As more employers choose individual coverage health reimbursement arrangements (ICHRAs) over traditional group plans, employees wonder how these benefits impact eligibility for public federal programs like the Children’s Health Insurance Program (CHIP)1.
CHIP provides healthcare coverage to roughly 7.6 million Americans2. For employees with children, the offer of an ICHRA could affect their family’s ability to qualify for CHIP. So, employers and employees must understand the eligibility rules before considering the benefit. Below, we’ll explore how ICHRAs interact with CHIP so your employees can make the best decision for them.
In this blog post, you’ll learn:
- How accepting an ICHRA can impact a family's eligibility for CHIP coverage.
- CHIP and ICHRA eligibility rules, including income guidelines, affordability, and health plan options.
- How employers and employees can make informed decisions to coordinate ICHRA benefits with CHIP.
CHIP is a federal and state program that provides health insurance to specific groups of children whose family income is too high to qualify for Medicaid but too low to buy an individual health plan.
Like Medicaid, the state and federal governments jointly fund CHIP. But, all states must follow certain federal standards, such as eligibility, covered benefits, and cost-sharing amounts. Other than these guidelines, each state manages its own program.
States can choose to cover the following groups:
Children and pregnant individuals must meet financial and non-financial criteria to be eligible for CHIP. Financial eligibility uses a person’s modified adjusted gross income (MAGI), and CHIP thresholds vary from 170% to 400% of the federal poverty level (FPL), depending on the state3.
To meet the non-financial requirements, CHIP beneficiaries must be United States citizens or qualified non-citizens. They must be permanent residents of the state they’re requesting coverage and have no other health insurance plan.
CHIP provides healthcare coverage for various medical services, such as:
Some medical care, like routine check-ups and dental care, is free under CHIP. But, other services may require a small copayment. States can also choose to charge a monthly premium for coverage. But regardless of location, CHIP enrollees won’t have to pay more than 5% of their family's income level for the plan year.
Families can complete a CHIP application on HealthCare.gov at any point during the year4. If they qualify, HealthCare.gov will send their application to their state-run agency, which will reach out directly about enrollment. In most cases, CHIP coverage starts immediately after approval.
Now, let’s briefly review a few key points about the ICHRA. An ICHRA is an employer-funded health benefit for businesses of all sizes, regardless of industry or budget. With this personalized health benefits plan, employers can reimburse employees tax-free for their individual plan premiums and other qualified out-of-pocket costs.
Here's how the ICHRA works: You determine a monthly allowance to give your employees for medical care, including insurance coverage. When employees buy an eligible item and provide claim documentation, you reimburse them tax-free up to their allowance limit. Funds roll over month-to-month until the end of the plan year. Once they reach their allowance limit, they can’t exceed it.
Like other health benefits, the ICHRA has eligibility requirements. It only covers W-2 employees who have qualified individual health insurance coverage. Your staff’s legal spouses and dependents can also participate in the benefit. But, they need proper healthcare coverage, and you must make them eligible in the plan documents.
The ICHRA has several advantages for employers and employees. For example, it has no minimum or maximum contribution limits, making it budget-friendly. You can also use employee classes, age, and family status to vary allowances and eligibility requirements. Lastly, HRA reimbursements are payroll-tax-free for you and income-tax-free for your employees.
Those with employer-sponsored group health coverage are ineligible for CHIP. While ICHRA is a group plan according to the ACA, it doesn’t necessarily disqualify employees’ children from CHIP. Your employees’ children's eligibility for a CHIP health plan depends on whether your ICHRA allowance is affordable or unaffordable.
In 2025, an ICHRA is affordable if an employee pays no more than 9.02% of their household income for the lowest-cost silver health plan after factoring in their allowance. If you offer your employees an allowance that meets this threshold, they’ll have access to an affordable employer-sponsored health benefit. This would make their child ineligible to participate in CHIP.
However, they can use their ICHRA allowance to buy an individual health plan and add their child to the policy as an eligible dependent. If you offer an ICHRA, you’ll trigger a special enrollment period. This means your staff has 60 days to enroll in a qualified health plan on the individual market. As long as you design your ICHRA to cover dependents, employees and their children can receive reimbursements for their plan’s premiums and other out-of-pocket costs.
Remember, if your company is an applicable large employer (ALE) offering an ICHRA, your allowance must be affordable to comply with the employer mandate. If not, you’ll face tax penalties under the Affordable Care Act (ACA).
If your ICHRA allowance is unaffordable, employees can opt out of the benefit. In this case, an employee’s child can stay on their CHIP plan. Or, the employee can see if they qualify for advance premium tax credits (APTC) to buy a subsidized health plan on a public exchange. If the Marketplace determines that a child is no longer eligible for CHIP, because of the ICHRA or other changes, they’ll drop their CHIP coverage and join their parent’s plan as a dependent.
If a child is eligible for CHIP or Medicaid, they typically won’t qualify for premium tax credits. This is because they’re already receiving financial help.
Each state has different rules for CHIP eligibility and household income. Even if an ICHRA is affordable to the employee, some states may allow children to qualify for CHIP if the ICHRA doesn’t cover dependents.
Ultimately, the best way for employees to determine if they’re still eligible for Medicaid and CHIP is to contact their Health Insurance Marketplace and let them know about their ICHRA offer.
Coordinating the ICHRA with CHIP can be challenging. But it’s worth it to help your employees with children make the best choices for their health and finances. With the right information on plan design and affordable allowances, employers and families can ensure that children maintain necessary healthcare coverage without losing out on valuable benefits. If you can offer an affordable allowance to your employees and their dependents, they’ll no longer need to rely on CHIP coverage.
If you want to offer your employees an ICHRA, PeopleKeep by Remodel Health is ready to help. Schedule a chat with an HRA specialist today, and we’ll help you design your benefit!
1. Children's Health Insurance Program (CHIP)
2. Three Key Things to Know about CHIP
3. Medicaid, CHIP, & Basic Health Program Eligibility Levels