How to set up an ICHRA: a step-by-step guide

Step 1: Confirm you're eligible

Any employer with at least one W-2 employee who is not a self-employed owner or owner's spouse can offer an ICHRA. There's no minimum or maximum company size and no minimum-participation requirement.

If you currently offer a group health plan, you can keep it for one class of employees and offer an ICHRA to a different class — but you can't offer the same class both. Owner participation depends on entity type, so confirm how your structure (C-corp, S-corp, sole prop, partnership) is treated.

Step 2: Design your employee classes and allowances

Decide whether everyone gets the same allowance or whether you'll vary it by class — full-time vs part-time, salaried vs hourly, or by location — using the 11 permitted classes. Within a class, terms must be the same, though amounts can scale by employee age and family size.

Example: a 12-person firm might offer full-time employees $500/month and part-time employees $250/month, with the full-time amount increasing for older employees and those with families. Good design keeps the benefit fair and your costs predictable. If you also offer a group plan to some class, check the minimum class-size rules.

Step 3: Choose what the ICHRA reimburses

Decide whether your ICHRA reimburses premiums only, or premiums plus qualified out-of-pocket medical expenses. A premium-only design lets employees keep Health Savings Account (HSA) eligibility if they have a qualifying high-deductible plan; a broader design covers more but disqualifies HSA contributions. This is a deliberate design choice, not an afterthought.

Step 4: Set your start date

Pick a plan-year start date that leaves employees enough time to enroll in individual coverage — typically 60 days out at a minimum. Aligning the start with the ACA open enrollment period, or triggering a Special Enrollment Period, makes employee enrollment far smoother. Working backward from your start date is the key to hitting the notice deadline in the next step.

Step 5: Create the plan document

A compliant ICHRA needs a written plan document — the governing rulebook that defines eligibility, allowances, what's reimbursable, and how claims are substantiated and paid. You don't draft this yourself; an administrator or broker generates it. Without it, reimbursements can lose their tax-free status.

Step 6: Send the required ICHRA notice

You must give eligible employees a written ICHRA notice — generally at least 90 days before the start of the plan year. The notice states the allowance, explains how the ICHRA works, and critically explains how it affects ACA premium tax credits, so employees can decide whether to take the ICHRA or a subsidy. New hires mid-year are notified before their coverage start. Missing or mistiming this notice is one of the most common setup errors.

Step 7: Help employees enroll in coverage

Employees buy an individual plan on or off the ACA marketplace. This is the step that makes or breaks a rollout: handed a portal and left alone, some employees stall; guided through plan selection, most end up with coverage they prefer to a one-size group plan. A broker walking employees through enrollment is where the experience is won.

Step 8: Substantiate coverage and reimburse

• Collect proof that each employee has qualifying individual coverage (and, for expense reimbursement, proof of eligible expenses).
• Process tax-free reimbursements monthly, ideally through payroll.
• Keep records for compliance and renewals.
• Re-verify coverage annually.

Documents and information you'll need

• Your employee roster with classifications (full-time, part-time, location, etc.).
• The allowance amounts you've chosen per class.
• A compliant plan document and the employee notice (generated by your administrator or broker).
• A way to collect proof of coverage and expenses (a platform or simple substantiation process).
• A reimbursement method — usually integrated with payroll.

How long ICHRA setup takes

Most employers launch in two to six weeks. The binding constraint is rarely paperwork — it's the required employee notice and giving people enough runway to enroll in individual coverage. If you're aligning with open enrollment, plan further ahead so employees can choose plans during the standard window.

Common ICHRA setup mistakes

• Setting an allowance without checking affordability, accidentally costing employees their ACA subsidy.
• Missing or mistiming the 90-day employee notice.
• Choosing a full-expense design when employees wanted to keep HSA eligibility.
• Designing classes that violate minimum class-size rules when a group plan is also offered.
• Reimbursing without proper substantiation, jeopardizing tax-free status.
• Giving employees too little time to enroll in individual coverage.

Doing it yourself vs. using a broker or platform

You can technically run an ICHRA yourself, but most employers don't — the plan document, notices, substantiation, and especially employee enrollment are where mistakes happen and where time disappears. An administration platform automates the back office; an independent broker adds plan-design guidance and hands-on employee enrollment support, often at no direct cost to you. For a first-time setup, that support is usually worth it.