ICHRA Guide for Employers:

The Health Plan 401(k) Has Arrived

2026 Edition

Presented by: Brian Gilmore | Lead Benefits Counsel, VP

Guide
Topics

Individual Coverage
Health Reimbursement
Arrangements (ICHRA):
Are ICHRAs the defined
contribution health plan
version of the retireeside 401(k) plan?

The ICHRA Revolution Reverses Friday the 13th Guidance

1. HRA integration with an individual policy unlocks a reservoir of potential

2. The 401(k) Connection

   • Six crucial fast facts that highlight the comparison between ICHRAs and 401(k) plans

3. The Defined Contribution (DC) Allure

   • Why both employers and employees may be clamoring for defined contribution health plan

4. The Individual Market Then and Now

   • Why is this time different?
   • How ACA employer mandate affordability still presents some significant concerns

The ICHRA Revolution

Full Reversal of Prior ACA Rules

ACA Background: Prior Individual Coverage Guidance

The Friday the 13th Guidance (September 13, 2013)

• The beginning of a long series of (particularly IRS) guidance confirming the ACA prohibition of individual coverage payment/reimbursement by employers
• Guidance provided that employers cannot directly purchase individual policies or reimburse employees for the cost of individual policies through an "Employer Payment Plan" or a "Non-Integrated HRA"

The IRS ACA Potluck Guidance (2015)

• Additional guidance reiterating the IRS prohibition of Employer Payment Plans and Non-Integrated HRAs
• Confirmed that even taxable reimbursements are prohibited, and that integration rules apply to employees, spouses and dependents

Penalties

• IRC §4980D
• Employers offering an Employer Payment Plan or Non-Integrated HRA for employer reimbursement of individual policies violates the ACA market reform rules
• Penalty is $100/day/employee excise taxes—resulting in potential penalties of $36,500 per employee per year

Prior (Pre-2020) ACA State of the Law: HRA “Integration” Required

MV Integration Requirements

1. Employer offers major medical that provides minimum value (MV) to the employee
2. Employee covered by HRA is also enrolled in a group major medical plan that provides MV—whether through that employer or a spouse/DP/parent
3. HRA is available only to employees enrolled in a group
4. Employee is permitted to permanently opt-out of HRA at least annually and upon termination

Summary of the Prior ACA HRA Integration Rules

• Non-Integrated HRA Prohibition:
  • Employers offering an HRA have had to meet the "integration" requirements stemming from the Friday the 13th Guidance
  • Those rules generally require that the employee be enrolled in an employer-sponsored major medical group health plan meeting certain requirements to be eligible for reimbursement

The (Less-Than-Ideal) Workaround Pre-ICHRA: Increase in Employee Compensation

• Employers may increase an employee’s standard taxable compensation to assist an employee with payments of individual market coverage
• Such additional compensation cannot be conditioned on the purchase of the individual health coverage
• Also cannot otherwise endorse a particular policy, form, or issuer of health insurance
• Only permitted to inform employee about the Marketplace and §36B premium tax credit

Practical Result

• Employers can provide a bonus or a raise intended to address the cost for the employee to purchase individual coverage—but in no way actually tied to such coverage
• Employees may use the bonus/raise money to buy individual coverage or a plane ticket to Maui—employer cannot in any way monitor/enforce/condition payment for health coverage

Checklist to Avoid Prohibited Employer Payment Plan

• Payment is standard taxable income (subject to withholding and payroll taxes)
• Employee has an unrestricted right to receive the compensation as cash
• Employee not required to use the compensation to purchase health coverage
• No health plan-related conditions on the employee receiving the additional compensation
• Employee never required to substantiate the purchase of individual market coverage

Executive Order 13813: Direction to Issue New Regulations

Individual Coverage
HRAs:
The New
Landscape

Final Rules Were Effective Plan
Years Beginning On or After
January 1, 2020:

Individual Coverage HRAs (ICHRAs)
Permitted With Seven Conditions

Employees Covered by ICHRA Must Be Enrolled in an Individual Policy or Medicare (Parts A and B or Part C)

