ICHRA costs: how much should you contribute?

No floor, no ceiling

Unlike a QSEHRA, an ICHRA has no IRS contribution limit — and no minimum either. You decide what to offer, from a token amount to full premium coverage. That freedom is the whole point: your cost is whatever allowance you set, fixed in advance, instead of a renewal you can’t control. The flip side is that the number is yours to get right.

How employers set the allowance

There’s no formula, but a few reference points are common. Some employers start from what they currently spend (or would spend) on a group plan and convert it into a per-employee allowance. Others anchor to the local market — for context, the average employer-sponsored premium in 2026 runs around $9,300 a year for single coverage and roughly $27,000 for family coverage, so even a partial allowance is meaningful. Many simply pick a flat monthly figure per class that fits the budget. You can also vary the allowance by age and family size within a class to track real premium costs.

The affordability angle

Your allowance does more than set your cost — it decides whether employees use the ICHRA or take a Marketplace subsidy. A larger allowance makes the benefit “affordable” under the IRS test, in which case employees use it and can’t also claim a premium tax credit. A smaller one may leave lower-income employees better off opting out for a subsidy. So the contribution is partly a strategic choice about which path you want your team on — we walk through it in the affordability guide.

If you have 50+ employees

For applicable large employers — generally those with 50 or more full-time-equivalent employees — the allowance isn’t just strategic, it’s a compliance number. To satisfy the ACA employer mandate with an ICHRA and avoid penalties, the benefit has to be “affordable”: after your allowance, an employee’s share of the lowest-cost silver plan in their area can’t exceed a set percentage of household income. For 2026 that threshold is 9.96% (up from 9.02% in 2025). Smaller employers don’t face the mandate, but the same affordability math still governs the subsidy interaction.

Don’t forget administration

Beyond the allowance itself, budget for administration. Most employers use an ICHRA administrator to send the required notices, verify that employees actually have qualifying coverage, process reimbursements, and keep the plan compliant — typically a per-employee, per-month fee. It’s usually modest next to the allowance, but it’s a real line item, and doing the substantiation yourself is rarely worth the compliance risk.

The bottom line

With an ICHRA you set the number, so the question is less “what does it cost” than “what should I offer.” Anchor it to your budget and your market, decide whether you want it to clear the affordability bar (and, at 50+ employees, whether it has to), and add administration on top. A benefits advisor or administrator can model the trade-offs against your team. This is general information, not tax, legal, or benefits advice.