ICHRA is flexible by design, but flexibility comes with compliance mechanics that need to be handled correctly from day one. Here's what actually has to happen.
Like any HRA, ICHRA must be established through a formal written plan document describing eligibility, employee classes, contribution amounts, and reimbursement procedures. Employers subject to ERISA (most private employers) generally also need an ERISA wrap document and Summary Plan Description.
Classes must be built using IRS-permitted criteria — full-time/part-time status, salaried/hourly, seasonal status, geographic rating area, and a handful of others defined in the regulations. Within a class, the same contribution structure must apply to everyone; you can't make individual exceptions without creating a new, properly defined class. Minimum class-size rules can also apply in some cases where an employer offers both ICHRA and a traditional group plan to different classes.
Eligible employees generally must receive written notice of the ICHRA offer at least 90 days before the start of the plan year, including specific required content — the contribution amount, an explanation of the right to opt out, and information relevant to marketplace premium tax credit eligibility. New hires mid-year have their own notice timing rules.
Plan year timing: ICHRA has no legal requirement to start on a calendar year, but the large majority of plans do — January 1st lines up with the individual marketplace's annual open enrollment window, which is the smoothest experience for employees shopping for a plan for the first time. Starting on a different date is possible but adds coordination complexity worth planning around deliberately, not defaulting into.
Employers subject to the ACA employer mandate (generally 50+ full-time-equivalent employees) need to ensure ICHRA contributions meet affordability thresholds for full-time employees, calculated using one of several IRS-provided safe harbor methods, to avoid potential employer shared responsibility penalties.
Employees must be enrolled in individual health insurance (marketplace, off-exchange, or Medicare) to receive ICHRA reimbursements, and employers generally need a substantiation process — confirming enrollment and reviewing documentation for each reimbursement request — to keep reimbursements tax-free.
The employer, as plan sponsor, is ultimately responsible — though most employers work with a licensed broker and/or benefits counsel to design and document the plan correctly.
There's a good-faith transition exception in some cases for the first plan year, but employers generally shouldn't rely on it — late notice can create compliance and employee-relations problems, so plan the timeline well in advance.
ICHRA has its own class-based structure rather than traditional Section 105(h) nondiscrimination testing, but contribution amounts must still be applied uniformly within a class and can't vary based on health status.