• Employees who lose coverage under the individual policy forfeit the HRA

Employees Must Not Be Eligible for Both ICHRA and Traditional Plan

• Must exclude employees eligible for the ICHRA from eligibility for the traditional employer-sponsored major medical group health plan (GHP)
• Specific class rules on which employees can be offered the ICHRA vs. the traditional group health plan (GHP)
• Specific class size rules to ensure that the classes are legitimate
• Employers may also set any date on or after January 1, 2020 for which new hires as its own separate class are offered the ICHRA, while still offering the traditional GHP to employees hired prior to that date

Employers Must Offer the ICHRA on Same Terms to Each Employee Class

• Cannot offer a more generous ICHRA based on adverse health conditions
• Can increase ICHRA allocation based on age or number of dependents
• Larger allocations of up to 3x the youngest participant permitted for older employees (no set limit on dependent adjustment allocations)

Opt-Out Required

• Employees must have the option to opt-out of the HRA coverage to maintain eligibility for subsidies on the Exchange (the §36B premium tax credit)

Employee Pre-Tax Contributions Permitted Off Exchange

• ACA added §125(f)(3) prohibiting employee pre-tax salary reduction contributions toward coverage on the Exchange
• However, employer may permit employees to use Section 125 cafeteria plan to contribute on a pre-tax basis to non-Exchange individual market coverage
• Important because ICHRA may not cover the full cost of the premium

Substantiation and Verification of Individual Coverage Required

• ICHRA must have reasonable procedures in place to verify that employees are actually enrolled in individual policy
• Employer must provide written notice to eligible employees at least 90 days prior to the start of each plan year describing the ICHRA terms
• Can include third-party (carrier) documentation or employee attestation

Notice Requirement

• Model attestation forms (annual and monthly) available from the DOL

ICHRA Class Rules

Classes determine which employees will be eligible for the ICHRA vs. the traditional GHP, as well as how much will be made available under the ICHRA.

Permitted Classes

• Full-time employees*
• Part-time employees*
• Seasonal employees
• Collective Bargaining Agreement (CBA) unit of employees
• Employees in their waiting period for traditional GHP coverage
• Non-resident aliens with no U.S.-based income
• Salaried employees*
• Outside staffing firm temps
• Any combination of classes*
• Non-salaried employees*

*Minimum Class Size

• 10% of the total number of employees minimum
• Employers with <100 Employees: 10 employee minimum
• Employers with 100-200 Employees: 10% of the total number of employees minimum
• Employers with >200 Employees: 20 employee minimum
  • Employer size determined in advance of the ICHRA plan year based on expected employee count on first day of plan year

Notes

• *Minimum class size does not apply for geographic region class if the class is a State or combination of States

What About Age 65+ Employees?

ICHRA Will Reimburse Medicare Premiums for Medicare-Eligible Employees/Dependents

In most cases, the Medicare Secondary Payer (MSP) rules prohibit employers from encouraging Medicare enrollment with financial or other incentives. However, ICHRA rules are an exception—but must follow class rules on prior slide!

General MSP Anti-Incentive Rules for Age 65+ Employees/Dependents

• Applies to Employers with 20+ Employees
• No Medicare or Medicare Supplement Reimbursement:
  • Employer cannot pay for Medicare or Medicare supplement premiums
• No Coverage Designed to Supplement Medicare:
  • Any opt-out credit must be available equally to all employees regardless of Medicare eligibility
  • Employers cannot provide coverage to active employees that is designed to supplement Medicare

Special ICHRA Rules

• MSP Exception to Reimburse Medicare
• Medicare Anti-Duplication Rules Still Apply
• For age 65+ employees/dependents, the ICHRA will reimburse Medicare instead of individual market policies
• Medicare’s anti-duplication rules prohibit access to individual policies for age 65+ individuals

Individual Coverage HRAs: The ICHRA Landscape

The Notice Requirement

• Employees who become newly eligible mid-year (or after the 90-day period prior to the start of the year) must receive the notice no later than the date ICHRA takes effect

Required Notice Content (Ten Items)

The notice must include the following ten provisions (and may include any additional information that does not conflict with the required content):

