Are ICHRA plans subject to COBRA?

Yes. ICHRAs are considered group health plans under ERISA (Employee Retirement Income Security Act) and are therefore subject to COBRA (Consolidated Omnibus Budget Reconciliation Act) requirements for employers with 20 or more employees.

What COBRA means for an ICHRA

COBRA allows employees and their covered dependents to temporarily continue their ICHRA benefit after a qualifying event that would otherwise end their eligibility. Unlike COBRA for a traditional group health plan—where the former employee continues on the same insurance policy—COBRA for an ICHRA means the individual continues to receive reimbursements from the arrangement.

Qualifying events

COBRA rights are triggered by the same qualifying events that apply to traditional group health plans, including:

• Termination of employment (voluntary or involuntary, other than for gross misconduct)
• Reduction in hours that results in loss of eligibility
• Employee's death (for covered dependents)
• Divorce or legal separation (for covered spouse)
• A dependent child aging out of eligibility

How it works in practice

An individual electing COBRA continuation of an ICHRA:

• Continues to receive reimbursements up to the allowance amount established under the plan
• Must maintain individual health coverage that meets minimum essential coverage (MEC) requirements to receive reimbursements
• Pays the full cost of the ICHRA allowance, plus up to a 2% administrative fee (meaning the individual essentially reimburses the employer for the full allowance amount in order to remain eligible for reimbursements)

Is COBRA continuation of an ICHRA worth it?

This is an important consideration for departing employees. Because the individual must pay the full allowance amount to maintain eligibility, the financial benefit of COBRA for an ICHRA is typically limited—unlike a traditional group plan where COBRA allows access to employer-negotiated rates that may be lower than individual market pricing.

However, COBRA continuation of an ICHRA may still be valuable if:

• The plan allows reimbursement for qualified medical expenses beyond premiums, and the individual has significant out-of-pocket healthcare costs
• The individual has accrued rollover funds from prior years that they want to access
• The individual wants to maintain continuity while transitioning to other coverage

Employer notice requirements

Employers must provide COBRA notices to ICHRA participants just as they would for any other group health plan. This includes initial notices upon enrollment and qualifying event notices when COBRA rights are triggered.

Small employers

Employers with fewer than 20 employees are generally not subject to federal COBRA requirements. However, many states have "mini-COBRA" laws that apply to smaller employers, and these may extend to ICHRAs as well. Employers should verify the rules in their state.