What is ICHRA? A plain-English guide for SMBs
What is ICHRA? (And how do you say it?)
ICHRA stands for Individual Coverage Health Reimbursement Arrangement — try saying that five times fast. It's such a tongue-twister that no one actually uses the full name. Instead, you'll hear it referred to as ICHRA, pronounced as ICK-Ruh.
Here's what it means for your business: instead of choosing one health insurance plan for your whole team and hoping it works for everyone, you give each employee a fixed amount of tax-free money every month and let them buy whatever plan actually fits their life.
You set the budget. They choose the plan. Manage it all on StretchDollar's ICHRA platform.
Congress created ICHRA in 2020 — yes, right before the pandemic — because the old way of doing small-group health insurance was leaving millions of small businesses stuck. Too expensive. Too rigid. Too complicated. ICHRA was designed to fix all of that.
Why health insurance feels rigged against small businesses
Setting up traditional group health insurance for a small team can feel like an uphill battle — and that's because the system wasn't designed with small businesses in mind. Here are three of the biggest challenges you've probably run into:
Unpredictable Costs
Group health insurance premiums often increase every year, sometimes by double digits. As a small business owner, you have little control over these annual rate hikes — making budget planning nearly impossible.
The Participation Barrier
Many group plans require at least 60% of eligible employees to enroll. If several of your team members are covered through a spouse, Medicare, or another source, your business may not even qualify for coverage.
One-Size-Fits-None Coverage
You're forced to select a single plan for everyone, despite your employees having different doctors, prescriptions, family situations, and healthcare needs. What's a great fit for one person on your team may be a poor fit for another.
The result?
You end up paying more, dealing with more admin, and still not giving your team what they actually need.
Setting up ICHRA on StretchDollar
There are just four key steps when setting up your ICHRA with StretchDollar. The first three are yours. The fourth is ours.
Set your budget
Choose how much tax-free money you'd like to contribute toward your employees' health insurance each month. You can offer the same amount to everyone, or customize allowances by employee class, family status, or use Smart Rates™ to account for age and location.
Confirm your policy
Answer a few questions about your business, confirm your start date, and choose a waiting period — 0, 30, 60, or 90 days. That's the window before new employees become eligible.
Invite your team
Add your business bank account (this is where reimbursements will be drawn from) and confirm which employees are eligible. StretchDollar sends invitations automatically. If you use payroll software, your employee roster can be imported in one click.
We handle everything else
Once your employees enroll, your only job left is to approve reimbursements. StretchDollar will process reimbursements directly to employee bank accounts each month and keep your plan compliant with IRS requirements. You'll get a 1095 report at tax time and won't have to think about it otherwise.
What your team actually does
It's the top concern for every employer: "Can my team handle this?" Absolutely. Our intuitive, self-guided platform walks them through every step. Here are the 3 key steps your employees go through.
Add a bank account
Your employees connect the bank account where they'd like to receive their monthly reimbursements. StretchDollar sends reimbursements directly via ACH — no debit cards to manage, no special accounts to open, no middleman. Just a direct deposit into the account they choose.
Shop for a plan
Each employee uses StretchDollar's shopping platform — or gets 1:1 guidance from a licensed broker — to find an ACA-compliant plan that works for their doctors, prescriptions, and budget. Most find a plan they like in about 30 minutes, and they'll typically have far more options than a traditional group plan would have given them.
Enroll in auto-reimbursements
Employees upload proof of coverage. Once you approve it, their tax-free allowance arrives automatically before the 1st of each month, every month, for the rest of the plan year. They don't have to do anything after that.
ICHRA vs. traditional group insurance
Is ICHRA right for your business?
Probably yes, if any of these sounds familiar:
You got group insurance quotes and they were way too expensive.
You tried to set up a group plan and couldn't hit the 60% participation requirement
You've been offering nothing because group insurance felt too complicated or costly
Your group plan renewal just came in and you nearly spit out your coffee
Your company has fewer than 10 employees
The one case where ICHRA probably isn't the answer: your whole team is in one city, they love the group plan they're on, and the cost is manageable. Don't fix what isn't broken.
