Individual Coverage HRAs (ICHRAs) offer employers and employees more flexibility in how health benefits are delivered. Employees choose an ACA-compliant individual major medical plan that fits their needs, and the employer provides a tax-free reimbursement allowance toward premiums and eligible medical expenses. A Third-Party Administrator helps ensure the plan is administered accurately, compliantly, and efficiently.
Since an ICHRA is not a simple reimbursement program, it can get a bit complicated to manage. The employer becomes the plan sponsor of this self-funded group health plan and is responsible for operating the plan in accordance with federal regulations under the Affordable Care Act, ERISA, HIPAA, IRS rules, and COBRA or state continuation laws.
Before diving into administration and compliance, it is important to highlight how an ICHRA works and the core eligibility requirement that makes an ICHRA function. The tax-free status of the benefit and the flexibility it provides both depend on the employee being enrolled in the correct type of health insurance. This requirement is the foundation of the plan design and all ongoing administration.
Employee Eligibility and Premium Tax Credit Coordination
To receive reimbursement under an ICHRA, the employee must be enrolled in an ACA-compliant individual major medical insurance plan or Medicare. If ACA-compliant coverage is not in place for the month an expense was incurred, no reimbursement can be made. Short-term plans, fixed indemnity plans, health-sharing ministries, and other non-ACA plans do not qualify.
In addition, employees may not receive Premium Tax Credits and participate in an ICHRA at the same time. Employees make this election on an annual basis during enrollment.
A Third-Party Administrator verifies ACA-compliant coverage throughout the year and ensures that supporting documentation does not include Premium Tax Credits. Documentation that shows a Premium Tax Credit cannot be reimbursed, as doing so would jeopardize the tax-free status of the entire plan. The Third-Party Administrator serves as the safeguard that maintains compliance and protects both the employer and the employee
Claims Substantiation Must Be Complete and Independent
To keep all ICHRA reimbursements tax-free, each claim must be fully substantiated. The documentation provided must clearly show:
- The name of the covered individual
- The name of the provider, carrier, or medical provider, depending on the expense
- The date the coverage or service was incurred
- The amount of the premium or expense
- Proof that the employee was enrolled in an ACA-compliant individual plan
This documentation must come from an independent third party. Self-certification is not permitted.
For recurring monthly premiums, substantiation may be completed once per year if the employee signs an Ongoing Coverage Attestation confirming they will maintain ACA-compliant coverage for the full plan year and will notify the plan administrator if coverage terminates.
Premium Invoices Are Protected Health Information (PHI)
Premium invoices are considered Protected Health Information because they show the insurer, the type of coverage, and the enrollment status.
This is one of the most common areas where employers unintentionally create HIPAA violations when trying to self-administer an ICHRA.
A Third-Party Administrator acts as the privacy buffer, reviewing documentation so the employer never handles PHI. This helps ensure both the employer and employees remain protected.
Plan Documents, Adoption Agreement, and Required Notices
Because an ICHRA is a self-funded group health plan, it must be established and operated under ERISA-compliant plan documents. These documents define how the plan functions, who is eligible, how claims are handled, and what rights employees have.
The required documents include:
- Master Plan Document: The legal framework that outlines eligibility, employee classes, reimbursement rules, claims procedures, and administration.
- Adoption Agreement: Where the employer selects specific plan features such as contribution levels, employee classes, waiting periods, and whether out-of-pocket expenses are included.
- Summary Plan Description (SPD): A plain-language explanation of the plan that must be distributed to employees.
- ICHRA Employee Notice: Must be distributed at least 90 days before the plan year begins or before an employee becomes eligible.
If the employer wants employees to pay any remaining premium pre-tax through payroll, a Section 125 Cafeteria Plan may also be required. A Third-Party Administrator can help determine whether a Section 125 plan is needed and ensure that the documents are drafted correctly.
These documents are essential. If they are missing, outdated, or inconsistent, the plan is considered noncompliant even if reimbursements are handled correctly.
ACA Affordability (For Applicable Large Employers)
Employers with 50 or more full-time equivalent employees must meet ACA affordability standards when offering an ICHRA. This means the employee’s cost for the lowest-cost silver plan in their rating area, after applying the employer’s ICHRA allowance, cannot exceed the annual ACA affordability percentage.
