How ICHRA Can Benefit Small Businesses Offering Health Insurance to Employees in 2025

As small businesses look for more flexible and cost-effective ways to provide health insurance benefits to their employees, the Individual Coverage Health Reimbursement Arrangement (ICHRA) is becoming a popular option. Introduced in 2020, ICHRA allows employers to reimburse employees for medical expenses, including monthly premiums, instead of offering traditional job-based insurance. This approach is especially beneficial for small businesses that want to offer health benefits without the complexities and financial burden of a group health insurance plan.

Here’s a breakdown of how ICHRA works and why it’s an excellent solution for small businesses.

What is ICHRA?

An Individual Coverage Health Reimbursement Arrangement (ICHRA) is a type of health reimbursement arrangement where employers set aside a fixed amount of money each month to reimburse employees for their healthcare costs. To qualify, employees must purchase individual health insurance through the Marketplace, Medicare, or Medicare Advantage (Parts A and B).

Employers can offer an ICHRA instead of a traditional health insurance plan, and employees can use these funds to cover health insurance premiums, out-of-pocket costs, and other qualifying medical expenses.

How ICHRA Benefits Small Businesses

1. Cost Control and Flexibility

ICHRA allows small businesses to control their health benefits budget by determining a set monthly contribution for employees. There are no unexpected costs, as the employer only pays the agreed amount for reimbursement. This approach gives businesses the flexibility to provide competitive health benefits while staying within budget.

2. Customizable for Different Employee Classes

Small businesses can customize ICHRA offerings based on employee classes, such as full-time, part-time, seasonal, or remote workers. This means employers can offer different reimbursement amounts to different groups based on their needs, which is an advantage for small businesses with a diverse workforce.

3. No Administrative Hassle of Group Health Plans

For small businesses, administering group health insurance plans can be complicated and time-consuming. ICHRA reduces this burden because the responsibility of choosing and managing a health plan shifts to employees. They can choose the health insurance that best suits their needs from the Marketplace or private insurers.

4. Tax Advantages

The contributions made by the employer towards ICHRA are tax-deductible for the business, and employees receive reimbursements tax-free. This can save both parties a significant amount on taxes compared to traditional health insurance options.

Eligibility and Premium Tax Credits

Employees who are offered ICHRA can still qualify for premium tax credits through the Health Insurance Marketplace, but only if the ICHRA offer does not meet minimum standards for affordability and they choose to opt out of the ICHRA. This means employers must ensure that their contributions meet affordability standards to help employees cover the cost of individual health insurance plans.

Why ICHRA is a Game Changer for Small Businesses

Offering health benefits through ICHRA empowers small businesses to provide meaningful health coverage without the high costs or administrative challenges of traditional insurance plans. With the ability to customize offerings, control costs, and provide employees with a wider range of health plan options, ICHRA is a game-changer for businesses looking to attract and retain talent while remaining financially sustainable.

At Aura Insure, we understand the unique needs of small businesses. If you’re considering ICHRA for your business, our team can guide you through the process and ensure you get the best health benefits package for your employees. Contact us today to explore how ICHRA can work for you!