As health insurance premiums continue to rise, traditional group health plans have become increasingly burdensome and unrealistic for many Colorado employers.
For businesses seeking a more flexible and cost-effective way to offer health benefits, Individual Coverage Health Reimbursement Arrangements (ICHRAs) are rapidly gaining popularity. These tax-advantaged accounts allow employers to contribute toward their employees’ individual market health insurance premiums, giving businesses a powerful tool to provide competitive benefits without the hassle and cost of managing a traditional group plan.
What Are ICHRAs?
ICHRAs, or Individual Coverage Health Reimbursement Arrangements, allow employers to make a defined contribution toward their employees’ individual health insurance premiums.
Instead of offering a traditional group plan where the employer manages the policy, ICHRAs let employees purchase individual insurance on the marketplace that best suits their needs, using funds provided by the employer.
With an ICHRA, employees can buy Affordable Care Act (ACA)-compliant individual insurance. Depending on their employer’s contribution, they may qualify for Marketplace premium tax credits (PTCs), but they cannot use both the ICHRA and PTCs for the same plan.
If an employer’s ICHRA contributions are pre-tax, the employee must buy an ACA-compliant plan off the Marketplace. Employers can adjust contributions based on age, offering up to three times more to older workers than younger ones to reflect age-based premiums in the individual market.
ICHRAs appeal to employers who want to control their health coverage costs, especially small businesses facing rising healthcare expenses. Despite this, ICHRAs have seen slow adoption due to tax and administrative complexities and concerns over individual market plan quality.
However, ICHRA enrollment is growing. The HRA Council reports a 29% increase in ICHRA adoption between 2023 and 2024, with about 5,000 firms offering ICHRAs in 2024.
For Colorado businesses, this approach offers flexibility and cost predictability. Employers can set a specific amount they are willing to contribute, and employees can use these tax-advantaged funds to purchase their own coverage, making it an attractive alternative to traditional group health plans.
From Our Newsletter: The Small Business Guide to ICHRAs
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Why ICHRAs Are a Game-Changer for Colorado Employers
1. More Affordable and Predictable Costs
One of the key reasons ICHRAs are gaining traction among Colorado employers is that traditional group health plans have become prohibitively expensive.
Rising premiums, increasing administrative burdens, and the complexity of managing group benefits can make offering traditional insurance a major headache, especially for small and mid-sized businesses.
With an ICHRA, employers have more control over their healthcare costs. They can define a fixed contribution toward employees’ individual health insurance, which helps them predict and manage their benefit budgets. Unlike group health plans, where costs can spiral out of control, ICHRAs offer a clear, manageable alternative.
2. Tax Advantages for Employers and Employees
ICHRAs come with significant tax advantages for both employers and employees, making them an even more appealing option.
Contributions made by employers are tax-deductible as a business expense, reducing overall tax liability. For employees, the funds they receive through ICHRAs are tax-free, meaning they can use the money to purchase individual health coverage without paying income taxes on the benefit.
For Colorado employers, these tax savings are particularly valuable since the state has its own income tax. The ability to offer tax-free contributions to health coverage makes ICHRAs a financially savvy choice for businesses looking to stretch their benefit dollars further.
3. Flexibility for Businesses of All Sizes
One of the biggest misconceptions about ICHRAs is that they’re only for small businesses.
In reality, ICHRAs are available to businesses of any size, from small startups to large corporations. This flexibility means that whether you have two employees or 2,000, you can use an ICHRA to offer health benefits that fit your company’s budget and your employees’ needs.
For smaller businesses that may have considered Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) in the past, ICHRAs are an even more flexible alternative. While QSEHRAs are limited to businesses with fewer than 50 employees and come with strict contribution limits, ICHRAs have no such limitations. Employers can choose how much they want to contribute, making ICHRAs a far more adaptable option.
Call to Action: Wondering if an ICHRA is right for your business? Contact a ColoHealth Personal Benefits Manager to discuss your options and create a custom plan that fits your business’s unique needs.
Learn More: Colorado Employee Health Insurance Requirements
How to Implement an ICHRA
Implementing an ICHRA is easier than you might think, and ColoHealth can help guide you through the process.