• A description of the terms of the HRA
• The maximum dollar amount available for each participant (including proration for mid-year entry, if any)
• Whether the cost of individual coverage for family members are also eligible expenses
• A statement that the ICHRA is not a Qualified Small Employer HRA (QSEHRA)
• A statement that the HRA requires the participant and any dependents to be enrolled in individual health coverage
• A statement that Short Term Limited Duration Insurance (STLDI) and excepted benefits are not eligible expenses
• A statement that the individual coverage reimbursed by the ICHRA is not subject to ERISA
• The ICHRA coverage effective date (including mid-year enrollees), plan year date, and the dates on which new amounts will be made available under the ICHRA

Required Notice Content (Ten Items Cont’d)

• A description of the potential availability of the §36B premium tax credit (PTC) if the employee opts-out of the ICHRA and the ICHRA is unaffordable
• Including a statement that the employer’s offer of ICHRA coverage—even if the employee opts-out—will prohibit the employee from receiving the PTC if the ICHRA is affordable
• Including a statement of how the participant may find assistance determining affordability
• Also a statement that when the employee terminates employment, the affordable ICHRA offer will no longer render the former employee ineligible for the PTC
• A statement that Medicare enrollment blocks the PTC regardless of the ICHRA status
• A statement that if the employee does not opt-out of the ICHRA, the employee cannot claim the PTC for any month the ICHRA coverage is in place (regardless of affordability)
• A statement that ICHRA participants must inform the Exchange of the ICHRA amount available for the plan year if applying for advance payments of the PTC
• Must include whether the ICHRA is also available to dependents
• The date on which ICHRA coverage is effective, and the plan year beginning and end date
• Whether the participant is a current or former employee

Required Notice Content (Ten Items Cont’d)

• A statement that the participant should retain the notice in case it is needed to determine eligibility for the Premium Tax Credit (PTC) on the individual tax return
• A statement that the ICHRA will not reimburse any expense that is unsubstantiated
• A statement that if the individual coverage ceases, the ICHRA will not reimburse any medical expenses incurred after coverage ceases
• Including a statement that the participant must inform the ICHRA if coverage terminates retroactively (and the date of such retroactive termination)
• The contact information (including a phone number) for an individual or group of individuals who participants may contact to receive additional information about the ICHRA

ICHRA Notice Timing

Employers must provide the required notice to ICHRA-eligible employees within specific set timeframes to ensure timely enrollment in individual coverage.

General 90-Day Rule

• Employer must provide the notice to ICHRA-eligible employees at least 90 calendar days before the beginning of each plan year

Calendar-Year ICHRA

• Provide notice to ICHRA-eligible employees no later than October 3

Exceptions

• Employees Not Eligible to Participate at Start of Plan Year
• Employer must provide the notice no later than the date on which the ICHRA may first take effect for the employee (includes new hires)
• New Employer First ICHRA Plan Year
• For a new employer that is established less than 120 days before the start of the first ICHRA plan year, employer must provide the notice no later than the date on which the ICHRA may first take effect

Individual Coverage HRAs:

The New Landscape

ICHRA Model Notice

https://www.cms.gov/CCIIO/Programs-and- Initiatives/Health-Insurance-Market- Reforms/Health-Reimbursement-Arrangements

ICHRA Model Annual Attestation Form

https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Market- Reforms/Health-Reimbursement-Arrangements

DOL ICHRA Model Monthly Attestation Form

https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/faqs/health- reimbursement-arrangements.pdf

ICHRA Special Enrollment Periods

New Special Enrollment Period (SEP) for Individual Coverage

• Permits employees/dependents to enroll in individual coverage outside of the standard open enrollment period when an employee/dependent newly gains access to an ICHRA (the "triggering event")

Special Enrollment Period Timing

General Rule—60 Days In Advance of Event: The general rule is that employees have 60 days before the triggering event (i.e., date the ICHRA coverage is effective) to select a plan for special enrollment effective as of the date of the triggering event (or first of the month following if the triggering event is mid-month, which would be unusual for an ICHRA effective date)

Calendar Plan Year ICHRA Example

• Employer will provide ICHRA notice to employees no later than October 3 (90 days in advance of plan year)
• Employee has special enrollment period from November 2 – December 31 (60 days in advance of triggering event)
• Individual policy and ICHRA coverage are both effective January 1 (the "triggering event" date)

