHRA is a flexible, tax-advantaged benefit that allows employers to offer their employees contributions for individual health insurance premiums. Depending on the plan details, out-of-pocket medical care expenses outlined in IRS Publication 502 may also be eligible for reimbursement¹.

With an ICHRA, employers decide how much to contribute each month based on their budget and employee benefits strategy. There are no annual contribution limits, and employers can tailor allowances by employee class, age, or family size. These customization abilities make it a flexible and affordable alternative to a traditional group health plan.

Employees who participate must enroll in a qualifying individual health insurance plan that provides minimum essential coverage (MEC). Once they submit proof of insurance coverage, the plan administrator can contribute toward their premiums, up to their set contribution amount.

Remodel Health simplifies this process by allowing your employees to shop for coverage on the ICHRA+® platform and automatically substantiating active coverage. Our AutoPay system also ensures contributions are applied to employee premiums each month, eliminating the need for traditional ICHRA reimbursements.

ICHRA contributions are tax-deductible for the employer and exempt from payroll taxes. Additionally, participating employees don’t have to pay income taxes on their ICHRA contributions.

What is an HSA?

An HSA is a personal savings account designed to help individuals pay for qualified medical expenses using pre-tax dollars. Employees can open and manage their own HSA, or employers may offer one as part of their benefits package. Both employers and employees can contribute to the account, as long as the total contributions don’t exceed the IRS’s annual limits². Regardless of who set up the account, the employee always owns it and all the funds inside.

To be eligible for an HSA, the individual must have an HSA-qualified high deductible health plan (HDHP). Those who want to participate in the HSA can buy a plan on the individual market or enroll in an HSA-eligible employer-sponsored group health plan.

Under the One Big Beautiful Bill Act (OBBBA), passed by Congress on July 3, 2025, all bronze and catastrophic plans available on the public exchanges now qualify as HSA-eligible HDHPs³ for 2026 and beyond. This includes any off-exchange versions that offer substantially the same coverage as the on-exchange version. Learn more about the changes in IRS Notice 2026-5 in our article.

Individuals can use their HSA funds to pay for eligible medical expenses outlined in IRS Publication 502, such as deductibles, copays, and prescription medications. If someone younger than the age of 65 withdraws funds for non-medical expenses, they must pay income tax on the amount and a 20% penalty. After age 65, account holders may use HSA funds for any expense without penalty, though non-medical purchases are still subject to income tax.

HSA contributions are tax-deductible, earnings grow tax-free, and withdrawals for qualified medical expenses are also tax-free.

How do an ICHRA and an HSA compare?

While an ICHRA and an HSA share some similarities, they differ in key ways. The table below highlights the main features of both benefits.

How to successfully implement an ICHRA and HSA together

Yes, employers can offer both an ICHRA and an HSA. But you must structure it correctly to comply with IRS rules.

Here are the steps you’ll need to take:

1. Design a premium-only ICHRA or a post-deductible ICHRA. You have the option to design your ICHRA in one of two ways to comply with HSA eligibility requirements. A premium-only ICHRA limits reimbursement to only individual health insurance premiums, not other out-of-pocket expenses. A post-deductible ICHRA provides tax-free funds toward individual health insurance. After an employee meets their annual deductible, they can receive reimbursements for medical expenses outlined in IRS Publication 502.
1. If you design your ICHRA to reimburse both premiums and qualified medical expenses before meeting a deductible, employees participating in the ICHRA can’t make or receive HSA contributions. However, HSA funds carry over year after year and don’t expire. An employee may pause HSA contributions while participating in an ineligible ICHRA and resume contributing to the account once they stop using the benefit.
2. The ICHRA Final Rules allow employers to offer a premium-only ICHRA or post-deductible ICHRA to those who wish to contribute to an HSA while still offering an ICHRA that supports out-of-pocket expenses to other employees in the same class.
3. At Remodel Health, we make it easy to design your plan as a premium-only ICHRA so your employees can take advantage of both benefits compliantly.
2. Confirm HDHP enrollment. Ensure participating employees enroll in an HSA-qualified health plan before making or receiving HSA contributions.
3. Draft your plan documents properly. Create your ICHRA’s legal plan documents to reflect its compatibility with an HSA and IRS guidelines.
4. Educate your employees. Before rolling out these health benefits, communicate with your staff about how the ICHRA and HSA work together, eligible expenses under each benefit, and who they should contact on your HR team if they have questions.
5. Partner with an ICHRA vendor. Use an ICHRA administrator, like Remodel Health, to manage ICHRA payments, substantiation, and compliance obligations.
6. Review the health benefits annually. Reassess contribution amounts and regulatory updates each year to ensure your ICHRA benefit stays compliant and the HSA coordination remains accurate.

Conclusion

Offering an ICHRA and an HSA together is a great way to give your employees even greater control over their finances and healthcare. But you must have a premium-only ICHRA, provide clear employee communication, and follow compliance requirements to successfully provide both benefits and support your staff.

If you want to learn more about how an ICHRA can work with an HSA, Remodel Health is here to help. Book a call with us today, and we’ll help you offer both healthcare benefits compliantly.

This blog post was originally published on January 25, 2017. It was last updated on March 9, 2026.

References

1. IRS Publication 502
2. IRS Notice 2026-5
3. H.R.1 - One Big Beautiful Bill Act