ICHRA for small businesses: a practical guide.

How it works for a small business

You decide a monthly amount for each group of employees. Each employee buys an individual health plan that suits them, and you reimburse it — tax-free — up to that amount. There's no participation minimum, no insurer setting your renewal, and no requirement that everyone share one plan. (New to the idea? Start with how an ICHRA works.)

Step 1: Decide who's eligible

Most small businesses use one or two classes: full-time and part-time. You can offer different amounts to each, or offer the ICHRA to one class only. You can also set a waiting period for new hires.

Step 2: Decide how much to contribute

There's no federal minimum or maximum. Three common ways owners pick a number:

• Start from your budget. Decide what the business can sustain per person each month and work from there.
• Anchor to a benchmark plan. Cover all or part of a mid-range silver plan in your area, so most employees have a plan they pay little or nothing for.
• Vary by age. Individual premiums rise with age, so a flat amount covers more for a younger employee than an older one. You can give older employees more — up to three times what the youngest in the class receives.

You can also give more to employees covering a spouse or children. If you have 50 or more full-time equivalents, check your amounts against the affordability test before you commit.

Step 3: Set up the plan and notify employees

An ICHRA needs a written plan document and summary plan description, and eligible employees must get a written notice at least 90 days before the plan year starts (new hires get it when they become eligible). The notice explains the allowance and how it affects Marketplace subsidies.

Step 4: Employees choose plans

Being offered an ICHRA opens a special enrollment period for employees, so they can buy a plan outside open enrollment. Each one confirms they have qualifying individual coverage before reimbursements start.

Step 5: Reimburse each month

Employees are reimbursed up to their allowance. Anything their plan costs above that, they pay — and if they bought the plan outside the Marketplace, they can pay that part with pre-tax payroll deductions.

A realistic timeline

• Day 1–7: decide classes and amounts; sign plan documents.
• At least 90 days before start: employee notice goes out.
• The weeks before start: employees compare and choose plans.
• Start date: coverage begins; reimbursements follow.

For a January 1 start, that means notices by early October. You can start any month — the 90-day notice applies either way.

Advantages and things to weigh

Advantages

• A predictable cost you set, rather than an insurer's renewal.
• No participation minimum — works for a team of two.
• Different amounts for full-time and part-time staff.
• Employees pick their own doctors and keep the policy if they leave.

Things to weigh

• In some areas the individual market has few insurers or narrow networks.
• Owners usually can't participate themselves.
• An affordable offer stops employees getting a Marketplace subsidy — check who that affects.
• There are federal notice and documentation requirements to keep up with.

Weighing it against a group plan? ICHRA vs group health insurance.