Exception—60 Days Before or After Event: If the employer doesn’t have to provide the notice until the day ICHRA coverage takes effect (e.g., newly eligible employees), the special enrollment period is extended to 60 days before or after the triggering event

Individual Coverage HRAs: ERISA Application

The ICHRA is an ERISA Group Health Plan

As with all HRAs, an ICHRA is a group health plan subject to ERISA

The Underlying Individual Coverage is Not an ERISA Group Health Plan

Five conditions to avoid application of ERISA to the individual coverage:

1. Purchase of individual coverage is completely voluntary
2. No employer endorsement of any particular insurance carrier or coverage
3. Reimbursement of premiums is limited solely to individual health insurance coverage
4. The employer receives no consideration (cash or otherwise) in connection with the employee’s selection or renewal of the individual coverage
5. The employer provides notice annually to each participant that the individual health insurance coverage is not subject to ERISA (model language below)

Excepted Benefit HRA (EBHRA): Alternative Vehicle for Other Health Expenses

EBHRAs Became Available in 2020:

Four Conditions to Avoid ACA Market Reform Provisions as an “Excepted Benefit” and Avoid ACA Integration Rules

• EBHRA is Not Integral to Part of the Plan (Eligibility for Traditional GHP)

  • Only Employees eligible for the traditional GHP can be eligible for the EBHRA
  • Employees do not have to enroll in the traditional GHP (unlike ACA integration rule for non-excepted HRAs)

• EBHRA Must Provide Benefits that Are Limited in Amount

  • Amounts made newly available for a plan year cannot exceed $2,200 (plan years beginning in 2026)
  • Limit is indexed annually for inflation and released in same IRS document as the HSA

• EBHRA Cannot Reimburse Premiums (Individual or Group)

  • The only permitted premiums would be excepted benefits like dental/vision coverage, COBRA premiums, and in some cases short-term limited duration insurance (STLDI) premiums
  • The EBHRA must be available to all similarly situated individuals on the same terms regardless of any health factor

The 401(k) Connection

The Obvious Comparison with ICHRAs

The 401(k) Connection:

• Effective Dates:
  • The §401(k) provisions took effect January 1, 1980
  • The ICHRA provisions took effect January 1, 2020
  • Exactly 40 years later!

FAST FACT #1

The 401(k) Connection: Big Employers Jump In

• Many large companies developed 401(k) plans in the immediate aftermath of the rules taking effect on January 1, 1980

FAST FACT #2

• Johnson & Johnson, FMC, PepsiCo, JC Penney, Honeywell, Savannah Foods & Industries, Hughes Aircraft Company, Coates, Herfurth, & England
• Many of these plans were up and running in the first half of the 1980s
• Took only a few years after the rules taking effect
• The ICHRA provisions took effect January 1, 2020
• Which big companies will be the first to roll out an ICHRA?
• Still waiting for a large prominent employer to go ICHRA in the news as a potential inflection point

The 401(k) Connection: Defined Benefit Decline

FAST FACT #3

• From the introduction of the 401(k) plan in 1980 to 2008, the percentage of private-sector workers participating in defined benefit (DB) plans fell significantly:
  • 1980: 38% of the private workforce
  • 2008: 28% of the private workforce
  • The percentage went into freefall to 2018:

The 401(k) Connection: The DC Spree

FAST FACT #4

• From the introduction of the 401(k) plan in 1980 to 2008, the percentage of private-sector workers participating in defined contribution plans increased significantly:
  • 1980: 8% of the private workforce
  • 2008: 31% of the private workforce
  • The percentage jumped dramatically to 2018:

The 401(k) Connection: The ICHRA Parallel

FAST FACT #5

• Treasury Department 2020 Projections (Under Age 65)
• Group Health Plans: 150 million persons covered
• Individual Market: 15 million persons covered
• DOL/HHS/IRS First Five Years of ICHRA Projections (2020 – 2024)
• ICHRA Enrollment: 11 million persons covered
• Group Health Plans: Decrease of 7 million persons covered

The 401(k) Connection: The ICHRA Effect

FAST FACT #6

• DOL/HHS/IRS Estimate of Overall Group Health Plan Risk Profile
• Relatively Healthy Individuals: 80% of covered individuals
• Relatively Unhealthy Individuals: 20% of covered individuals
• If 5 Million Individuals Moved from GHP Coverage to ICHRA Coverage:
  • Effect on Individual Market Rates: 3% Decrease

