5 FAQs About ICHRAs: What to Know as ACA Subsidy Extensions Stall

The House of Representatives voted in favor of extending the enhanced Affordable Care Act (ACA) subsidies for 3 years last Thursday morning after months of deliberation; however, there are not enough votes in the Senate, making an official extension unlikely.1

With the enhanced ACA subsidies extension in limbo, Americans are facing increased health insurance premiums, and employers are facing high renewals. Individual Health Care Reimbursement Agreements (ICHRAs) are one such option that has been recommended by various stakeholders but criticized by others. Their growing utilization feeds off the threat of expiring premium tax credits and the belief that it may prevent enrollment losses in response.

Here are answers to 5 FAQs about ICHRAs to help inform future health coverage decisions.

As the enhanced ACA subsidy extensions face uncertainty, ICHRAs are gaining attention. Here’s what employers and employees should know. | Image credit: @dragonstock_AdobeStock.jpeg

1. What is an ICHRA, and how does it differ from traditional employer-sponsored insurance?

ICHRAs were created in 2019 as an expansion of the executive order “Promoting Health Care Choice and Competition Across The United States,” signed by President Donald J. Trump in 2017.2. They are employer-provided, fixed, tax-advantaged funds for employees to buy coverage from the ACA marketplace, Medicare, or eligible off-exchange plans.3

Unlike traditional plans, where the employer chooses to fund promised medical benefits either directly from its own fund or by purchasing a group health insurance policy, the ICHRA is funded directly from the employer to employees.3 The funds allocated to each employee are often based on the lowest marketplace index plan, like the second-lowest-cost silver or gold plan.

Yet, with increasing Marketplace premiums, there is an affordability challenge if premiums surpass employer contributions, said Matthew McGough, MSPH, a policy analyst at KFF for the Program on the ACA and the Peterson-KFF Health System Tracker, in an interview with The American Journal of Managed Care® (AJMC®).

“On one hand, a fixed employer contribution could become more valuable relative to shrinking federal assistance,” McGough said. “But on the other hand, if the subsidies expire, many workers, especially lower- and middle-income workers, could face higher premium payments that ICHRA may not be able to fully offset.”

2. Who is eligible for an ICHRA, and can employers offer it to only certain employees?

There are no eligibility restrictions on who can use an ICHRA; however, employers may opt to offer them to all their employees or specific subsets like hourly employees, part-time employees, or those who work in different geographic locations. However, regulations prohibit employers from setting reimbursement amounts that vary excessively or discriminatorily across employee groups.

“People are all over the place, and the idea of having one national plan that has to have everything in a network, where everyone lives, can be more expensive,” said Ben Light, VP of partnerships at Zorro, an ICHRA distributor, in an interview with AJMC®. “If you get people on an ICHRA, all coverage is local.”

Employers cannot offer both the ICHRA and a traditional group health plan to any of their employees, but they can offer a limited benefit option along with it. Should employees choose the ICHRA, they must enroll or be currently enrolled in individual marketplace health insurance coverage or Medicare Parts A and B, or Part C, or an off-exchange plan to receive reimbursement from their employer.

Under the Employer Share Responsibility Provisions, large employers must offer a health care plan that covers at least “60% of the total allowed cost of benefits that are expected to be incurred under the plan” to their full-time employees.4,5 Despite federal minimum thresholds for contributions, which are sometimes not enough to cover rising marketplace prices, employees are responsible for the cost gap.2

3. How do ICHRAs interact with ACA Marketplace subsidies?

ICHRAs were created by the Trump administration with the goal that they would encourage consumers to switch from their employer-based coverage to state-regulated individual markets, like the ACA marketplace. However, despite the administration’s aim to strengthen the individual markets, the Commonwealth Fund argued that ICHRAs are more likely to destabilize them due to the influx of high-cost enrollees.6

Additionally, employees offered an affordable ICHRA are not eligible for ACA premium tax credits. If the ICHRA is unaffordable based on IRS rules, employees may opt out and potentially qualify for Marketplace subsidies.3 Therefore, employers may have more flexibility when it comes to using ICHRAs, but lower-income workers may also face reduced access to federal subsidies.

“Provider networks in the individual market are narrower than employer offerings,” McGough said. “Without strong consumer protections and support, there would be a real risk that ICHRAs could widen disparities in access and affordability.”

