Many small nonprofits struggle to provide healthcare benefits for their staff due to the high cost of traditional group health insurance. However, an Individual Coverage Health Reimbursement Arrangement (ICHRA) offers a flexible, affordable alternative. With an ICHRA, organizations can reimburse their employees for individual health insurance premiums and other qualified medical expenses, all while maintaining control over their budget. This blog post will explain how an ICHRA works for small nonprofit organizations and outline the key regulations to ensure compliance.

What is an ICHRA?

An ICHRA is a type of Health Reimbursement Arrangement (HRA) that allows employers—including churches & nonprofits—to reimburse employees for individual health insurance premiums and other medical expenses tax-free. Unlike a traditional group health plan, an ICHRA gives staff the freedom to choose their own health insurance coverage, which the employer then reimburses up to a set amount.

Understanding How an ICHRA Works for Small Churches & Nonprofits

• Customize Eligibility
  You can choose which groups of employees are eligible—like full-time pastors, part-time staff, or ministry leaders. Keep in mind that employees offered an ICHRA cannot also be enrolled in a traditional group health plan.
• Set Your Own Budget
  You decide how much to contribute toward your employees' healthcare costs. There are no minimum or maximum limits, but all employees within the same class must be treated equally.
• Employees Pick Their Own Plans
  Your team members choose the individual insurance plan that works best for them—whether through the Marketplace, a private insurer, or even Medicare (if eligible). Our onboarding team is here to guide them every step of the way.
• Simple Reimbursement Process
  Employees submit proof of eligible expenses (like premiums or medical bills), and you reimburse them tax-free.
• Tax Benefits for Everyone
  ICHRA contributions are payroll tax free for your organization and tax free for your employees—as long as they maintain a qualifying health plan.

Key Compliance Notes for ICHRA:

To stay in line with federal regulations, keep these requirements in mind:

No offering a traditional group plan to the same class of employees as those receiving ICHRA.

• • ICHRAs must meet IRS affordability standards for employees who qualify for Marketplace premium tax credits.

  • Employees must be enrolled in a health plan that meets Minimum Essential Coverage (MEC).

  • You’re required to provide a notice to employees 90 days before the plan year starts.

  • Churches and nonprofits must keep records showing employees have qualifying health coverage.

  • Employee "classes" (e.g., full-time, part-time, clergy) must be clearly defined and treated fairly within each class.

Why ICHRA Makes Sense for Smaller Churches & Nonprofits:

For smaller churches and nonprofits, an ICHRA offers a smart, sustainable alternative to traditional group health insurance. One of the biggest advantages is cost predictability—you decide how much to contribute and maintain full control over your budget. These plans also provide greater flexibility for your staff, allowing each employee to choose the individual health insurance plan that best fits their personal and family needs. This level of choice and personalization can significantly enhance recruitment and retention, as offering tax-free health benefits shows your commitment to employee well-being. Plus, with far less administrative burden than a traditional group plan, you can focus more time and energy on your mission—and less on paperwork.

Final Thoughts

If your church or nonprofit has struggled to find an affordable way to offer healthcare, you're not alone. But with an ICHRA or QSEHRA, there’s a better path forward. These flexible arrangements allow you to support your team with meaningful, personalized benefits—without the cost or complexity of traditional insurance. It’s a win-win: your organization remains financially stable, and your staff gets the coverage they need.

💡 Ready to take the next step?
We’re here to help you design a health benefits solution that fits your mission, your people, and your budget.