The Documentation Question Every ICHRA Employer Faces
You've decided to offer an Individual Coverage Health Reimbursement Arrangement (ICHRA). Enrollment is happening. Then the first reimbursement request arrives, and your finance team asks: "What documentation do we actually need to keep?"
The answer isn't straightforward because the IRS hasn't published a dedicated ICHRA documentation rulebook. Employers are left piecing together requirements from general health plan rules, HSA guidance, HRA precedent, and Notice 2020-29, which introduced ICHRAs to the tax code.
The result? Confusion. Some employers over-collect documents. Others collect too little and expose themselves to audit risk. This explainer walks through what's required, what's recommended, and what's actually enforced.
The Foundation: What the IRS Actually Requires
The IRS has never formally defined "ICHRA documentation." Instead, it relies on broader health plan substantiation rules and the principle that reimbursements must be tied to eligible medical expenses.
Here's what the law says—and what it implies:
The Eligible Expense Rule
An employer can only reimburse expenses that qualify under Section 213(d) of the Internal Revenue Code (the same definition used for medical expense tax deductions). This is non-negotiable.
What qualifies:
- Health insurance premiums (medical, dental, vision, long-term care)
- Out-of-pocket costs (deductibles, copays, coinsurance)
- Medical services and supplies
- Prescription drugs
- Certain medical equipment
What doesn't:
- Gym memberships
- Cosmetic procedures (unless medically necessary)
- Over-the-counter medications (as of 2021, unless prescribed)
- Health foods or supplements
- Insurance premiums for non-medical policies
The burden is on the employer. If the IRS audits your ICHRA, you must prove that reimbursements went toward eligible expenses. An expense that looks questionable without supporting documentation will likely be disallowed.
What Documentation the IRS Expects (Based on Existing Guidance)
While ICHRA guidance is sparse, the IRS has given clearer direction on similar arrangements. Here's the hierarchy of what works:
Tier 1: Documentation That Satisfies Most Audits
Itemized receipts from the healthcare provider or pharmacy
This is the gold standard. The receipt should show:
- Date of service or purchase
- Provider name
- Specific services rendered or items purchased
- Amount charged
- A clear link to medical expense categories (e.g., "office visit," "lab work," "prescription")
Example: An Aetna EOB showing a $150 copay for a dermatology visit, with the provider name and date, is solid documentation.
Explanation of Benefits (EOB) statements
These are highly credible. An EOB from an insurance carrier confirms:
- The expense was covered (or explicitly not covered) by health insurance
- The amount the employee paid out-of-pocket
- The date of service
- The type of service
Most employees have EOBs in their health insurance portal. This is often sufficient without a separate provider receipt.
Prescription receipts from pharmacies
Pharmacy records showing the prescription name, date filled, and amount paid are straightforward. If the employee paid $25 for insulin at CVS on June 15, that receipt clearly documents an eligible expense.
Credit card or bank statements showing medical payments
Some employers accept statements showing payments to healthcare providers, hospitals, or pharmacies. The limitation: the statement alone doesn't prove what the payment was for. Combined with a brief employee attestation or invoice, it can work. Alone, it's weaker.
Tier 2: Documentation That Works in Most Scenarios
Employee attestation (affidavit or certification)
An employee statement signed under penalty of perjury that the reimbursement request is for eligible medical expenses can satisfy the IRS—if the expense category is obvious or already substantiated by insurance records.
Example: "I paid $500 to Dr. Smith for an office visit and lab work on June 10. I request reimbursement from my ICHRA."
This is less strong than receipts, but it's legally permissible. The IRS has allowed similar attestations for HSAs in the absence of receipts.
The catch: attestations alone don't work for unusual or high-dollar expenses. An employee saying "I spent $3,000 on medical care" without itemization is unlikely to satisfy an auditor.
Summary statements from plan administrators
If your third-party ICHRA administrator tracks claims and matches them against eligible expense categories, their summary report can serve as supporting documentation. This works best when employees have already submitted receipts to the administrator.
Tier 3: Documentation That's Risky Without Additional Support
Summary of reimbursements by category
A list showing "$2,000 in premiums, $1,500 in deductibles, $300 in prescriptions" without line-item detail is weak. An auditor will ask for the underlying receipts.