A Third-Party Administrator can work with the employer and broker to:
- Determine if the contribution strategy meets ACA affordability requirements
- Explain the available safe harbors (W-2, Rate of Pay, Federal Poverty Line)
- Review how employee classes affect contribution design
- Provide current affordability percentage updates
- Document the employer’s affordability methodology
Brokers may help design the contribution model, and the Third-Party Administrator ensures the affordability reasoning and calculations are documented and maintainable for audit or compliance review.
Because an ICHRA is a self-funded group health plan, there are several ongoing reporting obligations that apply to the employer as the plan sponsor. These ensure continued compliance and help maintain the tax-free status of reimbursements.
ACA Reporting (For All Employers)
- Employers with fewer than 50 full-time equivalent employees (Non-ALE) must file Forms 1095-B and 1094-B to report that minimum essential coverage was provided under the ICHRA.
- Employers with 50 or more full-time equivalent employees (ALE) must file Forms 1095-C and 1094-C to report the offer of coverage and affordability.
A Third-Party Administrator ensures the correct forms are prepared, furnished to employees, and filed on time.
Regulatory Reporting Requirements
PCORI Fees (IRS Form 720)
Self-funded health plans must submit an annual PCORI fee based on the number of covered individuals. The filing is completed using IRS Form 720.
HOW WE HELP: A Third-Party Administrator calculates the fee, provides filing guidance, and maintains documentation.
Section 111 Medicare Secondary Payer Reporting
If any employees or dependents are Medicare eligible, the ICHRA must be reported to CMS under Section 111 rules. Reporting is ongoing and must follow CMS file submission requirements.
HOW WE HELP: A Third-Party Administrator manages reporting frequency, file structure, and submission confirmation.
Form 5500 Filing (When Required)
If the ICHRA has 100 or more participants, or the employer does not meet the small plan exemption, Form 5500 must be filed annually. The filing discloses participation counts, plan structure, and compliance data.
HOW WE HELP: A Third-Party Administrator prepares the required schedules and ensures accurate and timely filing.
COBRA and State Continuation
ICHRAs are considered group health coverage. Employers with 20 or more employees must offer COBRA, while employers with fewer than 20 employees must follow state continuation rules. A Third-Party Administrator manages the continuation process including notices, elections, timelines, and billing.
Why Employers Should Not Self-Administer
Self-administration often results in:
- Accidental access to PHI or HIPAA violations
- Missing or incorrect PCORI or Section 111 reporting
- Incorrect COBRA or state continuation handling
- Outdated plan documents
- Improper substantiation or reimbursements
- Affordability calculation errors
A Third-Party Administrator can prevent these issues by managing the administrative and compliance requirements.
How Flyte HCM Supports Employers and Brokers
Flyte HCM provides full ICHRA administration and compliance support, including plan design guidance, ERISA documentation, enrollment verification, claims substantiation, HIPAA-compliant invoice handling, affordability calculations consulting and review, COBRA continuation administration, and dedicated support teams.
If you are evaluating whether an ICHRA is the right fit for your organization or your clients, we are here to help. We work alongside brokers and employers, and the broker remains the broker of record. Schedule a discovery call to review plan design, compliance considerations, and implementation options.
Employees choose and purchase their own ACA-compliant individual health insurance plan or be enrolled in Medicare, including applicable Medicare parts. After enrolling, they must submit an official invoice or billing statement from their insurance provider as proof of premium. If the employer allows reimbursement for additional medical expenses, employees must submit detailed documentation (such as an Explanation of Benefits (EOB) or itemized receipts) to be reimbursed for eligible expenses.
Employers do not pay for insurance directly. Instead, they reimburse employees for their premiums and qualifying expenses after proof of payment is provided. This allows employers to manage costs without dealing with insurance carriers directly.
ICHRA can be offered by businesses of any size and allows different reimbursement amounts for different employee classes.
QSEHRA is only for employers with fewer than 50 employees and must offer the same reimbursement amount to all employees (with some adjustments for age and family size). Additionally, QSEHRA has annual contribution limits, whereas ICHRA does not.
It’s simple. ICHRA Administration puts cost control back in the employer’s hands and puts the choice of health coverage in the employee’s.
Yes, when properly designed and administered, ICHRA complies with IRS, ACA, and ERISA regulations. Using a third-party administrator ensures compliance and simplifies documentation requirements.
Third-party administration helps employers stay compliant, manage reimbursements, and simplify the employee experience. Admins handle documentation, reporting, claims processing and remittance of reimbursements.
ICHRA administration refers to the management of reimbursements, compliance, and employee communications related to an ICHRA plan. Many employers use a third-party administrator to handle these functions for efficiency and compliance.
