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Section 125 plans, FSAs, HRAs, and HSAs come with plan documents, nondiscrimination testing, and substantiation rules. ABY can set up and administer your tax-advantaged accounts so they stay compliant.
Deliver the ICHRA Notice at least 90 days before the plan year (or at eligibility for new hires).
Participants must maintain qualifying individual coverage to receive reimbursement. Confirm before paying.
Set the allowance to meet a safe harbor; the FPL safe harbor employee cost is $129.90/month for 2026.
| Trigger | Due Date / Window | Notes |
|---|---|---|
| ICHRA Notice | At least 90 days before plan year (or at eligibility for new hires) | Explains allowance amount, classes, premium tax credit impact, and individual coverage requirement. Use the DOL model notice, see Templates & Resources below. |
| Plan document & SPD | Before plan year | Must define classes, allowance amounts, eligible expenses, substantiation process, and appeals. |
| Monthly coverage substantiation | Each month | Participants must maintain qualifying individual coverage to receive reimbursement. Confirm before paying. |
| Affordability check (ALEs only) | Before plan year and on allowance changes | Set allowance to satisfy an affordability safe harbor. The 2026 threshold is 9.96% of household income (FPL safe harbor: $129.90/month employee cost). |
- ICHRA Plan Document + SPD: Must define classes, allowance amounts, eligibility, substantiation process, denial and appeal rights.
- ICHRA Notice: Customized to your plan: allowance, classes, PTC impact, opt-out instructions. See the DOL model notice in Templates & Resources below.
- Substantiation process: Monthly attestation and proof of individual coverage; a TPA typically manages this workflow.
- Payroll or funding setup: Reimbursements must flow correctly for tax reporting purposes.
- Election/Opt-Out form; allowance schedule by class; monthly attestation form.
- Affordability worksheet (ALEs only): Document which safe harbor you used and confirm the allowance meets the 9.96% threshold for 2026.
- Individual coverage required: The employee (and any reimbursed dependents) must be enrolled in qualifying individual major medical coverage or Medicare. ICHRA cannot reimburse employees who are uninsured.
- No group plan for the same class: You cannot offer a traditional group health plan to the same class of employees that receives ICHRA.
- Opt-out right: Employees must have an annual opportunity to opt out of ICHRA. Employees who opt out and enroll in Exchange coverage may be eligible for a premium tax credit.
- HSA compatibility: If employees want to contribute to an HSA, design the ICHRA as premium-only. Reimbursing first-dollar medical expenses disqualifies HSA contributions.
- Electronic delivery: Notices and records may be delivered electronically with proper consent. Protect any PHI in your substantiation workflow.
- Plan document and SPD, plus amendmentsKeep all versions and proof of distribution.
- 90-day ICHRA NoticesWith evidence of timely delivery for each recipient.
- Monthly attestations and reimbursement logsRetain PHI with your TPA when possible.
- Affordability worksheets (ALEs only)Document the safe harbor method used; retain any corrections.
- Opt-out electionsAnd documentation of mid-year changes.
Can we reimburse an employee before they prove they have coverage?
No. You must substantiate that the employee is enrolled in qualifying individual coverage before reimbursing. Paying first and asking questions later is a compliance failure.
What if an employee wants to take a premium tax credit instead?
An employee offered an affordable ICHRA generally cannot also claim a premium tax credit. If the ICHRA is unaffordable, or if the employee opts out, they may be eligible for a PTC on Exchange coverage. Your ICHRA Notice must explain this clearly.
Can we offer both ICHRA and traditional group coverage?
Yes, but not to the same class of employees. You can offer group coverage to full-time employees and ICHRA to part-time employees, for example. Mixing the two for the same class is not permitted, and minimum class-size rules apply when you offer both.
Does ICHRA cover dental and vision?
It can, if the plan document allows it. However, reimbursing first-dollar medical expenses (including dental and vision) will disqualify employees from making HSA contributions. A premium-only design preserves HSA eligibility.
What's the main advantage of ICHRA over a group plan?
Predictable employer costs, more plan choice for employees, and portability: employees keep their individual coverage if they leave. The tradeoff is more compliance process around classes, notices, and monthly substantiation.
- Medicare-eligible employees: ICHRA can reimburse Medicare premiums and qualifying expenses if the plan allows. Coordinate with HSA rules; Medicare enrollment disqualifies HSA contributions. See the Medicare Premium Reimbursement Arrangement (MPRA) page for employers where Medicare is the primary focus.
- Waiting periods and mid-year hires: Deliver the ICHRA Notice as soon as administratively feasible when a new employee becomes eligible. Coordinate with individual market open enrollment windows so new hires can actually obtain coverage.
- State marketplace nuances: Plan availability, enrollment windows, and billing methods vary by state. Some states run their own Exchange with different rules; verify what's available in your employees' locations before setting allowance levels.
- Class-size minimums: When offering ICHRA to one class and group coverage to another, certain classes (e.g., salaried vs. hourly) must meet minimum size requirements. Confirm with your TPA or counsel before finalizing class definitions.
The federal government provides a model ICHRA notice you can customize; here's what to use and where to get help with the parts that benefit from professional setup.
Where a TPA or broker helps: Drafting the plan document, SPD, and customized ICHRA Notice, and running affordability calculations if you're an ALE, is where most employers get into trouble without guidance. A TPA that specializes in ICHRAs can set up the plan, manage monthly substantiation, and keep the document current. This is a recurring service, not a one-time cost, because substantiation and annual refresh are ongoing.
DOL Model ICHRA Notice: The Department of Labor provides a model notice you are required to customize and distribute at least 90 days before the plan year. It covers the allowance amount, class structure, premium tax credit impact, and opt-out instructions.
⬇ Download the DOL Model ICHRA Notice (PDF). Fill in your plan year, allowance amount, class definitions, and contact information before distributing.
Monthly substantiation, what employees submit:
| Document | When to Collect | What It Verifies |
|---|---|---|
| Proof of individual health insurance enrollment (insurance card, carrier letter, or declarations page) | At enrollment and annually at renewal; update if coverage changes | Confirms the employee is enrolled in qualifying individual major medical or Medicare coverage |
| Monthly premium invoice or carrier statement | Each month (or annually if premium is fixed and plan allows annual substantiation) | Confirms the premium amount being paid and that coverage is active for the reimbursement period |
| Monthly coverage attestation (signed by employee) | Each month | Employee confirms coverage is active for the current month; required before reimbursement is made |
| Medical expense receipts (if plan reimburses expenses beyond premiums) | At time of claim submission | Itemized receipts showing date, provider, and amount; required for any non-premium reimbursement |
| Reimbursement log (employee name, period, expense type, amount claimed, amount approved, date paid) | Maintained monthly by the employer or TPA | Your audit trail; shows each reimbursement was within the allowance cap and supported by documentation |