ICHRA vs. HRA: What employers need to know

Health Reimbursement Arrangements (HRAs) are employer-funded plans that reimburse employees for medical expenses tax-free. While all HRAs follow the same basic principle—employer funding, tax advantages, and flexibility—there are important differences between the various types.

ICHRA, QSEHRA, and traditional integrated HRAs all fall under the HRA umbrella. Choosing the right model depends on your company size, goals, and whether you want to supplement or replace group coverage.

This guide focuses on the key differences between ICHRA and traditional HRAs to help you choose the right fit for your business.

The quick cut

• HRA is the umbrella term—ICHRA and traditional HRAs are two types
• ICHRA works for employers of any size and can replace group coverage
• Traditional HRAs must be paired with a group plan and can’t stand alone
• Key differences include eligibility, contribution design, compliance, and flexibility

What is an HRA?

A Health Reimbursement Arrangement (HRA) is an employer-funded benefit that reimburses employees for qualified medical expenses. All HRAs are owned and funded by the employer, not the employee, and reimbursements are tax-free.

There are three common types:

• Integrated HRA: Works alongside traditional group plans to offset deductibles and out-of-pocket costs.
• ICHRA (Individual Coverage HRA): Available to employers of any size; replaces group coverage.
• QSEHRA (Qualified Small Employer HRA): For companies with fewer than 50 FTEs that don’t offer group insurance. Read more about ICHRAs vs. QSEHRAs in this guide.

ICHRA vs. HRA at-a-glance

So how does ICHRA compare to a traditional HRA in practice? While both are employer-funded and tax-advantaged, they differ significantly in design, eligibility, and flexibility. Here’s a side-by-side look at the key distinctions.

Eligible employers

• ICHRA: Any size
• Traditional HRA: Any size, but often larger employers with group plans

Group insurance requirements

• ICHRA: None
• Traditional HRA: Must be integrated with a group plan

Contribution limits

• ICHRA: No federal cap
• Traditional HRA: No federal cap

Coverage type

• ICHRA: Individual market plans
• Traditional HRA: Group health plans only

Plan flexibility

• ICHRA: High (class-based benefit design allowed)
• Traditional HRA: Low (tied to group plan design)

Employee choice

• ICHRA: Employee choose their own plans
• Traditional HRA: Limited to employer-selected group plans

Premium tax credit impact

• ICHRA: May affect eligibility depending on affordability
• Traditional HRA: No impact

Compliance requirements

• ICHRA: ACA affordability (for ALEs), IRS notices
• Traditional HRA: Group plan compliance only

Best for

• ICHRA: Scalable benefits and cost controls across diverse teams
• Traditional HRA: Employers supplementing group plans

Ultimately, ICHRA offers the most flexibility—ideal for employers who want to replace group coverage with a more modern, customizable approach, develop tailored carve-out strategies for a portion of their workforce, or offer affordable, scalable benefits for the first time. 

That said, traditional HRAs still play a role, but are best suited for supplementing existing group coverage. 

Rules, funding, and compliance

Understanding how each HRA type is funded—and the compliance rules that come with it—is key to choosing the right fit for your organization.

• Funding: All HRA types are funded by the employer (not employees). Most are funded on a reimbursement basis rather than upfront.
• Rollover rules: Employers decide whether unused funds carry forward.
• IRS reporting: All HRAs require documentation and reporting.
• ACA compliance: Applicable Large Employers (ALEs) must meet affordability standards if offering ICHRA.

Zorro’s platform automates compliance workflows, generates audit-ready documentation, and ensures your plan stays within regulatory bounds—so you don’t have to worry about missteps and penalties.

Why more employers are choosing ICHRA over traditional HRAs in 2025

ICHRA isn’t a bolt-on solution or just another way to cut costs; it’s a strategic shift toward flexible, personalized benefits that meet today’s workforce where they are.

For employers, ICHRA means predictable monthly budgets, tailored by employee class. Whether you have 2 or 2,000 employees, the model scales easily and eliminates the unpredictability of annual group plan renewals. For employees, ICHRA often opens access to 50 to 100+ ACA-compliant plans, allowing them to choose coverage that fits their doctors, prescriptions, and budget. And because the plan is in their name, it stays with them—even if they change jobs.

With tax-free reimbursements and a personalized experience, ICHRA supports both workforce wellbeing and operational efficiency.

In conclusion

HRAs give employers a tax-advantaged way to support employee health needs—but not all HRA models offer the same impact.

For employers who want to move beyond group plans, ICHRA stands out for its flexibility, scalability, and employee choice. Traditional HRAs still serve a purpose when used to supplement group insurance, but they can’t match ICHRA’s versatility.

If you’re ready to launch a smarter benefits strategy, Zorro can help. Our platform simplifies ICHRA setup, compliance, and employee support—so you can focus on what matters most. Book a demo to see it in action.