The 401(k) Connection: Lowered Expectations

FAST FACT #7

• ICHRA has not been quite as popular out of the starting gate as initial projections may have suggested
• DOL/HHS/IRS First Five Years of ICHRA Projections (2020 – 2024)
• ICHRA Enrollment: 11 million persons covered
• Most Recent CBO Estimate:
• ICHRA Enrollment: 2 million persons covered by 2032
• Most estimate that roughly 100,000 – 200,000 currently covered by ICHRA

True Defined Contribution

The Allure for Employers and Employees

The 401(k) Connection: The DC Allure for Employers

• Employers have long desired a health plan approach that is truly akin to the 401(k)—the employee directs the funds to an underlying product not maintained by the employer.

401(k) Advantage

• Limited Employer Responsibility
• Employer’s main obligation with respect to designated investment alternatives offered (typically mutual funds) are the fiduciary duties
• Employers have duties of loyalty, prudence, and diversification in setting appropriate fund menu
• Huge Advantage Over DB Plans
  • Reduced costs, administrative burdens, compliance issues, etc.
  • Employer not directly responsible for the actual benefit
• ICHRA similarly directs employees to choose their own underlying product as an individual health insurance policy
• Actually more advantageous because employers have no ERISA fiduciary duties with respect to the individual coverage

Similar ICHRA Advantage

• Reduced Employer Responsibility
• Huge Advantage Over GHPs
  • Streamlined administrative and compliance requirements compared with traditional plan
  • Remains tax-advantaged and can avoid any ACA employer mandate penalties

The 401(k) Connection: The DC Allure for Employees

• Perhaps the biggest question for ICHRAs to rise to prominence will be with respect to employees. There are reasons to believe the ICHRA appeal will be strong for employees, too.

Increased Plan Options

• Creating a True Marketplace
  • Most employers offer only a small handful of medical plan options to choose from
  • For example, PPO, HMO, HDHP
  • Employees with an ICHRA will have the full array of carriers and plan options on the individual market available to select
• 401(k) Comparison
  • Allows employees to invest in whatever manner they chose

Portability

• In a labor market where most employers begin to offer ICHRAs, employees could plausibly retain the same plan offering throughout their entire career
• If You Like Your Plan…
  • Avoids the need to constantly change carriers and plan types when moving job to job
  • Avoids the reliance on COBRA as an imperfect portability tool to maintain coverage through a prior employer
  • 401(k) provides maximum portability with potential to consolidate in rollover IRAs

The Individual Market

“This Time It’s Different”

The Individual Market: Pre-ACA Issues

• John Templeton is widely credited with the famous quote: “The four most dangerous words in the English language are ‘This time it’s different.’” Is this time actually different?

Problem: Pre-Existing Condition Exclusions and Medical Underwriting

• The ICHRA Solution:
  • The ACA prohibits medical underwriting and pre-existing condition exclusions in the individual market

Problem: No Tax Parity

• The ICHRA Solution:
  • ICHRAs permit tax-free reimbursement of individual policy premiums
  • Employees may pay pre-tax through Section 125 cafeteria plan
  • Addresses the “historical accident” since WWII-era wage controls led to enactment of §106 with no comparable individual tax deduction

Problem: Adverse Selection

• The ICHRA Solution:
  • Government estimates that each ICHRA shift of 5 million individuals from GHPs to the individual market reduces premiums by about 3%

The Individual Market: Post-ACA Issues

Problem: ICHRAs Prohibited

• The ICHRA Solution:
  • Executive Order 13813 and the resulting final regulations designed to override the “Friday the 13th Guidance” and permit ICHRAs as of 1/1/20

Problem: Employer Mandate

• The ICHRA Solution:
  • Offering an ICHRA to employees is treated as an ACA offer of coverage (§4980H(a) penalty)
  • Can also be designed to provide minimum value and be affordable (§4980H(b) penalty)
  • Employers can avoid all employer mandate penalties with an ICHRA

Problem: Limited Choices and Narrow Networks

• Over time, more employed individuals (with a far better risk profile) will be covered by an ICHRA and therefore enrolled in the individual market

The Big Remaining Hurdle

ACA Affordability Issues

The ACA’s Employer Mandate §4980H Penalties

General ACA Affordability Safe Harbors

The employer mandate affordability safe harbors are indexed to a metric based on the rate of premium growth over the rate of CPI growth for the preceding year. For 2026, the applicable percentage increases to 9.96% (up from 9.02% in 2025).

