ICHRA Moved You Out of the Group Market. It Didn't Move You Out of Compliance.

An ICHRA eliminates your group health plan carrier, but it doesn't eliminate your compliance obligations. The 90-day advance notice, ACA affordability safe harbors, monthly premium substantiation, and ERISA plan document requirements all follow you into the individual market.

Most ICHRA sales decks skip this part entirely. The pitch is cost control and flexibility. The fine print is a compliance stack that catches a lot of employers off guard, especially new ones. According to the HRA Council's 2025 report, 83% of employers offering ICHRA had never offered any coverage before. They're building compliance infrastructure from zero.

What does the 90-day advance notice requirement actually require?

Employers must provide written notice to employees at least 90 days before the start of each ICHRA plan year. For employees hired after the plan year begins, the notice must go out before their coverage start date. Miss the window and employees may lose the ability to enroll in marketplace coverage with a special enrollment period, creating real exposure, not just a technical violation.

The notice must include specific information: the benefit amount, which classes of employees are eligible, a statement that employees enrolled in the ICHRA may not also receive a premium tax credit on the marketplace, and instructions on how to opt out. Drafting this once and filing it away isn't enough. It resets every plan year.

How does ACA affordability work under ICHRA, and what's your 4980H exposure?

ICHRA affordability uses a different calculation than traditional group coverage. Instead of comparing the employee's premium share to the lowest-cost plan option, you compare your ICHRA allowance to the cost of the lowest-cost silver plan available to the employee on the individual market in their area.

For 2026, the ACA affordability threshold is 9.96% of household income, up from 9.02% in 2025. An employee earning $55,000 annually can't be required to contribute more than $5,478 per year, or $465.50 per month, for coverage to be considered affordable. An allowance that leaves an employee paying more than that for the benchmark silver plan is an affordability failure, and 4980H(b) penalties attach per affected employee.

Lowest-cost silver plan prices vary by geography, age, and plan year. Employers with remote teams or employees spread across multiple states face real complexity keeping the affordability calculation current. There's no single number that works nationwide.

What does ERISA require from an ICHRA plan document?

ICHRA is classified as a group health plan under federal law. That classification means ERISA applies in full, including the requirement under ERISA Section 402(a) to maintain a formal written plan document and share it with participating employees and their dependents. You also need a Summary Plan Description, fiduciary duties attach, and Form 5500 filing requirements apply once you cross the threshold.

Treating ICHRA as a simple reimbursement arrangement with no plan documentation leaves you exposed. The HRA Council noted that ICHRA adoption among small businesses is up 52% among its founding members. Small businesses are precisely the employers least likely to have dedicated HR compliance staff to catch this gap.

For a broader look at what ERISA fiduciary obligations mean for plan sponsors, the ERISA fiduciary liability article on this site covers the delegation question in detail.

What does monthly premium substantiation actually look like?

Every month, employees must submit proof that they're enrolled in qualifying individual coverage and that they're actually paying a premium. You can't just deposit the allowance and move on. The employer, or an administrator acting on their behalf, must verify that the reimbursement matches an actual premium invoice.

According to Zorro's 2026 open enrollment data, nearly 60% of enrolled employees have more than 75% of their premium covered by employer allowance. Another 30% have between 50% and 74% covered. That's a large reimbursement flowing through every month, and every dollar of it needs a substantiated invoice behind it.

Failure to substantiate means the reimbursement is treated as taxable income. The plan's tax-advantaged status is at risk. Don't let the administrative routine become the compliance failure.

Employees on Medicaid or CHIP can't participate at all. Government-sponsored plans don't qualify as compatible individual coverage under ICHRA rules, with one exception: Medicare does qualify. An employee who is Medicare-eligible can use an ICHRA to reimburse Medicare premiums.

Frequently asked questions

Does ICHRA count as minimum essential coverage for ACA purposes?

Yes. An ICHRA that meets affordability standards counts as an offer of minimum essential coverage. Employees who accept the ICHRA and enroll in qualifying individual coverage satisfy the individual mandate requirement and are ineligible for a premium tax credit on the marketplace.

Can an employer offer ICHRA to some employees and a traditional group plan to others?

Yes, but only if those employees are in different classes. Federal rules allow employers to split eligible classes by full-time vs. part-time status, geographic location, seasonal status, and other defined categories. You can't offer ICHRA and group coverage to employees in the same class.

What happens if an employee can't find affordable individual coverage in their area?

Employees can opt out of the ICHRA if they determine coverage isn't affordable. Opting out preserves their ability to claim a premium tax credit on the marketplace. The employer must include opt-out instructions in the required advance notice.

Is an ICHRA subject to COBRA continuation requirements?

Yes. Because ICHRA is a group health plan under ERISA and the ACA, COBRA applies to employers with 20 or more employees. A qualifying event triggers the same continuation rights as traditional group coverage. Smaller employers may face state mini-COBRA rules depending on their state.

Who is responsible for Section 111 Medicare Secondary Payer reporting under an ICHRA?

The plan sponsor is responsible. ICHRA is a group health plan, so the employer must report to CMS when an active employee or covered spouse is Medicare-eligible. Most third-party ICHRA administrators don't handle this automatically. Confirm reporting responsibilities in your service agreement before your plan year begins.