Here’s how to get started:
- Define Your Contribution. Decide how much your business will contribute toward employees’ individual insurance premiums. This can be a flat dollar amount or vary based on employee class or family size.
- Set Up the ICHRA.ColoHealth can assist with setting up your ICHRA, ensuring compliance with IRS regulations and helping you design a plan that meets your business’s goals.
- Employee Enrollment. Employees then shop for individual coverage that fits their needs. They can use ColoHealth’s resources to compare plans and find the best options in the Colorado marketplace.
- Reimbursement. Once employees purchase their individual insurance, they submit proof of coverage, and you reimburse them from the ICHRA, up to the defined contribution.
What Kinds of Businesses Should Consider ICHRAs?
ICHRAs can benefit businesses of all sizes and industries, but they are especially useful for:
- Small to Mid-Sized Businesses—If you’ve found traditional group health plans too expensive or complex to manage, ICHRAs offer a simpler, more budget-friendly alternative.
- Startups and Growing Companies—As your business grows, an ICHRA can scale with you, giving you flexibility in how you offer benefits while keeping costs predictable.
- Large Employers—Even larger companies are turning to ICHRAs as a way to give employees more choice and autonomy in their health insurance selection.
In short, if you’re a Colorado employer looking for a cost-effective, flexible way to offer health benefits, an ICHRA may be the solution you’ve been searching for.
How Greater ICHRA Adoption Could Affect Workers
While ICHRAs can have tremendous benefits for employers, you should be aware of some potential unintended consequences of implementing an ICHRA plan that could impact your work force.
One of the benefits of ICHRAs is that they tend to protect employers against unexpected health insurance premium increases from year to year. That’s because employers are not required to increase ICHRA contributions to match premium hikes or cover higher premiums for some employees. While some employers might choose to adjust contributions for medical inflation or employee needs, others may not.
But that means that your employees who get shifted from traditional group plans to ICHRAs and who are ineligible for premium tax credits (PTCs) could be exposed to rising health insurance premiums. If their premiums go up, but you don’t increase your ICHRA contribution, your employees will feel the squeeze themselves. Especially if they don’t get an Affordable Care Act subsidy to shield the blow.
Those moving from group health plans to individual market plans may also encounter higher deductibles and more limited provider networks.
That could impact employee morale, engagement, and retention. So keep an eye out for general premium increases in the individual insurance market, where your ICHRA participants buy their health insurance, and make sure your total compensation package remains competitive.
Consider Both Low-Wage and Higher-Wage Workers
ICHRAs can be particularly risky for low-wage and older workers. Low-wage employees might benefit more from PTCs and cost-sharing reductions available through Marketplace plans than from employer-sponsored insurance.
However, an ICHRA deemed affordable under the ACA makes them ineligible for Marketplace subsidies. Older workers may face higher out-of-pocket costs because individual market age ratings can result in higher premiums that aren’t fully covered by ICHRA contributions.
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ICHRA Conclusion
With rising health insurance costs and the challenges of managing traditional group health plans, Colorado employers need a new approach to employee benefits.
ICHRAs provide a flexible, tax-advantaged alternative that puts more control in the hands of employees while helping businesses manage their budgets. Whether you’re a small business or a large corporation, ICHRAs offer a compelling solution to the growing burden of health insurance.
If you’re interested in learning more about how ICHRAs can benefit your business, don’t hesitate to reach out to a ColoHealth Personal Benefits Manager. We’ll help you navigate the setup process and create a custom plan that works for you and your employees.
Contact us today for a free consultation and assistance with plan design and implementation!
For Further Reading: The Colorado Small Business Guide to Health Benefits|Colorado Employee Health Insurance Requirements|Colorado Healthshare Plans: The Best Health Care Cost Sharing Plans in the State [F.A.Q. & Overview] For 2025
Christine Corsini is a health insurance and medical cost sharing expert, and a Personal Benefits Manager at ColoHealth. Her goal is to help people embrace life’s amazing possibilities by staying healthy, saving money, and making the best decisions when it comes to healthcare.