Cancelled checks or payment confirmations
A cancelled check to "Blue Cross Blue Shield" shows a payment happened, but not whether it was for an eligible premium or an ineligible service. Always pair with an EOB or invoice.
What You Don't Legally Need (But Consider Anyway)
The IRS doesn't require:
- Copies of patient medical records. You're not entitled to these, and requesting them creates privacy complications.
- Detailed diagnosis or treatment notes. Knowing why an employee saw a doctor isn't necessary if the expense is otherwise documented.
- Prescriptions for prescription drugs. A pharmacy receipt indicating a drug name is enough.
- Receipts for small expenses (some guidance suggests a reasonable threshold, though "reasonable" isn't defined; $75–$100 is commonly cited).
However, many employers request more than required because:
- It reduces audit risk
- It clarifies eligibility for gray-area expenses (e.g., is this supplement prescription-only?)
- It shows a strong compliance culture to auditors
The Practical Reimbursement Process: What to Build
Here's a framework most auditors would respect:
Step 1: Collection Phase
When an employee requests reimbursement, ask for:
- Itemized receipt or invoice showing the date, provider, service/item description, and cost.
- Proof of payment (credit card statement, bank statement, or cancelled check) if not clear from the receipt.
- Insurance documentation (EOB or deductible verification) if the reimbursement relates to insurance costs or deductibles.
For premium reimbursements, ask for:
- A copy of the insurance card or policy documentation
- The invoice or billing statement from the insurance company
- Proof of payment
Step 2: Validation Phase
Before reimbursing, verify:
- The expense falls under Section 213(d) categories.
- The amount matches the documentation.
- The employee hasn't already been reimbursed for this expense (checking for double-claims).
Step 3: Documentation Phase
Keep a file for each reimbursement containing:
- The original receipt or invoice
- Supporting documentation (EOB, payment proof, etc.)
- A brief note on why the expense qualifies (optional but recommended for unusual items)
- The date approved and reimbursed
Red Flags: Expenses That Need Extra Scrutiny
Some expenses trip up auditors. For these, strengthen your documentation:
Telehealth and Virtual Visits
Risk: Hard to verify that a real visit happened.
Solution: Require the receipt from the telehealth platform (Teladoc, Doctor on Demand, etc.) showing the date/time and amount. Email confirmations from the provider work too.
Dental and Vision Work
Risk: Categorization errors (e.g., cosmetic vs. restorative).
Solution: Request the provider's invoice clearly stating "root canal" vs. "whitening." EOBs from dental insurance are ideal.
Therapist/Counselor Visits
Risk: Confusion between medical and wellness (not eligible).
Solution: Ask for the receipt showing the provider's credentials (licensed therapist, psychologist, etc.) or a note that the visit was prescribed by a physician for a medical condition.
Supplements and Vitamins
Risk: Most don't qualify; some do (if prescribed).
Solution: Require a copy of the prescription or a note from a healthcare provider stating medical necessity.
Travel Expenses Related to Medical Care
Risk: Difficult to separate medical from personal travel.
Solution: Most employers don't reimburse these, but if you do, require a medical appointment confirmation and a travel receipt clearly linked to that appointment.
What Happens If You're Audited
The IRS approach to ICHRA documentation audits is still emerging, but here's what to expect based on HSA and HRA precedent:
The IRS will request:
- A sample of reimbursements (often 10–20 randomly selected claims)
- All supporting documentation for those claims
- The plan's written policies on documentation
Their assessment:
- Does each reimbursement have adequate support?
- Is the support consistent with Section 213(d)?
- Did the plan systematically validate expenses?
The risk:
- Unsupported or inadequately documented reimbursements can be disallowed (treating them as taxable wages to the employee)
- The employer may face penalties if the issue is deemed willful noncompliance
- The employee could owe back taxes and interest
The silver lining:
- An auditor will typically give credit for good-faith effort; messy documentation is forgiven more than absent documentation
- Most audits don't happen (ICHRA is still new; IRS resources are limited)
Best Practices for Long-Term Compliance
1. Create a Written Policy
Document your reimbursement rules. Specify:
- What expenses qualify
- What documentation you'll require
- How employees submit claims
- Timeline for reimbursement
This alone strengthens your audit posture.
2. Use (or Require) Plan Administrator Tools
Many ICHRA administrators have built-in document collection and expense validation. Leverage it. When the administrator has reviewed and approved claims,