Reference
ICHRA glossary
Plain-English definitions of the ICHRA, QSEHRA, and health-benefit terms you’ll run into — from affordability and safe harbors to employee classes and substantiation.
- ICHRA
- Individual Coverage Health Reimbursement Arrangement — an IRS-approved benefit that lets an employer of any size reimburse employees tax-free for individual health insurance instead of offering a group plan.
- QSEHRA
- Qualified Small Employer HRA — a capped version of the ICHRA idea for employers with fewer than 50 employees, with an annual IRS contribution limit and uniform terms.
- HRA
- Health Reimbursement Arrangement — an employer-funded arrangement that reimburses employees tax-free for qualified health expenses. ICHRA and QSEHRA are types of HRA.
- EBHRA
- Excepted-Benefit HRA — a limited, capped HRA that supplements other coverage (for costs like dental, vision, and copays) and cannot be an employer's primary medical benefit.
- GCHRA
- Group-Coverage (Integrated) HRA — an HRA that sits on top of a traditional group health plan to reimburse out-of-pocket costs; it requires a group plan to exist.
- MERP
- Medical Expense Reimbursement Plan — the Section 105 mechanism underneath HRAs. Today's ICHRA, QSEHRA, and EBHRA are all MERPs structured to meet current rules.
- Section 105
- The part of the tax code that allows employers to reimburse employees' medical expenses tax-free. It is the legal basis for HRAs.
- Allowance
- The monthly amount an employer offers each employee (or class) through an ICHRA to spend on individual coverage and, if permitted, other medical costs.
- Reimbursement
- The tax-free payment an employer makes to an employee for a substantiated health expense, up to the allowance.
- Affordability
- The IRS test that determines whether an ICHRA offer is 'affordable': the employee's cost for the lowest-cost Silver plan minus the allowance must be within a set percentage of income (9.96% for 2026).
- Safe Harbor
- An IRS-approved method for proving affordability without knowing an employee's household income. The three are the Federal Poverty Line, Rate of Pay, and W-2 wages methods.
- FPL Safe Harbor
- Uses the Federal Poverty Line to set a fixed monthly affordability cap (about $129.90 for 2026), the simplest way to guarantee an offer is affordable.
- Rate of Pay Safe Harbor
- Bases affordability on an employee's hourly wage times 130 hours, or monthly salary, instead of actual household income.
- W-2 Safe Harbor
- Uses the employee's W-2 Box 1 wages as the income basis for the affordability test.
- Lowest-Cost Silver Plan (LCSP)
- The cheapest Silver-tier plan available to an employee in their area. Its self-only premium is the benchmark used to test ICHRA affordability.
- SLCSP
- Second-Lowest-Cost Silver Plan — the benchmark used to calculate premium tax credits (subsidies) on the marketplace.
- Premium Tax Credit (Subsidy)
- An income-based ACA subsidy that lowers marketplace premiums. An employee offered an affordable ICHRA generally cannot also claim it.
- Metal Tiers
- The four ACA plan levels — Bronze, Silver, Gold, and Platinum — that trade premium for out-of-pocket cost. Higher tiers cost more monthly but cover more.
- Minimum Essential Coverage (MEC)
- Coverage that satisfies the ACA's individual and employer requirements. ACA-compliant individual plans qualify.
- Individual Market
- The market where people buy their own health plans (on or off the exchange), as opposed to employer group coverage. ICHRA runs on this market.
- On-Exchange / Off-Exchange
- On-exchange plans are bought through the ACA marketplace (and can use subsidies); off-exchange plans are bought directly from an insurer. ICHRA reimburses both.
- Marketplace / Exchange
- The platform where individuals shop for ACA plans — HealthCare.gov in most states, or a state-run exchange in others.
- Special Enrollment Period (SEP)
- A window, often 60 days, to buy individual coverage outside open enrollment — triggered by events like a new ICHRA offer, marriage, or a new child.
- Open Enrollment
- The annual period when anyone can enroll in or change an individual health plan.
- Employer Mandate
- The ACA requirement that Applicable Large Employers offer affordable, minimum-value coverage or face penalties. An affordable ICHRA satisfies it.
- Applicable Large Employer (ALE)
- An employer with 50 or more full-time-equivalent employees, subject to the ACA employer mandate and 1095-C reporting.
- Employee Class
- A permitted grouping of employees (like full-time, part-time, seasonal, or by geography) that an employer can offer different ICHRA allowances to.
- Minimum Class Size
- A rule requiring a minimum number of employees in a class when an ICHRA is offered alongside a group plan — 10, 10%, or 20 depending on employer size.
- Substantiation
- Proof that an employee has qualifying coverage and actually incurred an expense, required before an HRA reimbursement can be paid tax-free.
- Plan Document
- The written legal document that establishes an ICHRA's terms — eligibility, classes, allowances, and rules. Required for compliance.
- ICHRA Notice
- The written notice an employer must give eligible employees, generally at least 90 days before the plan year, explaining the ICHRA and its effect on subsidies.
- Rating Area
- A geographic area (based on counties/ZIPs) that insurers use to set individual-market premiums. It's why ICHRA pricing changes by location.
- Age Curve
- The federal schedule that lets insurers charge older enrollees more, up to a 3:1 ratio, for the same plan. It's why premiums rise with age.
- HSA
- Health Savings Account — an employee-owned, pre-tax account for medical costs, available with HSA-eligible high-deductible plans. Can coexist with a compatible HRA.
- FSA
- Flexible Spending Account — an employee-funded, pre-tax account for out-of-pocket medical costs, usually with use-it-or-lose-it rules.
- Minimum Value / Actuarial Value
- A measure of how much of expected costs a plan covers. Silver plans sit near 70% actuarial value, which is why Silver is used for benchmarks.
- CHOICE Act
- Proposed federal legislation (Custom Health Option and Individual Care Expense) that would codify ICHRA into statute rather than leaving it to regulation.
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