Feb. 6, 2026

This piece is sponsored by Sanford Health.

Here’s your comprehensive guide to understanding Individual Coverage Health Reimbursement Arrangements as an employer. 

The landscape of health coverage is constantly changing, and understanding your options as an employer is the key to finding the best plan for your business and employees. While traditional group health plans are common in the business world, ICHRA — pronounced “ick-rah” — was designed to offer a compelling alternative for employers seeking to optimize their health benefits strategy. Below, you’ll find a breakdown of benefits, guidelines and key considerations of ICHRA.

What are Individual Coverage Health Reimbursement Arrangements?

At its core, ICHRA is an employer-funded health benefit that addresses the “one-size-fits-all” challenge often associated with health care plans. Instead of purchasing and managing a group policy, employers define a budget, and employees use that budget to secure their own personalized health coverage. This model can offer a modern solution for the employer struggling to manage the rising costs and administrative complexities associated with traditional health insurance.

What are the key benefits for employers?

• Predictable cost control: Employers set a defined monthly allowance for each employee, eliminating the unpredictable annual premium hikes often seen with traditional group health plans.
• Unmatched flexibility and customization: Businesses can offer different allowance amounts to various employee classes. This level of customization helps employers meet the diverse needs of their workforce while managing their budget.
• Reduced administrative burden: While setting up an ICHRA requires initial planning, the day-to-day maintenance can be significantly lighter when employers partner with a comprehensive platform solution. This outsourcing frees up internal HR resources to focus on other strategic initiatives.
• Attraction and retention of talent: In today’s competitive job market, offering robust health benefits is crucial for attracting and retaining top talent. The ability for employees to choose their own health insurance plan and provider network is a highly valued perk and can be a powerful differentiator for employers.

Who is eligible for ICHRA?

From small businesses with just a few employees to large corporations with thousands of employees, ICHRA is available to businesses of all sizes. And with no federal minimum or maximum limits on the number of employees, ICHRA creates a viable option across the entire business spectrum.

How does a business set up ICHRA?

The process of establishing the ICHRA is designed to be straightforward, yet it involves distinct steps for employers:

• Step 1: Defining the allowance

The employer determines a monthly reimbursement allowance for each eligible employee. This is the maximum amount the employer will contribute toward an employee’s individual health insurance premiums and other qualified medical expenses.

• Step 2: Establishing employee classes

This allowance can vary based on specific employee categories, or “classes,” defined by the employer. For example, it might offer one allowance to full-time employees, a different one for part-time employees and another to employees in specific geographic regions. This allows for a customized benefits strategy. However, these classes must be legitimate and not designed to discriminate.

• Step 3: Setting reimbursement rules

The employer, often with the help of a third-party administrator, establishes the rules for what expenses are eligible for reimbursement such as individual health insurance premiums, deductibles, copayments, prescription drugs, etc. and the process for submitting claims.

• Step 4: Choosing an administrator

Many employers opt to work with a platform solution to manage their ICHRA. This software administrator handles the complexities of compliance, verifying individual health insurance coverage, processing premium payments and ensuring adherence to regulations. This significantly reduces the administrative burden of the employer and employees.

• Step 5: Communicating with employees

Effective communication is paramount for employee understanding and acceptance. With a comprehensive communication plan, employers can easily explain how ICHRA works, its benefits and how to choose an individual health insurance plan all within the platform solution.

For information or to walk through health care options for your business, contact your local Sanford Health Plan representative, call 888-844-5809 or visit sanfordhealthplan.com/business/ichra.