ICHRA for Washington employers

ICHRA: employer funding for individual coverage.

An Individual Coverage Health Reimbursement Arrangement lets eligible employees use employer-funded reimbursements for qualifying individual insurance or Medicare. Build the allowance, enrollment help and administration into one coordinated benefit.

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ICHRA / CHOICE arrangements

The same strategy, a new name in federal resources

CMS now uses the name CHOICE Arrangements for the benefit formerly called ICHRA. You may see both names in plan documents and insurance resources. We use ICHRA here because it remains a familiar term when employers compare reimbursement strategies.

Employees need qualifying insurance

The HRA reimburses eligible expenses; it does not replace the employee’s insurance policy. Participants need qualifying individual health insurance or Medicare coverage for the months they use the benefit. Individual coverage can be purchased through Washington Healthplanfinder or outside the exchange.

Individual coverage

Check the actual plan

Review the exact policy, service area and effective date. A dental-only plan, health care sharing ministry or short-term policy does not satisfy the ICHRA individual-coverage requirement.

Medicare

Coordinate separately

Medicare Part A and Part B together, or Medicare Advantage, can satisfy the coverage condition. Have the administrator confirm documentation, reimbursable expenses and applicable Medicare coordination rules.

Proof of coverage

Keep reimbursement eligible

The administrator needs the required enrollment substantiation and expense records. An offer of an HRA alone does not make a premium or expense reimbursable.

Design the allowance

Use a funding model that fits the workforce

Flat allowance

A clear starting point

A uniform dollar allowance is easy to explain. Compare what it covers for younger and older employees and in each location before deciding it is adequate.

Age & dependents

Account for permitted differences

Within a class, permitted variations can reflect age and number of dependents. Age-based allowances cannot exceed the applicable 3:1 ratio. Apply the formula consistently.

Employee classes

Use the classes the rules allow

Examples include full-time versus part-time, salaried versus hourly, and permitted geographic classes. Special minimum sizes may apply when ICHRA and group coverage are offered to different classes.

Employees in the same class cannot simply choose between the employer’s traditional group plan and its ICHRA. Have the administrator validate class definitions, minimum sizes and any new-hire transition design before rollout.

No federal contribution cap does not mean any amount meets every goal

An ICHRA has no federal annual employer contribution maximum. The allowance still must follow the plan’s rules. Employers subject to the ACA employer mandate need to evaluate affordability, eligible employees, dependent offers and reporting; a modest allowance is not automatically sufficient.

Premium-only or broader reimbursement?

Choose whether the plan reimburses premiums only or also eligible medical expenses. Broader reimbursement can help with out-of-pocket costs, but changes administration and may affect HSA eligibility. A premium-only ICHRA may be compatible with HSA contributions when all other HSA requirements are met.

See illustrative funding budgets

Washington Healthplanfinder

Check tax credits before employees accept the benefit

Three ICHRA situations to understand
Situation	Effect on federal premium tax credits	Employee next step
Accept the ICHRA	Effect on federal premium tax creditsThe same person cannot receive ICHRA benefits and a premium tax credit for the same month.	Employee next stepReport the offer, coordinate coverage and avoid overlapping assistance.
Decline an affordable ICHRA	Effect on federal premium tax creditsDeclining does not restore premium tax-credit eligibility for people covered by the affordable offer.	Employee next stepConfirm the affordability result and household eligibility before enrolling.
Decline an unaffordable ICHRA	Effect on federal premium tax creditsPremium tax credits may be available if otherwise eligible and the employee opts out.	Employee next stepComplete the opt-out process and obtain the exchange eligibility determination.

Affordability uses a specified lowest-cost self-only silver-plan benchmark, the employer allowance and the applicable income percentage. It is not determined by the price of any plan the employee happens to prefer. Household tax-credit rules and employer affordability safe harbors serve different purposes; do not treat an employer’s payroll estimate as a final household eligibility determination.