How to set your monthly allowance
There's no single right number. A simple approach: look up what a mid-tier marketplace plan (Silver plan) costs in your area, decide what percentage of that you want to cover, and pick a number you can sustain for 12 months. Most employers target covering 70–80% of a benchmark premium.
Important ICHRA rules for small businesses
Good news: if you have fewer than 50 employees, you're in what's called the non-ALE (non-Applicable Large Employer) market — which means fewer compliance requirements and more flexibility than large companies face. That said, there are three rules worth knowing upfront so there are no surprises later.
S-Corp owners and sole proprietors can't participate
If you own an S-Corp or run a sole proprietorship, you can't receive ICHRA reimbursements yourself. Doing so would be double-dipping on tax advantages. But your non-owner employees absolutely can. And S-Corp owners can still deduct their health insurance premiums on their personal Form 1040, the same way they do now.
Offering ICHRA triggers a special enrollment period
When you set up an ICHRA, your employees get a 60-day special enrollment period — meaning they can shop for and switch to an individual health plan outside of the normal open enrollment window. They don't have to wait until November. This is actually a feature, not a footnote: it means you can start an ICHRA any time of year and employees can get covered right away.
ICHRA and premium tax credits can't be combined
An employee can receive their ICHRA allowance or claim an ACA premium tax credit but not both at the same time. Premium tax credits are government subsidies that help lower-income individuals afford marketplace coverage. Once you offer ICHRA, employees who would qualify for a subsidy have to choose one or the other.
Questions we get all the time
Is there a limit on how much I can contribute?
No. ICHRA has no IRS contribution cap, giving employers complete flexibility to decide how much to contribute toward employees' health insurance. For businesses with fewer than 50 employees, there's also no minimum contribution requirement.
That said, employee participation and satisfaction tend to improve when the employer covers a meaningful portion of the premium. Many employers aim to cover at least 50% of an employee's monthly premium. StretchDollar's budgeting and quoting tools can help you find a contribution amount that balances affordability for your business with value for your employees.
Can I offer ICHRA and a group health plan at the same time?
Yes — but not to the same employees.
Federal rules allow employers to offer a traditional group health plan to one employee class and an ICHRA to another, as long as the classes are clearly defined and meet compliance requirements. For example, an employer might offer a group plan to full-time employees and an ICHRA to part-time employees.
These arrangements are often called "carve-outs" and have specific regulatory requirements. StretchDollar is designed primarily for businesses with fewer than 50 employees. If you're considering a carve-out strategy, contact our team and we'll help determine whether it's a fit.
What if an employee is already covered by their spouse's plan?
To receive tax-free ICHRA reimbursements, an employee must be enrolled in qualifying individual health insurance coverage.
If an employee is covered solely through a spouse's group health plan, they can't use ICHRA funds while remaining on that coverage. However, they may choose to leave their spouse's plan and enroll in their own qualifying individual health plan to take advantage of the ICHRA benefit.
Does ICHRA work for remote teams?
Absolutely. In fact, remote and multi-state teams are often ideal candidates for ICHRA.
Instead of trying to find a single group health plan that works across multiple states, each employee can shop for coverage available in their own area. Employees in Austin, Denver, Nashville, or anywhere else can choose plans with local networks, doctors, and pricing that fit their needs.
What does StretchDollar cost?
StretchDollar has a simple pricing structure.
- $100 per month platform fee
- $25 per participating employee per month
There are no hidden fees, and we don't earn commissions that increase your employees' premiums. You can read more about our pricing by visiting our pricing page or use our budget calculator to estimate your total monthly cost.
What health plans can employees choose from?
Eligible employees can pick from on- and off-exchange individual plans based on where they live. Most areas offer plans from 5 or more national and regional carriers (like Blue Cross Blue Shield & UnitedHealthcare) plus dozens of coverage options to fit different needs and budgets. Ready to get started?
Ready? Here's what to do next
Setting up an ICHRA with StretchDollar takes less time than it takes to finish that morning coffee. You just need a budget and a team.
