Not All Coverage Qualifies: What ICHRA Can and Cannot Reimburse

One of the most common sources of confusion — and employee frustration — in ICHRA programs is the assumption that any health coverage counts.

ICHRA reimbursements are not a general health spending account. Employers fund them, employees spend them — but only on specific categories of coverage. The IRS and ACA framework are clear on what qualifies, and a meaningful number of commonly held plan types fall outside that boundary.

This matters operationally. When employees enroll in non-qualifying coverage and attempt to submit for reimbursement, administrators have to deny those claims. When that happens at scale, or to employees who weren't warned, it creates friction, complaints, and sometimes a fundamental misunderstanding of what ICHRA is.

The solution is education — upfront, specific, and before open enrollment.

The Rule: Individual Health Insurance Coverage

To be eligible for ICHRA reimbursement, coverage must qualify as "individual health insurance coverage" as defined under Section 2791 of the Public Health Service Act. In plain terms, this means ACA-compliant individual or family plans — typically purchased on or off the ACA marketplace.

Coverage that does not meet this definition is not reimbursable, regardless of what the employee paid for it or how comprehensive it might be.

Coverage Types That Do Not Qualify

The following categories are among the most common sources of confusion:

Short-Term Limited Duration Plans (STLDs)

STLDs are specifically excluded from ACA individual market requirements — which is precisely why they are not reimbursable under ICHRA.

These plans often look similar to real coverage on the surface: deductibles, copays, provider networks. But they are not ACA-compliant and fall outside the qualifying coverage definition.

Employees drawn to STLDs because of lower premiums may not realize they are giving up ICHRA dollars in the process.

Health Care Sharing Ministry (HCSM) Plans

Sharing ministries are membership-based cost-sharing arrangements, not insurance. They are exempt from ACA regulations and do not qualify as individual health insurance coverage.

Some sharing ministry plans have significant enrollment, and participants often think of them as their "health plan." Under ICHRA rules, they are not.

There is a separate HRA vehicle — the Individual Coverage HRA for sharing ministry members — but it operates under different rules and is outside the scope of a standard ICHRA program.

Indemnity and Limited Benefit Plans

Fixed indemnity plans, accident-only coverage, and limited benefit plans are generally considered "excepted benefits" under the ACA — not comprehensive individual coverage.

These are often sold as supplements to major medical, not replacements. Employees who hold only these plans and attempt to use ICHRA will find their claims denied.

International and Expatriate Health Plans

Plans designed for people living or working abroad typically are not ACA-compliant individual market products and do not qualify.

This matters for employees who maintain international coverage, remote workers with cross-border arrangements, or households with members covered under a foreign plan.

Student Health Insurance Plans

Coverage offered through a university or college is generally not sold as individual health insurance under the ACA. These plans are regulated separately and typically do not meet the qualifying coverage definition for ICHRA purposes.

This is a particularly nuanced situation — student health plans are often comprehensive and ACA-adjacent in their benefits, but they exist outside the individual market framework. See the companion article for a deeper discussion of how this plays out in practice.

Medicaid (Most Circumstances)

Most Medicaid coverage does not qualify for ICHRA reimbursement, and employees enrolled in Medicaid are generally not eligible to participate in ICHRA at all under the coordination rules.

There are narrow exceptions for certain types of Medicaid coverage, but the general principle is that Medicaid and ICHRA do not run in parallel.

Medicare Part A Only

Employees enrolled in Medicare Part A but not Part B are in a gray area. The IRS guidance on ICHRA coordination with Medicare has evolved, and this is worth confirming with qualified ERISA counsel depending on the specific circumstances.

What Does Qualify

To be clear: the list of what qualifies is also meaningful. ACA-compliant individual and family plans purchased through the marketplace or directly from a carrier are the core eligible product. That includes:

On-exchange plans (all metal tiers)

Off-exchange ACA-compliant individual plans

Medicare Part B, Part D, and Medicare Advantage (for employees eligible for Medicare)

COBRA continuation coverage (in limited circumstances)

Retiree coverage under an employer group plan (in limited circumstances)

The marketplace is where most working-age ICHRA participants will land — and that is intentional. ICHRA was designed to drive employees toward the individual market, which is why the reimbursement rules are constructed around ACA-compliant coverage.

The Operational Takeaway

For TPAs and GAs administering ICHRA programs, this is a content and communication problem as much as a compliance one. Employees need to understand which coverage types qualify before they make enrollment decisions — not after.

Building clear guidance on qualifying coverage into onboarding materials, open enrollment communications, and the reimbursement portal is one of the most effective ways to prevent downstream claim denials and employee frustration.

When an employee submits a claim for a non-qualifying plan, the right answer is a clear denial with an explanation — not an ambiguous rejection. The communication around why a claim was denied often matters as much as the denial itself.

Kyndly provides an enablement layer for TPAs and GAs operating ICHRA programs — the tools, integrations, and operational infrastructure to run defined contribution health benefits at scale.