Family circumstances matter. Review who receives the HRA offer and whether a spouse or dependent has other coverage or assistance options. We can help employees navigate Washington Healthplanfinder and compare plans; their tax adviser can address tax-return reconciliation.

Exchange premium balances are paid after tax. Section 125 salary reductions cannot pay the employee’s share of exchange premiums. A compliant cafeteria plan may permit pre-tax payment of a remaining off-exchange individual premium; confirm the arrangement before changing payroll.

Example, not a quote

Show the employee what the allowance means

Illustrative premium-only ICHRA

$620 premium − $400 eligible reimbursement = $220 employee cost

This example assumes one month of qualifying coverage, an available $400 allowance and no premium tax credit. The employee still has the policy’s deductible and other cost sharing. If an eligible premium is only $350, a $400 allowance does not automatically create an extra $50 cash payment; the plan governs any remaining allowance.

Use real plan quotes for each employee’s location when evaluating your offer. Also explain when reimbursement arrives and what happens if premiums change.

From design to first reimbursement

A launch checklist with clear responsibilities

Employer: approve a sustainable budget and compliant eligibility design; confirm the arrangement with the administrator and advisers.
Administrator: establish plan documents, required notices, opt-out procedures, substantiation, claims and payment processes.
Employer and advisers: evaluate applicable ERISA, COBRA, ACA reporting, nondiscrimination and other obligations. Outsourcing tasks does not eliminate employer responsibilities.
Employees: review the written notice, compare coverage and tax-credit outcomes, choose coverage or opt out when appropriate, and complete required payments.
Enrollment support: coordinate special-enrollment eligibility, coverage dates and provider checks. Do not cancel the existing group plan before the transition is confirmed.
Ongoing administration: handle new hires, terminations, claim questions and annual notices; review the next year’s premiums and funding.

Notices are generally required at least 90 days before the plan year, with exceptions for certain new arrangements and newly eligible employees. A new ICHRA offer may create a special enrollment opportunity. Verify the employee’s deadline and effective date rather than assuming enrollment is automatic.

Common questions

Work through the details

Can we use ICHRA for only the employees with high medical costs?

No. ICHRA eligibility must follow permitted employment-based classes and applicable nondiscrimination rules. It is not a tool for selecting employees based on health status or claims.

Can an employee use a spouse’s group health plan for ICHRA?

A spouse’s employer group plan alone does not satisfy the ICHRA individual-coverage requirement. Review the employee’s qualifying coverage with the administrator before reimbursing expenses.

Can employees keep their doctors?

Possibly, but the exact plan network must be checked. The same insurance company can use different networks for individual and group products. Confirm providers and prescriptions before enrollment.

Can unused allowances roll over?

The plan may permit carryover. Specify limits, claim deadlines and what happens at termination. An HRA allowance is not an employee-owned HSA balance.

How is QSEHRA different?

QSEHRA is restricted to eligible small employers without a group health plan, has annual federal benefit limits and uses different eligibility and premium tax-credit rules. An unaffordable QSEHRA can reduce a tax credit rather than requiring the same ICHRA opt-out choice.

Employer benefits resources

HRA strategy guide ICHRA & individual coverage Excepted benefit HRA HRA, HSA & pre-tax plans Employee benefits Business services COBRA administration ACA compliance Benefits enrollment Employee education Washington Healthplanfinder guide from Washington Insurance Brokers

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Let’s compare the options for your team

Tell us your employee count, locations, current benefits and budget goals. We can help compare insurance options and support employees shopping for individual or family coverage through Washington Healthplanfinder.

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Information reviewed September 19, 2026. Eligibility, reimbursement rules and tax treatment depend on the arrangement and individual circumstances. Plan documents control the benefit; coordinate implementation with your HRA administrator and tax or legal advisers. Please use the contact form for general questions, not medical records or employee Social Security numbers.

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