On May 12, the House Ways and Means Committee released “The One, Big, Beautiful Bill” – a reconciliation bill that contains changes to Individual Coverage Health Reimbursement Arrangements (ICHRA). Here’s an overview of ICHRAs and the potential ICHRA changes included in the bill:
What is an ICHRA?
An ICHRA is an employer-funded health benefit introduced in 2020. Key ICHRA features include:
Employer-Funded Allowance
An ICHRA allows employers to provide employees with tax-free funds for qualified medical expenses.
Coverage for Individual Premiums
Employees can use the ICHRA allowance to purchase qualified individual health insurance plans. A 2019 Trump Administration rule allowed HRAs to be used this way without violating group health plan requirements.
Alternative to Group Plans
By offering an ICHRA, employers of any size can move away from traditional group health insurance and self-funded plans. ICHRAs serve as an alternative, particularly for small businesses with unaffordable group plans.
Defined Contribution & Cost Predictability
Employers offer a defined contribution that fits their budget. Employers gain cost predictability, as they will not spend more than each employee’s allowance. Switching from fully-insured group plans, with steep annual rate increases, to an ICHRA can provide budget control. Switching to an ICHRA can reduce financial risk for organizations with self-insured plans.
Flexibility and Choice for Employees
With an ICHRA, employees can choose the qualifying individual health insurance plans that best meet their needs. Traditional group plans, where employees might be limited to options they didn’t pick, potentially provide employees with restricted provider networks based on location. ICHRA allows employees to choose a plan that works for them, regardless of where they live, which is helpful for organizations with remote or multi-state workforces. Employees can also potentially use their health plan at another job when they leave a job.
Applicable to All Employer Sizes
Unlike the Qualified Small Employer HRA (QSEHRA), which is limited to organizations with fewer than 50 full-time equivalent employees, the ICHRA has no restrictions on business size or minimum participation requirements. It can work effectively for large employers, as seen by recent growth in this segment.
How have ICHRAs grown since their introduction?
The ICHRA has experienced rapid growth since becoming available in 2020. Adoption grew 29% between 2023 and 2024, with 84% growth among large employers in that same period. Interest in ICHRA has also increased, reaching peak popularity in Google searches in late 2024. This growth is driven partly by employers not previously offering benefits (83% of new adopters) and those switching from traditional coverage due to cost control needs (17%).
Based solely on HRA Council member data, the number of employees offered a QSEHRA or ICHRA has grown more than four times between 2020 and 2024. More than half a million employees have an ICHRA.
How does the budget reconciliation bill modify ICHRAs?
The budget reconciliation bill the House Ways & Means Committee considers, referred to as “The One, Big, Beautiful Bill”, includes significant provisions related to ICHRAs.
Sections 110201, 110202, and 110203 of the bill contain these provisions and propose the following modifications to ICHRAs:
Codification into Federal Law and Renaming
The bill would codify the final 2019 regulations that permit ICHRAs into federal law. Essentially, the bill makes the current regulatory framework for ICHRAs statutory. The bill also proposes to rename these arrangements to Custom Health Option and Individual Care Expense (CHOICE) arrangements.
Ability to Use Cafeteria Plans for Premiums
The proposed legislation would permit employees enrolled in a CHOICE arrangement (formerly named ICHRA) to use a salary reduction through a cafeteria plan to pay health plan premiums purchased through an Exchange. Under current law, employers generally cannot reimburse employees for premiums purchased through an Exchange if the employee pays any part of the premium through salary reduction. This rule makes it impossible to offer an ICHRA and simultaneously allow employees to use a cafeteria plan for the remaining premium balance. This modification would address that issue, helping workers save money on their share of premium payments.
New Tax Credit for Small Businesses
The bill would create a two-year tax credit for small businesses (those with fewer than 50 employees) that offer coverage through CHOICE arrangements for the first time. The credit amount would be $100 per employee per month in the first year and $50 per employee per month in the second year. Congress intends to encourage small businesses to adopt CHOICE arrangements (ICHRAs).
In essence, the budget reconciliation bill aims to solidify the legal foundation of ICHRAs (renamed CHOICE arrangements), enhance their usability by allowing integration with cafeteria plans for premium payment, and incentivize their adoption by small businesses through a tax credit.
What impact might those ICHRA modifications have?
The bill would codify the final 2019 regulations permitting Individual Coverage HRAs into federal law. Codifying ICHRAs moves the foundation from a regulatory rule (initiated by an executive order) to a statutory basis. Employers will appreciate greater flexibility and financial certainty by making the benefit more permanently established in law. The bill also formally proposes to rename these arrangements Custom Health Option and Individual Care Expense (CHOICE) arrangements.
Enhanced Affordability for Employees
A key modification is allowing employees to use a salary reduction through a cafeteria plan to pay for the portion of health plan premiums purchased through an Exchange not covered by the ICHRA/CHOICE allowance. Currently, employers generally cannot reimburse Exchange premiums if any part can be paid through salary reduction, making this combination impossible. By permitting this, the legislation would help workers save money on their share of the premium payments.
Incentivized Adoption by Small Businesses
The bill proposes to create a two-year tax credit for small businesses (those with fewer than 50 employees) offering coverage through CHOICE arrangements for the first time. Congress intends this tax credit to encourage small employers who often find traditional group plans unaffordable to adopt ICHRAs/CHOICE arrangements. The credit could further accelerate the growth of ICHRAs in small businesses because 83% of new adopters previously did not offer health benefits.
What’s next for the bill and ICHRAs?
The reconciliation bill needs to pass several committee votes, then pass the House and Senate. The odds of that happening are unknown, as is the likelihood that the ICHRA provisions will pass unchanged. The administration would like the reconciliation bill signed by Memorial Day.
Certifi’s William is automated premium billing and payment software that streamlines benefits billing and payment solutions for employers.
