The 5 Most Pertinent Questions We’ve Been Asked About ICHRA This Year

Throughout 2025, we’ve hosted dozens of webinars and panels where we dug into the details and strategies of ICHRA. The conversation has always been rich and detailed—but afterward, we almost always received a handful of essential ICHRA 101 questions that are worth revisiting.

Here’s a quick refresher featuring the five most common questions we’ve been asked about ICHRA this year.

1. What are ICHRA classes and how do they work?

With an Individual Coverage Health Reimbursement Arrangement (ICHRA), employers can group their workforce based on 11 employee classes based on factors like employment type (hourly vs. salary) or geographic location. 

You can offer different allowances to each class, giving your company the flexibility to tailor benefits while remaining compliant with ACA regulations. You can even combine classes—for instance, you may offer one allowance to salaried managers in Ohio, and another allowance for hourly employees in the same state. 

The key is consistency: Everyone in the same class(es) must receive the same benefit.

2. How do carve-outs work?

ICHRA carve-outs let companies use the ICHRA model for a specific group of employees—without transitioning away from an existing group plan completely. 

For instance, a multi-state company may offer employees at its headquarters a core group plan, but “carve out” employees in other states who might otherwise struggle with limited network access or prefer carriers not included in the core group plan. Those employees can then use an ICHRA allowance to shop for local, ACA-compliant plans that better fit their needs.

A final note on carve-outs: Each group must meet a minimum class size requirement based on the size of the company. Here’s a quick overview:

• Less than 100 employees: At least 10 employees per class
• 100-200 employees: At least 10% of the total number of employees
• 201 or more employees: At least 20 employees per class

3. What’s the difference between on- and off-exchange plans? 

Individual plans typically fall into one of two categories: on-exchange or off-exchange. On-exchange plans are those sold on Healthcare.gov or state marketplaces, while off-exchange plans are sold directly by carriers. Both on- and off-exchange plans are ACA-compliant. The distinction mainly affects how plans are purchased and whether subsidies apply: 

• On-exchange: These plans allow employees to apply subsidies if they don’t receive an affordable ICHRA and their salary is below a minimum threshold. Once an affordable ICHRA is offered, they are no longer eligible for tax subsidies.
• Off-exchange: These plans often mirror on-exchange options but don’t allow for tax subsidies. They may be less expensive than their counterparts and, increasingly, are being built to support the evolving needs of the group plan market.

Generally, ICHRA administrative platforms like Zorro enroll employees in off-exchange plans. Why? Because off-exchange enrollment unlocks important advantages: employers and employees can use Section 125 to make premium payments with pre-tax payroll deductions. That means no after-tax payments for employees, lower taxable income, and reduced FICA obligations for employers.

4. Can you use ICHRA with Medicare?

Employees (or eligible spouses) enrolled in Medicare can absolutely participate in ICHRA. Their monthly allowance can be applied toward Medicare Parts A and B (original Medicare), Part C (Medicare Advantage), or Medicare Supplement premiums.

One thing to note: Medicare plans don’t appear on ICHRA shopping platforms, including Zorro. Instead, enrolled employees simply report their existing Medicare coverage and premium cost. Then, their employer will then add their ICHRA allowance to their paycheck each month as a tax-free reimbursement.

Eligible for Medicare but don’t have a plan yet? You’re in good hands. Zorro’s Enrollment Team will provide 1:1 support to purchase a Medicare plan, set up reporting, and ensure reimbursements flow smoothly. 

5. Can I use ICHRA for 1099 employees?

The short answer: no. ICHRA is only available to W-2 employees, so independent contractors, freelancers, and gig workers can’t participate.

But that doesn’t mean you can’t support 1099 employees with ICHRA tools. As we shared in this guide to ICHRA for 1099 employees, employers can still support contractors by giving them access to guided insurance shopping through platforms like Zorro. Even without an allowance, this kind of support helps contractors feel valued, strengthens loyalty, and reduces churn in a workforce segment that’s often difficult to recruit and retain.

In conclusion

If 2025 has shown us anything, it’s that curiosity about ICHRA is higher than ever. Brokers, employers, and employees alike are asking thoughtful questions (and engaging in spirited debates!) about flexibility, compliance, and real-world application—and that’s exactly where innovation starts.

At Zorro, we believe the future of benefits lies in clarity, choice, and collaboration. Whether you’re still exploring ICHRA basics or ready to dive into advanced strategies, we’re here to help make the path forward simple and successful. Curious about how ICHRA could work for your team or your clients? Book a demo with Zorro.