ICHRA: how an individual coverage HRA works in 2026

ICHRA rules at a glance

Annual cap

None setno dollar maximum in 26 CFR 54.9802-4

Age variation

Up to 3xoldest vs youngest worker's amount

Notice

90 daysbefore the plan year starts

Who gets paid back

Individual or Medicareenrollees only (Parts A and B, or Part C)

An ICHRA pays back premiums and medical costs only for people enrolled in individual health insurance or in Medicare (Parts A and B, or Part C). You set the allowance. The regulation lists no dollar maximum, which is the biggest difference from a QSEHRA, whose 2026 caps are $6,450 self-only and $13,100 family.

Within each class of employees the terms must be the same. Two variations are allowed: more money for employees with more dependents, and more money for older workers, up to 3 times what the youngest worker in the class gets. Workers must be allowed to opt out once per plan year, and you must verify that each participant has qualifying coverage.

How to set up an ICHRA, step by step

1. Sort your staff into classes. The rule allows classes such as full-time, part-time, salaried, hourly, seasonal, collectively bargained, employees in a waiting period, and employees in a given rating area.
2. Decide which classes get the ICHRA. A class gets either the ICHRA or your group plan, never both. If you mix the two across classes, the minimum class sizes in the next section apply.
3. Set the monthly allowance per class. Keep it identical inside the class, except for the dependent and age adjustments (age capped at 3 times the youngest worker's amount).
4. Send written notice at least 90 days before the plan year. For a January 1 plan year, that means early October of the year before.
5. Verify coverage before you reimburse. Each participant must be enrolled in individual coverage or Medicare.
6. Offer the annual opt-out. Employees can waive the ICHRA once per plan year.
7. Pick an administrator and connect payroll. Ask who handles notices, coverage checks and reimbursements, and what each costs.

If you have not run payroll yet, do that first: the steps for hiring your first employee cover the federal and state registrations an ICHRA sits on top of.

Minimum class sizes when you mix ICHRA and a group plan

These minimums stop employers from carving a handful of high-cost workers out of the group plan. If you offer only an ICHRA to everyone, the mixing problem does not come up. If you keep a group plan for, say, salaried staff and move hourly staff to an ICHRA, each affected class has to meet the size in the table. The regulation names which class types the minimum applies to, so have your administrator confirm your split before you send notices.

ICHRA vs QSEHRA: which one fits

Pick a QSEHRA if you are a small employer with no group plan, one allowance for everyone is fine, and the caps cover what you want to give. Pick an ICHRA if you want to give more than $13,100 a year to a family, pay managers and hourly staff different amounts, or keep a group plan for part of the company. More detail on the capped option is in QSEHRA rules and the 2026 limits.

What an ICHRA costs: allowance, premiums and admin fees

Your ICHRA bill has two parts: the allowance you choose and the administrator's fee. Employees buy their own plans and pay any premium above the allowance. We could not verify a 2026 individual-market premium figure on our check date, and no ICHRA administrator's price was in our research, so we do not print an average.

To size a budget, use the 2026 QSEHRA caps as a yardstick. They are not ICHRA limits, just a familiar reference point.

Add the administrator's per-employee fee once you have a quote. To compare the ICHRA with simply raising pay, run the raise through the cost of an employee calculator, which adds employer payroll taxes from the 2026 payroll tax rates.

ICHRA providers: Take Command and Thatch

Take Command and Thatch both run ICHRA programs for employers. Neither one's pricing was in our research as of October 16, 2026, so we cannot compare their fees. Ask each for the same items in writing:

• Monthly fee per participating employee, any monthly minimum, and any setup fee.
• Who sends the 90-day notice, who verifies coverage, and who keeps the records.
• How reimbursements are paid: through your payroll, or by the provider.
• Contract length, notice to cancel, and what you can export when you leave.
• How they handle the class rules and minimum class sizes if you keep a group plan.

If you would rather keep a group plan, a PEO puts your staff on its plan. Justworks publishes $79 (PEO Basic) and $124 (PEO Plus) per employee per month, with premiums on top (pricing page, checked October 16, 2026). Most other PEOs quote only; see what a PEO costs per employee and PEO companies ranked by our scores.

Moving from a PEO or group plan to an ICHRA

Most employers look at an ICHRA when a group renewal comes in high. Reviewers of ADP TotalSource on Capterra report renewal increases of 8% in 2025 and 18% in a second year (reviews dated April 2025 and May 2024, both more than a year old), and KFF data cited by Nayya (a secondary source) shows about 10% of 2026 small group rate filings asked for 20% or more. Those are reported figures, not a forecast for your plan.

• Time the switch to the plan year. The 90-day notice means you decide about three months before your renewal date.
• Leaving a PEO moves more than health insurance. The 401(k), FSA balances and payroll usually sit with the PEO too. Read PEO vs payroll service for what changes, and small business 401(k) options for the retirement plan.
• Compare the whole package. Our small business health insurance guide lays out group plans, PEO plans, ICHRA and QSEHRA side by side.

Common ICHRA mistakes

• Offering a class both options. A class gets the group plan or the ICHRA, and employees cannot choose between them.
• Missing the 90-day notice. Late notice pushes your start date.
• Reimbursing before verifying coverage. Only people in individual coverage or Medicare qualify.
• Splitting off a class that is too small. With a group plan in the mix, a company under 100 employees needs at least 10 people in the class.
• Stretching the age rule. Older workers can get more, but not more than 3 times the youngest worker's amount in the same class.
• Skipping the opt-out. Employees must be able to waive the ICHRA once each plan year.