Every fall, small business owners open a group health renewal letter and brace for a number that's gone up again, whether or not anyone filed a claim. An ICHRA — Individual Coverage Health Reimbursement Arrangement — was built as a way out of that cycle. Instead of buying one group plan for the whole team, you set a fixed monthly budget and let each employee use it toward the individual health plan that actually fits them. This guide walks through what that means in practice for a business with a handful of employees, not a national account.
The basic idea, in one paragraph
You, the employer, decide on a monthly dollar amount — the allowance. Your employees each shop for their own individual health insurance, typically through the ACA Marketplace or an off-exchange plan, and pick whatever fits their family and budget. They submit proof they're enrolled and paying premiums, and you reimburse them up to the allowance. The reimbursement is tax-free to the employee and tax-deductible to your business, the same general tax treatment as traditional group coverage.
Why this matters for a small business specifically
ICHRA was designed with businesses of any size in mind, but the pain points it solves hit small employers hardest:
- No minimum participation requirement. Traditional group plans often require a minimum percentage of eligible employees to enroll. A small team with a few people who have coverage through a spouse can make that threshold hard to hit. ICHRA has no such rule.
- No annual renewal shock. You set the allowance. It doesn't move unless you decide to change it. There's no carrier re-rating your whole group based on last year's claims.
- No dedicated HR or benefits staff needed. A five-person shop rarely has someone whose job is managing group plan renewals, carrier negotiations, and open enrollment logistics. An ICHRA shifts most of that work to each individual employee choosing their own plan, with an agent helping on the side.
- Works for a scattered or remote team. If your employees live in different counties or states, a single group network rarely serves everyone well. ICHRA lets each person pick a plan and network built for where they actually live.
How to roll one out, step by step
- Decide your budget. Pick a monthly allowance you can commit to. You can set one amount for everyone or vary it by employee class — for example, more for full-time staff than part-time, or different amounts by location.
- Define your employee classes (if using more than one). ICHRA rules allow specific, IRS-defined classes — full-time, part-time, salaried, hourly, seasonal, by geographic location, and a few others. The classes have to be built correctly to hold up, so this step is worth getting a second opinion on.
- Give required notice. Employees need advance written notice of the ICHRA offer, generally at least 90 days before the plan year starts, so they have time to shop for coverage.
- Employees shop and enroll. Each employee picks an individual plan during their enrollment window — Open Enrollment, or a Special Enrollment Period triggered by the new ICHRA offer itself.
- Employees submit proof of coverage. This substantiates that reimbursements are actually going toward qualifying health coverage, which is what keeps the reimbursement tax-free.
- You reimburse monthly. Up to the allowance, tax-free to the employee, deductible to the business.
ICHRA vs. QSEHRA vs. a traditional group plan
| ICHRA | QSEHRA | Traditional group plan | |
|---|---|---|---|
| Employer size limit | None | Under 50 full-time-equivalent employees | None |
| Allowance cap | No federal cap — you set it | Federally capped, adjusted yearly | N/A — pays group premium |
| Can pair with a group plan | Yes, by employee class | No — can't offer both | N/A |
| Plan choice | Employee picks their own | Employee picks their own | One plan (or a few) for everyone |
| Renewal risk | You control the budget | You control the budget | Subject to group rate hikes |
Not sure if ICHRA fits your business?
We'll walk through your headcount, budget, and current setup — free, with no pressure.
See how ICHRA worksWhat to double-check before you commit
A few things are worth confirming with a licensed agent or benefits advisor before you launch an ICHRA, rather than after: whether your allowance is set high enough to be considered "affordable" under IRS rules if that matters for your business, whether your employee classes are built correctly, and whether your written notice and substantiation process will hold up if questioned. None of this is complicated, but it's the kind of thing that's much easier to get right at the start than to fix after employees have already enrolled.
How Honorbrook helps
We work both sides of an ICHRA rollout. For the business, we help you land on an allowance and class structure that fits your team and budget. For each employee, we sit down by phone, compare Marketplace and off-exchange plans against their doctors and prescriptions, and handle the enrollment — so nobody on your team is left to figure out an unfamiliar Marketplace on their own. It's free for both the business and the employee, and we're licensed across Virginia, Maryland, Georgia, Texas, Michigan, North Carolina, South Carolina, Alabama, Louisiana, Indiana, and West Virginia. If a full ICHRA feels like a bigger step than you're ready for, a traditional group or SHOP plan is still worth comparing side by side.
Availability and rules vary by state
Health plans, premiums, enrollment rules and state programs differ by state and sometimes by county, and a given plan may not be available in every state. Honorbrook is licensed in the 11 states below; what we can offer you depends on what carriers sell where you live. Each state’s insurance regulator can verify an agent’s license and answer consumer questions.
- Virginia: Virginia Bureau of Insurance
- Maryland: Maryland Insurance Administration
- North Carolina: North Carolina Department of Insurance
- South Carolina: South Carolina Department of Insurance
- Georgia: Georgia Office of Insurance and Safety Fire Commissioner
- Alabama: Alabama Department of Insurance
- Louisiana: Louisiana Department of Insurance
- Texas: Texas Department of Insurance
- Michigan: Michigan Department of Insurance and Financial Services
- Indiana: Indiana Department of Insurance
- West Virginia: West Virginia Offices of the Insurance Commissioner