ICHRA rules aren't especially complicated, but they're unfamiliar, and unfamiliar rules are where mistakes happen. After several years of ICHRA adoption, the same problems keep coming up. Here are eight to check with every client, ideally well before the next plan year begins.
1. Missing the 90-day notice
Eligible employees must receive a written notice at least 90 days before the plan year begins. For a January 1 plan year, that's early October. The notice has required content, including the allowance amount, how the ICHRA affects premium tax credit eligibility, and the employee's right to opt out.
How to avoid it: Work backward from the plan year start date and set the notice date first. Use the Department of Labor's model notice as a starting point. New hires and employers established less than 120 days before the plan year can receive the notice by the date coverage can begin, but that exception doesn't help an existing employer that simply started late.
2. Getting classes wrong
Common class errors include offering both a traditional group plan and an ICHRA to the same class, creating a hybrid design with an ICHRA class that's below the minimum class size, and changing class definitions in the middle of a plan year.
How to avoid it: Write down each class, which offer it receives, and whether the minimum class size rule applies (it does for hybrid designs using full-time, part-time, salaried, hourly, or sub-state geographic classes). Count employees as of the first day of the plan year.
3. Affordability shortcuts for ALEs
Applicable large employers sometimes set a flat allowance based on an "average" premium. Because premiums vary by age and location, a flat amount that looks affordable on average can leave older employees, or those in high-cost areas, unaffordable, which creates potential exposure to the employer shared responsibility payment.
How to avoid it: Run affordability for every full-time employee, using the required contribution percentage for the plan year (9.96% for plan years beginning in 2026) and a consistent safe harbor. Consider age-based allowances. Keep the documentation, because it also feeds Form 1095-C reporting.
4. Weak substantiation
The ICHRA must have reasonable procedures to verify that each participant (and any covered dependents) is enrolled in individual health insurance or Medicare, both when coverage begins and with each reimbursement request.
How to avoid it: Collect proof of enrollment at the start of the plan year, require an attestation or documentation with each reimbursement request, and keep records. Many employers use a third-party administrator for this.
5. Pairing a cafeteria plan with Exchange coverage
Under current law, employees can't pay their share of an Exchange (Marketplace) premium with pre-tax salary reductions through a cafeteria plan. Pre-tax payment is available only for individual coverage purchased off the Exchange.
How to avoid it: If the employer offers a cafeteria plan for premiums, explain the on- and off-Exchange difference clearly in enrollment materials. Pending legislation, H.R. 6703, would change this for CHOICE arrangement participants, but it hasn't been enacted.
6. Misaligned effective dates and enrollment windows
Gaining access to an ICHRA opens a special enrollment period in the individual market, but employees still have to act within the window and choose a plan that starts when the ICHRA does. Employees who wait can end up with a gap in coverage or months of allowance they can't use.
How to avoid it: Give employees a clear enrollment timeline, encourage them to select a plan before the ICHRA start date, and provide enrollment help. Brokers who can support individual enrollment add real value here.
7. Forgetting the PCORI fee
An ICHRA is a self-insured health plan for purposes of the Patient-Centered Outcomes Research Institute (PCORI) fee. According to the IRS, if an HRA is the employer's only self-insured plan, the employer counts one covered life per participating employee rather than counting dependents.
The fee is reported on Form 720 and is due July 31 of the year after the plan year ends. For plan years ending after September 30, 2025, and before October 1, 2026, which includes calendar year 2025 plans, the amount is $3.84 per covered life. That means calendar-year 2025 ICHRAs owe the fee by July 31, 2026.
How to avoid it: Put PCORI on the annual compliance calendar for every ICHRA client, along with any self-insured or level-funded group plan they sponsor.
8. HSA conflicts and Medicare questions
Starting in 2026, bronze and catastrophic Exchange plans count as HSA-qualified plans, which makes HSA pairing more attractive. But an ICHRA that reimburses medical expenses beyond premiums can make participants ineligible to contribute to an HSA.
Medicare-eligible employees raise separate questions. An ICHRA can reimburse premiums for employees enrolled in Medicare Parts A and B or Part C, but how Medicare Secondary Payer rules apply depends on the employer's size and design.
How to avoid it: Decide deliberately whether the ICHRA is premium-only, explain the HSA implications to employees, and get specific guidance before designing around Medicare-eligible employees.
Bonus: ACA reporting for ALEs
ALEs report ICHRA offers on Form 1095-C using codes 1L through 1U on line 14, the employee's required contribution on line 15, and the ZIP code used for affordability on line 17. Mistakes here often trace back to incomplete affordability records.
A pre-plan-year checklist
- Notice date set (90 days before the plan year) and notice drafted.
- Classes documented, minimum class sizes checked.
- Affordability run for every full-time employee (ALEs).
- Substantiation process in place.
- Cafeteria plan rules explained.
- Enrollment timeline and support planned.
- PCORI and Form 1095-C deadlines on the calendar.
- HSA and Medicare questions addressed.
None of these pitfalls are hard to avoid. They just need someone to own them, and that's often the broker.