How much should you contribute to an ICHRA?
One of ICHRA’s biggest promises is that it turns a benefits decision into a budget decision. With an individual coverage health reimbursement arrangement, the employer sets a contribution and employees choose their own health plans. For a large employer, that means leadership can decide what the business will spend while stepping away from choosing and managing a common plan for thousands of different people.
The employer still wants its employees to have adequate coverage, though, and setting a budget does not answer whether that coverage will be within reach. A company contributing $500 per employee wants to understand what that buys and what employees would pay themselves, which brings us to the question we keep getting: should we start with the budget, or with the coverage?
Start with the budget or start with the coverage
We see both approaches with customers: some have a firm spending limit and want a contribution strategy that gets them there, while others know the coverage they are comfortable supporting and want to understand what it would cost. Each approach makes one part of the decision easier and leaves a tradeoff to work through.
Starting with the budget gives the employer a clear limit on its contribution commitment. An average allowance of $500 per employee per month, plus administration and other program costs, becomes the constraint the analysis works within. The tradeoff is on the employee side: leadership needs to understand where that limit leaves people paying more or considering plans with higher cost sharing.
Starting with coverage makes the benefit target explicit, such as supporting plans similar to the current offering while keeping employee premium payments close to today’s. The analysis estimates the contribution schedule needed to support that target, which may produce a budget above what leadership had hoped to spend. This approach also requires a decision about how much of the premium employees should pay and whether the commitment extends to dependents.
The final design can follow either approach or combine them. A coverage target might give way to a measured increase in employee payments to meet the budget, or a fixed budget might move once leadership sees the employee impact. What matters is being explicit about which constraint is fixed and which can move.
Benchmark the workforce, then review the tradeoffs
At Kyra, our analysis benchmarks coverage costs for each employee at Bronze, Silver, Gold and Platinum levels, where available, alongside a closest-match benchmark to the employer’s current plan design. This gives us a way to work from either starting point: we can show what an allowance buys across the workforce, or estimate the contributions needed to support a chosen benchmark and employee payment target.
The closest-match benchmark looks at features such as deductibles, out-of-pocket limits and copays, while metal categories describe how plans share covered costs with members rather than the quality of care. Neither establishes that two plans are interchangeable: similar benefit amounts can come with different networks or prescription coverage. Employees still choose their own plans, so a benchmark supports the contribution model without determining their eventual costs.
For a large employer, the useful output shows how many employees would pay more for the selected benchmark, how large those increases would be and whether they are concentrated among older employees, families or particular locations. That gives leadership and its broker a manageable set of tradeoffs to resolve.
Show costs against both today’s spending and the renewal offer’s proposed employer–employee contribution split, because a proposal can cost less than the renewal while still costing more than this year. Any estimated rates should be identified and updated when final rates become available.
Refine the contribution without hiding who pays
Age bands and dependent support help refine either approach. The granularity matters because federal rating rules for ACA-compliant individual plans use one-year bands from ages 21 through 63, with a single band at 64 and older, although state rating rules can differ. A five-year contribution band holds the age-based allowance steady even when premiums differ, leaving employees at opposite ends of the band with different bills.
A one-year schedule lets the employer align contributions more closely with its target, but the starting schedule determines who benefits from the adjustment. Consider two employees within a 40–44 age band, with a target employee premium payment of $100 a month:
| Monthly amount | Age 40 | Age 44 |
|---|---|---|
| Plan premium | $640 | $700 |
| Allowance with a five-year band | $570 | $570 |
| Employee pays | $70 | $130 |
| Allowance with one-year bands | $540 | $600 |
| Employee pays | $100 | $100 |
Hypothetical, rounded premiums for self-only coverage; not market quotes or customer results. The employees are in the same class and market, each keeps the same plan across both designs, and both allowances are fully used. This illustrates part of a schedule rather than a complete plan design.
The employer spends $1,140 a month under either design, while the older employee pays $30 less and the younger employee pays $30 more. The finer schedule meets the stated target more precisely, with the same total spending. Any claim that an age-band change saves money needs the same comparison of employer and employee costs, because a lower employer contribution can mean a larger employee bill. The analysis should also distinguish allowances offered from reimbursements actually paid, since reducing an unused allowance does not necessarily reduce spending.
Dependent support deserves the same treatment: a contribution that produces a manageable employee-only payment may leave a substantial premium for someone covering a spouse or children. Modeling the household’s remaining payment makes that commitment visible, while the final schedule still needs to follow the ICHRA rules on employee classes and consistent age and dependent adjustments, including the 3-to-1 limit on age-based variation. A target of equal employee payments may need adjustment to fit those rules.
Read the stoplight analysis for what it shows
We use a red, yellow and green analysis to make employee impact visible against a defined benchmark and comparison period. For a contribution review, green might mean the modeled employee premium is maintained or reduced, yellow an increase within an agreed tolerance, and red an increase beyond it. Those colors help leadership judge the financial impact without implying that every aspect of a member’s coverage has been verified.
If unfavorable results are concentrated among employees covering dependents, the employer can test a different dependent allowance and see what it does to the budget. Concentration in a particular market may warrant a closer look at its benchmark options, with any known differences in plan design kept visible alongside the premium comparison.
Provider and prescription fit require a different level of information. Where that information is available, we can spot-check members with substantial or ongoing care needs, but that does not establish fit for the whole workforce. A fully insured employer may not have the member-level data needed to identify those cases before enrollment, so the process also needs a private route for employees to raise their needs and get help evaluating plans. Provider and prescription checks need to address the specific coverage a member is considering; they cannot be inferred from the metal level or closest-match result.
The employer can use the workforce analysis to choose its budget and benefit standard, while members get help with the personal questions the model cannot answer. That makes enrollment support part of the proposal: leadership needs to understand how employees will get that help alongside the financial recommendation.
Keep the affordability test separate
The employer’s chosen coverage benchmark is also different from the benchmark used for ICHRA affordability. For premium tax credit eligibility, the test uses the lowest-cost self-only Silver plan available to the employee, the relevant HRA amount and household income; an affordable offer can block Marketplace premium tax credits even when declined, and accepting ICHRA coverage prevents combining it with those credits. HealthCare.gov’s ICHRA guidance explains that interaction, while employers subject to the ACA’s employer shared responsibility rules also need the applicable employer affordability review.
The recommendation I would want to bring to leadership makes the employer’s commitment clear, shows the employee impact against a defined benchmark, and identifies the tradeoffs that require a decision. That is how a company can take advantage of ICHRA’s budget promise while making an informed choice about the level of benefits it supports.
To explore a contribution strategy with Kyra, start a renewal conversation with your budget, current benefits or renewal offer as the starting point.