4. Why has there been little utilization of ICHRAs?

Less than 10% of firms offered ICHRAs to their employees as of 2023 since their inception.2 But users are growing due to increased awareness, ease of adoption, and lower prices. The Health Reimbursement Account (HRA) council, a non-partisan advocacy group, estimated that in 2025, nearly 500,000 to 1 million people were enrolled in either an ICHRA or a Qualified Small Employer HRA.3

However, estimations on exactly how many people are enrolled in ICHRAs remain unclear. The majority of companies that utilize them are often small and spread out across the country, with varying self-reported survey estimates.3

“It’s under a million people, but there's wide variation in this number because of incomplete data reporting, but it's mainly slow because of complexity and uncertainty,” said McGough.

5. What are the advantages and challenges of ICHRAs for employers and employees?

Without the enhanced ACA subsidies, enrollees are facing an overall 114% increase in annual premiums in 2026—more than double what they’re currently paying. Companies are likely to face higher renewals of their traditional group plan, potentially looking to shift the risk from their company and onto the individual market.7,8

Employers can set their reimbursement budget on marketplace index plans, and employees can select the coverage that best suits their individual health needs.8 For example, someone young and healthy who doesn’t utilize their health care coverage plan often may feel “stuck” when only offered traditional, expensive, employer-based coverage.

“[But], under the ICHRA, you have the ability to right-size that coverage to say, ‘I don't need to spend a lot on my premium,’” said Light. “I can take some of my money and, going back on my prior answer, put it in a [health savings account] or put it in a [flexible spending account] to save for a need that I might have.”8

As uncertainty looms over the future of the enhanced ACA subsidies, ICHRAs are emerging as a potential alternative for employers and workers navigating rising premiums and coverage instability. While these arrangements offer flexibility and cost predictability, they also introduce new trade-offs around affordability, equity, and access. Understanding how ICHRAs function—and who they best serve—will be critical as policymakers and employers reassess the structure of health coverage in a shifting landscape.

References

1. Bonavitacola J. House votes to extend ACA subsidies, eyes turn to Senate. AJMC®. January 8, 2026. Accessed January 9, 2026. https://www.ajmc.com/view/house-votes-to-extend-aca-subsidies-eyes-turn-to-senate

2. Volk J, Lucia K, Giovannelli J. New policies weaken health insurance marketplace for consumers. The Commonwealth Fund. October 2, 2025. Accessed January 8, 2026. https://www.commonwealthfund.org/blog/2025/new-trump-administration-policies-weaken-health-insurance-marketplace-consumers-including

3. McGough M, Rae M, Cotter L, Cox C, Claxton G. Explaining individual coverage health reimbursement arrangements (ICHRAs). Peterson-KFF Health System Tracker. October 22, 2025. Accessed January 9, 2026. https://www.healthsystemtracker.org/brief/explaining-individual-coverage-health-reimbursement-arrangements-ichras

4. Employer shared responsibility provisions. Internal Revenue Service. Accessed January 9, 2026. https://www.irs.gov/affordable-care-act/employers/employer-shared-responsibility-provisions

5. Minimum value and affordability. Internal Revenue Service. Accessed January 9, 2026. https://www.irs.gov/affordable-care-act/employers/minimum-value-and-affordability

6. Volk J, Lucia K. Federal rule creating new health coverage option for employers could destabilize the individual market. The Commonwealth Fund. July 24, 2019. Accessed January 9, 2026. https://www.commonwealthfund.org/blog/2019/federal-rule-destabilize-individual-market

7. Lo J, Levitt L, Ortaliza J, Cox C. ACA marketplace premium payments would more than double on average next year if enhanced premium tax credits expire. KFF. September 30, 2025. Accessed January 14, 2026. https://www.kff.org/affordable-care-act/aca-marketplace-premium-payments-would-more-than-double-on-average-next-year-if-enhanced-premium-tax-credits-expire/

8. McCrear S, Light B. ICHRA offers flexible employer coverage amid rising premiums: Ben Light. AJMC. December 5, 2025. Accessed January 9, 2026. https://www.ajmc.com/view/ichra-offers-flexible-employer-coverage-amid-rising-premiums-ben-light