Definitions
Plain-language definitions for every term you'll encounter in the ICHRA space. No legalese. No payor spin.
Quick Index
ICHRA
Individual Coverage Health Reimbursement Arrangement. A type of employer-funded benefit that allows employers to reimburse employees tax-free for individual health insurance premiums and qualified medical expenses. Available to employers of any size, ICHRA became available January 1, 2020 under the final rule jointly issued by HHS, IRS, and DOL.
QSEHRA
Qualified Small Employer Health Reimbursement Arrangement. A predecessor to ICHRA available only to employers with fewer than 50 full-time equivalent employees. QSEHRA has annual reimbursement caps set by the IRS ($6,350 self-only / $12,800 family in 2024) and cannot be offered alongside a group health plan. Employees must have minimum essential coverage to participate.
HRA
Health Reimbursement Arrangement. The broad category of employer-funded accounts used to reimburse employees for qualified medical expenses. HRAs are solely employer-funded — employees cannot contribute. The category includes ICHRA, QSEHRA, Integrated HRAs (HRA plus group plan), and Excepted Benefit HRAs. Each type has distinct rules governing design, eligibility, and tax treatment.
ACA
Affordable Care Act, formally the Patient Protection and Affordable Care Act, enacted in 2010. The ACA established the federal health insurance marketplace, required insurers to cover pre-existing conditions, created minimum essential coverage standards, and introduced employer and individual mandates. ICHRA exists within the ACA framework — employers offering ICHRA must ensure it meets ACA coverage requirements.
PCORI Fee
Patient-Centered Outcomes Research Institute fee. An annual fee paid by employers sponsoring self-insured health plans (including HRAs) to fund comparative effectiveness research. Calculated per covered life per plan year. For standalone HRAs, the fee is based on the number of HRA participants. The fee is reported and paid via IRS Form 720.
Individual Coverage
Health insurance purchased by an individual directly from a carrier or through an ACA marketplace / state exchange, as opposed to coverage obtained through an employer's group health plan. For ICHRA purposes, employees must be enrolled in "individual coverage" — meaning ACA-compliant individual market insurance — to receive and use ICHRA reimbursements. Medicare Part A and B also qualifies.
Minimum Essential Coverage
The minimum standard of health insurance required under the ACA. MEC includes ACA-compliant individual plans, employer-sponsored group plans, Medicare, Medicaid, CHIP, and TRICARE, among others. ICHRA participants must be enrolled in MEC (specifically individual market coverage) to receive tax-free reimbursements. Short-term health plans and most indemnity plans do not qualify as MEC.
Affordability Safe Harbor
A method employers use to confirm their ICHRA offer meets the ACA affordability standard without knowing each employee's household income. If an ICHRA is affordable under any of the three IRS-approved safe harbors — W-2, Rate of Pay, or Federal Poverty Line — the employer avoids ACA employer mandate penalties. If an ICHRA is affordable, employees who accept it become ineligible for ACA premium tax credits.
W-2 Safe Harbor
One of three IRS affordability safe harbors for ICHRA. Under the W-2 safe harbor, an ICHRA is considered affordable if the employee's required self-only premium contribution (lowest-cost silver plan premium minus the ICHRA reimbursement) does not exceed the ACA affordability threshold percentage of the employee's W-2 wages. Relatively predictable but can create exposure if wages fluctuate significantly during the year.
Rate of Pay Safe Harbor
One of three IRS affordability safe harbors for ICHRA. Uses the employee's hourly rate (×130 hours per month for hourly workers) or monthly salary to determine the affordability floor. Simpler than W-2 because it's based on a fixed rate rather than actual annual wages, making it easier to administer prospectively. Cannot be used for employees with hourly rates that may decrease during the plan year.
Federal Poverty Line Safe Harbor
One of three IRS affordability safe harbors for ICHRA. An ICHRA is considered affordable if the employee's required self-only premium contribution does not exceed the ACA affordability threshold percentage of the federal poverty line for a single individual. Simplest to administer — uses a single published FPL number regardless of employee income — but often requires the highest employer contribution to satisfy, since FPL is low relative to actual wages.
Employee Classes
Defined categories of employees to whom an employer may offer different ICHRA terms, different reimbursement amounts, or no ICHRA at all. The IRS permits 11 classes: full-time, part-time, seasonal, CBA employees, waiting period employees, employees under 25, non-resident aliens, salaried, hourly, geographic rating area, and staffing firm employees. Reimbursement amounts must be uniform within a class, but can vary between classes.
Excepted Benefit HRA
A limited HRA that can be offered to employees enrolled in a group health plan, providing up to $1,950 per year (2024) for qualified medical expenses other than individual health insurance premiums. Unlike ICHRA, EBHRA does not require individual market enrollment and can be offered alongside a group plan to the same employees. Primarily used to supplement group plan cost-sharing.
Integrated HRA
A traditional HRA that must be paired with a group health plan covering the same employee. Integrated HRAs can only reimburse qualified medical expenses — not individual market premiums. They predate ICHRA and were the dominant HRA form before 2014, when the ACA effectively outlawed standalone HRAs for employer groups. ICHRA replaced integrated HRAs for employers seeking individual market solutions.
Non-Integrated HRA
A standalone HRA not paired with an employer-sponsored group health plan. Before the ICHRA final rule in 2020, non-integrated HRAs used to reimburse individual market premiums were generally impermissible under ACA guidance (IRS Notice 2013-54). ICHRA was specifically designed as the regulatory vehicle to allow non-integrated, individual-market-reimbursing HRAs in a compliant structure.
Special Enrollment Period
A window outside of the annual open enrollment period during which individuals may enroll in or change ACA marketplace coverage due to a qualifying life event. Being newly offered or losing an ICHRA is a qualifying life event that triggers a 60-day SEP. Employers starting an ICHRA plan mid-year should plan for employee SEP windows to ensure seamless individual market enrollment.
Marketplace / Exchange
The ACA-established platforms where individuals purchase compliant health insurance. Healthcare.gov is the federal marketplace, used in 31 states. The remaining 19 states operate their own exchanges (e.g., Covered California, NY State of Health). Marketplace plans are tier-classified as Bronze, Silver, Gold, or Platinum based on actuarial value. ICHRA reimbursements can be used for any ACA-compliant individual plan, whether purchased on-exchange or off-exchange.
Permitted Benefit
The maximum dollar amount an employee can receive from an ICHRA in a given plan year. While ICHRA has no statutory maximum reimbursement cap (unlike QSEHRA), employers must define a specific permitted benefit amount in their plan document. The permitted benefit can vary by employee class and may be adjusted for age and family size — specifically, up to a 3:1 ratio based on age and unlimited variation based on family size.
Salary Reduction Arrangement
A mechanism by which employees elect to redirect pre-tax compensation to fund a benefit. HRAs — including ICHRA — are not salary reduction arrangements. They are purely employer-funded. Employees cannot contribute to an ICHRA from their own wages. This distinguishes HRAs from HSAs (which allow employee contributions) and Section 125 cafeteria plans (which are funded through salary reduction).
Third-Party Administrator
A company engaged to handle plan administration on behalf of an employer. In the ICHRA context, a TPA manages plan documentation, employee enrollment and communications, reimbursement submission and processing, MEC verification, ACA compliance monitoring, and PCORI fee support. Key ICHRA TPAs include Remodel Health, Take Command Health, PeopleKeep, SureCo, HRA Simple, and Sana Benefits.