• 2026 Federal Poverty Line Safe Harbor: 9.96% of the Federal Poverty Line
• 2026 Monthly Employee-Share of Premium for Lowest-Cost (Minimum Value) Plan Limit: $129.89
• 2026 Rate of Pay Safe Harbor: 9.96% of Rate of Pay
• 2026 Form W-2 Safe Harbor (Not Recommended): 9.96% of Box 1 Wages

ICHRA ACA Affordability Safe Harbors

Proposed Worksite Location Safe Harbor

• HRA affordability plan may be based on the lowest cost silver plan on the Exchange in the rating area of the employee’s primary site of employment

Mountains or Molehills?

Multiple Other Lingering Concerns and Issues

Issue #1: COBRA for ICHRAs

• What is the appropriate COBRA rate for an ICHRA?
• All HRAs are group health plans subject to COBRA
• This includes an ICHRA » IRS guidance is notoriously vague in determining COBRA rate for an HRA
• Likely Practical Result

Issue #2: Non-Medical Health Benefits

• Should the employer offer group dental, vision, health FSA, EAP?
• The ICHRA rules center on medical but leave little thought to other lines

Issue #3: The Special Rule for New Hires

• Should the employer sub-divide ICHRA eligibility based on hire date?
• The ICHRA class rules allow for a “special rule” to sub-divide a particular class into ICHRA or traditional group plan based on hire date

Issue #4: The Third-Party Administrator

• Which vendor will become the most common TPA for ICHRAs?
• Likely any other type of HRA, employers generally are not going to have any interest in self-administering an ICHRA

Issue #5: The 90-Day Notice

• Will employers make decisions quickly enough to comply?
• The ICHRA rules unfortunately require that employers provide the ICHRA notice to employees 90 days in advance of the first day of the plan year

Issue #6: The 120-Day Notice

• Why does so much industry confusion surround the new employer notice rule?
• The ICHRA rules permit a relaxed notice timing requirement for “an employer that is first established less than 120 days before the beginning of the first plan year of the HRA.”

Issue #7: Other Medical Expenses

• Will employers allow ICHRAs to reimburse expenses other than premiums?
• Employers can limit the ICHRA to just the individual policy premium amount.

Issue #8: Carryover Amounts

• Will employers allow ICHRAs to carry over unused amounts?
• Employers can set the ICHRA annual allocation to be use-it-or-lose it.

Issue #9: Employee Pre-Tax Contributions

• How will employers facilitate employee pre-tax salary reduction contributions?
• The ICHRA rules permit employees to contribute toward the cost of the underlying individual policy on a pre-tax basis through the §125 cafeteria plan.

Issue #10: Added ACA Reporting Complexity

• ALEs Still Have to Complete the Forms 1094-C and 1095-C When Offering an ICHRA
• There are 10 additional codes for ICHRA coverage (1L-1U) to use in Line 14 of the Form 1095-C.

WRAP-UP

Takeaways

The ICHRA Revolution: Has the Health Plan 401(k) Arrived?

• In the same manner as the 401(k)’s introduction exactly 40 years earlier (effective January 1, 1980), ICHRAs have the potential to radically transform the current paradigm that is dominated by traditional employer-sponsored major medical group health plans.
• Like 401(k) plans, ICHRAs are generally less expensive, less administratively burdensome, and present less of a compliance challenge for employers than a traditional group health plan.
• Employees may discover that they relish the broader field of underlying health coverage options and greatly enhanced portability that ICHRAs offer much in the same way employees control their 401(k).
• Over the past 40 years, participation in defined benefit pension plans has decreased from 38% of private sector workers to 13%. Meanwhile participation in defined contribution 401(k)-style plans has increased from 8% of private sector workers to 47%. The stars are aligned for ICHRAs to follow the same path to defined contribution prominence on the health side in the coming years.