ICHRA is available to employers of every size, but the reasons employers adopt it, and the risks they need to manage, change dramatically once they cross into applicable large employer (ALE) territory. Brokers who tailor the conversation to the employer's size tend to get further, faster.
First, which side of the line is the employer on?
An employer is an ALE for 2026 if it averaged at least 50 full-time employees, including full-time equivalents, during 2025. Count related employers under common ownership together. Employers near the threshold should check every year, because ALE status determines whether the employer shared responsibility rules apply.
The small employer conversation (fewer than 50)
What small employers care about
- Offering something for the first time. Many small employers have never offered health benefits. The HRA Council's Volume 4 report, based on data from its member organizations, found that 83% of employers offering an ICHRA or QSEHRA in 2025 hadn't previously offered any coverage, while 17% moved from traditional group insurance.
- A fixed budget. Owners want to know their maximum cost per employee.
- Avoiding small-group hurdles, such as participation and contribution requirements.
The same HRA Council report found small (non-ALE) employer ICHRA adoption grew 52% from 2024 to 2025 among its founding members, which have reported data every year since 2020.
ICHRA or QSEHRA?
Small employers have two HRA options for individual coverage:
| QSEHRA | ICHRA | |
|---|---|---|
| Employer size | Fewer than 50 full-time employees (including equivalents) | Any size |
| 2026 annual limit | $6,450 self-only; $13,100 family | No statutory limit |
| Group plan alongside | Not allowed | Allowed for different classes |
| Employee classes | Limited exclusions | 10 permitted classes |
| Advance notice | 90 days | 90 days |
QSEHRA can be simpler for the smallest employers. ICHRA makes more sense when the employer wants to contribute more than the QSEHRA limit, design different allowances by class, or keep a group plan for some employees.
Key points to make
- No employer penalty applies, but affordability still matters: an employee offered an affordable ICHRA can't get a premium tax credit. With the enhanced credits expired, fewer employees will be better off waiving the ICHRA for a credit than in prior years.
- Plan availability varies by county. Check carriers and networks in the ZIP codes where employees live.
The ALE conversation (50 or more)
What ALEs care about
- Penalty exposure. For 2026, the employer shared responsibility payment is $3,340 per full-time employee (minus 30) under 4980H(a) and $5,010 per affected full-time employee under 4980H(b).
- Affordability across the workforce. The ICHRA must be affordable for each full-time employee under the 9.96% required contribution percentage for 2026 plan years, using a safe harbor such as the federal poverty line, rate of pay, or W-2.
- Workforce complexity: multiple states, hourly and salaried staff, seasonal workers, remote employees.
- Reporting. ICHRA offers go on Form 1095-C with specific codes and the ZIP code used for affordability.
The HRA Council reported that aggregated ICHRA adoption by ALEs rose 34% from 2024 to 2025, with some large-employer cohorts up 49%.
Design levers for ALEs
- Classes and hybrid designs. Offer group coverage to some classes and ICHRA to others. Minimum class sizes apply to hybrid designs that use full-time, part-time, salaried, hourly, or sub-state geographic classes.
- Age-based allowances. Varying allowances by age (up to 3:1) can keep older employees affordable without overfunding younger ones.
- Location safe harbor. Testing affordability at the employee's primary worksite can simplify the analysis.
- New-hire transition. Moving new hires to ICHRA while current employees keep the group plan reduces disruption.
The analysis has to be per-employee
For an ALE, the affordability analysis isn't a sample; it's every full-time employee. Missing ZIP codes, wrong birthdates, or misclassified employees produce wrong answers. Budget time for census cleanup.
HSA pairing is new for 2026
Starting in 2026, bronze and catastrophic plans available through an Exchange are treated as HSA-qualified high deductible health plans under the One Big Beautiful Bill Act. That opens a design option for employers of any size:
- A premium-only ICHRA paired with bronze plans may let employees contribute to an HSA, provided they have no other disqualifying coverage.
- 2026 HSA contribution limits are $4,400 for self-only coverage and $8,750 for family coverage.
- An ICHRA that reimburses medical expenses beyond premiums can interfere with HSA eligibility, so plan design matters.
One more thing to watch
H.R. 6703, which passed the House in December 2025, would codify ICHRA under the CHOICE arrangement name, shorten the notice requirement to 60 days, and allow pre-tax payment of Exchange premiums through a cafeteria plan. As of this writing, it hasn't passed the Senate, so current rules apply.
The takeaway
For small employers, lead with access and budget control. For ALEs, lead with compliance and design flexibility, and back it up with a full affordability analysis. The product is the same; the conversation shouldn't be.