If your open enrollment packet this fall says your company is dropping its group health plan and giving you a monthly allowance to buy your own coverage, you have been moved onto an ICHRA. The acronym stands for individual coverage health reimbursement arrangement, it has existed since 2020, and it is spreading quickly enough that a lot of people are meeting it for the first time this year.
The number of employers offering one grew 99% between 2025 and 2026. Among employers with 1,000 or more workers, the count of eligible employees rose 178% year over year. Adoption is up more than 1,000% since 2020. Those are the kinds of growth rates that mean a benefit is moving from niche to normal, and the arithmetic behind it is not complicated: individual market premiums are climbing, but a fixed allowance protects the employer from that climb in a way a group plan does not.
Whether it protects you depends on details that are easy to miss in a benefits email.
How the arrangement works
Under a traditional group plan, your employer picks the insurer, picks the network, picks the deductible, and pays most of the premium. You get whatever they chose.
An ICHRA reverses that. Your employer sets aside a defined amount of money per month, you go buy an individual health plan on your own, and the employer reimburses your premium up to that amount. The money is tax free to you and deductible to them, same as group premiums. You pick the insurer, the network, and the deductible.
There is no federal cap on how generous the allowance can be, and no federal floor either. A company can offer $1,200 a month or $150 a month and both are legal. Employers are allowed to vary the amount by age and family size, and by a set of defined employee classes such as full time, part time, salaried, hourly, and seasonal, but they cannot hand different amounts to two people in the same class based on who they like. They also cannot offer you a choice between the group plan and the ICHRA. Whichever class you fall into gets one or the other.
The catch that trips people up is the enrollment requirement. You must actually be enrolled in individual health coverage to draw on the allowance. If you skip buying a plan, the money does not come to you as extra pay. It simply goes unused.
The subsidy trade-off
This is the part worth reading twice, because it can cost thousands of dollars and it is easy to get backward.
Ordinarily, someone buying a marketplace plan on their own may qualify for a premium tax credit that lowers the monthly cost. An offer of an ICHRA changes that calculation. If the allowance your employer offers is considered affordable under the rules, you are not eligible for any premium tax credit, whether or not you take the allowance. You take the employer money and buy your plan at full price, minus the reimbursement.
If the allowance is not affordable, you get a choice. You can opt out of the ICHRA entirely and claim the premium tax credit instead, or you can accept the allowance and forgo the credit. You cannot do both, and running the numbers is on you.
Which path wins depends on your household income and the premiums in your area. A worker earning $38,000 with a thin allowance may do far better opting out and taking the credit. A worker earning $120,000 gets no credit anyway, since the enhanced subsidies that ran from 2021 through 2025 expired and the hard cutoff at 400% of the federal poverty level is back. For that worker, any employer allowance is straightforwardly better than nothing.
What affordable means in dollars
The test is specific. Take the premium for the lowest cost silver plan available to you on the marketplace, subtract your monthly ICHRA allowance, and compare the remainder to your household income. For 2026 the threshold is 9.96% of household income. For 2027 it drops to 10.22%.
So if the lowest cost silver plan in your area runs $620 a month and your employer offers $400, you are left paying $220 a month, or $2,640 a year. On a $30,000 income that is 8.8%, which lands under the threshold and makes the ICHRA affordable. You lose access to the premium tax credit. On a $24,000 income the same arrangement comes to 11%, which is over the line, and you can opt out and claim the credit if that works out better.
The timing here is not friendly. Marketplace premiums are rising again, with preliminary 2027 rate filings pointing to average increases in the 14% to 15% range nationally, according to the Peterson-KFF Health System Tracker. That follows a median increase around 18% for 2026. A fixed allowance that covered most of a premium last year covers noticeably less this year, and the affordability math can flip from one side of the line to the other without your employer changing a thing.
The notice you should already have
Employers running an ICHRA have to give eligible employees written notice at least 90 days before the plan year starts. For a January 1 plan year, that notice was due around the beginning of October. It is supposed to tell you the allowance amount, explain that accepting it affects your eligibility for premium tax credits, and give you enough runway to shop.
That runway matters, because being newly offered an ICHRA triggers a special enrollment period on the individual market. Open enrollment for 2027 coverage begins November 1, 2026, and on healthcare.gov the window runs through December 15, 2026 for coverage starting January 1. Missing it is genuinely expensive, since the allowance is worthless without a plan attached to it.
If you did not receive a notice and you believe your employer is switching, ask for it in writing. The allowance number is the only piece of information that lets you do any of the math above.
What you gain and what you give up
The honest version is that an ICHRA is a real trade, not an upgrade or a downgrade.
You gain portability, since the plan belongs to you rather than to the job, which matters if you leave or get laid off. You gain choice, because you can pick a narrow network with a low premium or a broad one at higher cost depending on which doctors you care about keeping. For people whose group plan was mediocre, that choice is worth something.
You give up the employer’s negotiating power and the group risk pool. You take on the job of shopping for coverage every year, comparing networks and formularies yourself, and absorbing premium increases that your employer used to absorb on your behalf. And you take on the risk that the allowance stays flat while premiums climb 14% a year, which is exactly what the growth in employer adoption suggests some companies are counting on.
Before you sign anything, get the allowance amount in writing, look up the lowest cost silver premium for your zip code and age on HealthCare.gov, and run the affordability calculation. Check whether your current doctors are in network on the plans you can actually afford after reimbursement. Ask whether the allowance also covers out of pocket medical expenses or only premiums, since both designs exist. And if the numbers say the ICHRA is unaffordable, price out what a premium tax credit would give you instead before you accept.
An ICHRA can work well. It works best for people who check the math rather than assume the benefits team already did it for them.