When evaluating health insurance solutions for you or your client's organization, understanding ICHRA pros and cons is essential for making an informed decision. Since its inception in 2020, Individual Coverage Health Reimbursement Arrangement (ICHRA) has gained popularity as a compelling alternative to traditional group health plans, offering distinct ICHRA advantages alongside certain ICHRA disadvantages that warrant consideration.
The absence of contribution maximums and company size restrictions positions ICHRA as an attractive option for employers seeking a more predictable cost structure for health insurance versus managing employees’ healthcare spend to control expenses.
If you’re just joining the ICHRA pros and cons conversation, it's important to understand that ICHRA represents the latest evolution in health reimbursement arrangements. At Take Command, our expertise stems from administering QSEHRA, ICHRA's predecessor, which enabled businesses with fewer than 50 employees without group health plans to provide tax-free reimbursements for employee health insurance premiums and qualified medical expenses.
Wondering how you could design your ICHRA?
Understanding ICHRA Pros and Cons: Key Consideration
The regulatory framework for ICHRA offers more flexibility than previous arrangements. Available to companies of all sizes, ICHRA plans require only that employees maintain individual health insurance coverage to qualify.
Instead of offering a one-size-fits-all approach, employers can allow employees to choose a plan that best meets their families’ needs, while providing tax-free reimbursements up to predetermined monthly allowances for premiums and medical expenses. This is beneficial for both parties: employees gain autonomy over their healthcare decisions and plan selection, while employers establish predictable costs through fixed monthly reimbursement amounts.
ICHRA plans enable employers to exit the insurance risk management arena by reimbursing employees for health insurance. At the end of the year, unclaimed allowances stay with the employer. Compared to QSEHRA, ICHRA provides greater flexibility and more customization opportunities; organizations can offer different reimbursement amounts to different groups of employees. You can read our full blog post on ICHRA class requirements here to learn about the 11 distinct employee classes.
As the industry's leading ICHRA administrator, we’ve been in the weeds analyzing the new regulations. Based on our findings, we've put together an ICHRA pros and cons list to help you come to a decision whether this is the right solution for you.
ICHRAs have grown 3.5x in the past year and QSEHRAs have doubled in size on the market during that same time period, according to the HRA Council.
ICHRA Advantages: Key Benefits for Employers and Employees
Operational Efficiency: The streamlined nature of ICHRA allows organizations to focus on core business operations. By establishing fixed monthly contributions, employers eliminate the need to dedicate resources to wellness program implementation and healthcare cost management strategies typically associated with traditional group health plans.
Greater tax efficiency: ICHRA allows tax-free reimbursements for premiums and qualified medical expenses (if allowed by the ICHRA plan design), representing significant ICHRA advantages for both employers and employees.
Personalized plan choice: Employees can shop the plan on the individual market that best meets their needs. Whether an employee prefers Aetna's offerings or requires BlueCross's network for specific provider access, ICHRA accommodates diverse preferences.
Special enrollment trigger: With QSEHRA (ICHRA’s predecessor for companies with 50 or fewer employees), employees without coverage had to wait for open enrollment periods. ICHRA implementation triggers special enrollment eligibility. When a company enrolls in ICHRA, employees are eligible for special enrollment, which means they can shop a major medical plan on the individual market at that time (and outside of the typical open enrollment timeframe).
Flexibility: Organizations can establish varied monthly allowance structures for different groups of employees. To help you prioritize your health benefits budget, these 11 employee classes separate employees into groups by legitimate job-based criteria like hours worked or geographic location.
Premium tax credit options: When ICHRA offerings are considered “unaffordable,” employees have the option to decline ICHRA reimbursements in favor of premium tax credits instead.
No contribution maximums: You can choose to offer as much or as little as you’d like to employees in the form of monthly allowances. This is in contrast to annual QSEHRA contribution limits.
No employee size restrictions: ICHRA, unlike QSEHRA, has no company size restrictions, ensuring availability across all organizational scales: one of the most significant ICHRA advantages.
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ICHRA Disadvantages: Important Limitations to Consider
While ICHRA offers some great advantages, it's important to understand the disadvantages of it, as well.
Spousal coverage excluded: Employees enrolled in a spouse's group plan from another employer cannot participate in ICHRA. To participate in ICHRA, employees will have to purchase individual health insurance or be enrolled in Medicare Part A+B or Part C.
Sharing plans excluded: Regulatory guidelines explicitly exclude reimbursement for health sharing arrangements, including Medi-Share, Samaritan Ministries, and Liberty Health Share.
TRICARE integration limitations: Individual coverage HRAs may not be integrated with TRICARE. TRICARE individuals need to purchase a separate ICHRA compliant plan from the individual marketplace to participate in ICHRA.
Premium tax credit implications: When ICHRA offerings meet “affordability” thresholds, employees don’t have the option to choose whether to receive ICHRA reimbursements or opt out and take advantage of their tax credit. They will not be eligible to receive tax credits if offered an affordable ICHRA. On a related note, learn about ICHRA and the Family Glitch here.
About Take Command's ICHRA administration platform
Take Command is a recognized leader in QSEHRA administration and small business HRA tax strategy. Our proactive engagement with ICHRA regulatory development included submitting comprehensive and exclusive research on proposed regulations. Notably, we were the sole HRA provider invited to Washington for the regulatory announcement. Our commitment to health reimbursement arrangements reflects our understanding of their transformative potential for businesses of all sizes.
To explore how your organization can leverage these tax-advantaged benefits, we encourage consultation with our expert team. Additional resources include our regularly updated ICHRA FAQ page and comprehensive ICHRA Guide, which provide detailed information on background, implementation processes, requirements, and regulatory framework.
Additional resources →
- Learn about ICHRA Classes
- Learn about ICHRA Rules
- Learn about ICHRA Requirements
- Learn about ICHRA Regulations
- Learn about ICHRA Plan FAQs
- Learn about our ICHRA Administration Platform
This post was originally published in 2019 and has been updated with new information and insights for 2025.
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I wrote this blog because I know from personal experience how confusing it can be to navigate healthcare and I’m passionate about bringing clarity and simplicity to the process. After graduating from A&M, I worked for Southwest Airlines before deciding to stay home with my then infant son. I spent countless hours as a new mom(on little sleep) trying to choose an individual insurance plan and manage healthcare costs for our family, and that’s when I stumbled upon Take Command Health. Fast forward three years and I’m now a Client Success Manager for them part-time(when I’m not chasing around two toddlers).
