ICHRA and HSAs: When Employees Can Still Contribute

How premium-only CHOICE Arrangements (ICHRA) work with Health Savings Accounts, including the expanded eligibility rules for Bronze and Catastrophic plans beginning in 2026.

An employer considering a CHOICE Arrangement (ICHRA) may have employees who already contribute to Health Savings Accounts (HSAs). One of the first questions during benefit design is whether those employees can continue making contributions after moving to individual health coverage.

The answer depends on two things: what expenses the employer’s ICHRA is designed to reimburse and which health insurance plan the employee chooses.

A premium-only ICHRA generally allows an otherwise HSA-eligible employee to continue contributing to an HSA. An ICHRA that reimburses a broader range of medical expenses can have a different result. Beginning in 2026, new federal rules also expand the types of individual health insurance plans that can support HSA contributions, making it particularly important to understand both sides of the arrangement.

Who Is Eligible to Contribute to an HSA?

A Health Savings Account allows eligible individuals to set aside money for qualified medical expenses using favorable federal tax treatment. Contributions may be deductible or made through qualifying pre-tax payroll arrangements, and funds can remain available from year to year.

To contribute to an HSA, an individual generally must have qualifying high-deductible health plan (HDHP) coverage, have no other disqualifying health coverage, not be enrolled in Medicare, and not be eligible to be claimed as another person’s tax dependent.

Eligibility is generally determined monthly, based on the individual’s circumstances on the first day of the month. Special contribution rules, including the last-month rule and its testing period, may affect the annual amount.

2026 HSA Contribution and HDHP Limits

The IRS established the following amounts for calendar year 2026:

Eligible individuals age 55 or older may contribute an additional $1,000 annually, subject to applicable eligibility and contribution rules. These limits generally include contributions from both employees and employers.

The deductible and out-of-pocket requirements above describe the traditional HDHP standard. Beginning in 2026, certain individual-market Bronze and Catastrophic plans can qualify under a separate statutory rule even when they do not satisfy those traditional dollar limits.

Having a qualifying health plan is therefore an important starting point, but an employee must also consider any additional coverage provided through an employer, spouse, or other arrangement.

Why ICHRA Design Matters for HSA Eligibility

A CHOICE Arrangement (ICHRA) allows an employer to establish a defined allowance for eligible employees to use toward individual health insurance premiums and, depending on the plan design, certain other eligible medical expenses. The scope of those reimbursements can affect whether employees remain eligible to contribute to an HSA.

Under a premium-only ICHRA, the arrangement is limited to reimbursing eligible insurance premiums. The ICHRA generally does not create disqualifying health coverage merely by providing this premium reimbursement benefit.

Consider an employee who enrolls in qualifying HSA-compatible individual coverage and receives an employer allowance through a premium-only ICHRA. If the employee has no other disqualifying coverage and meets the remaining HSA rules, the employee can generally continue contributing to an HSA.

Now consider an ICHRA that reimburses ordinary medical expenses, such as nonpreventive copayments or deductible expenses, before the applicable HDHP minimum deductible has been satisfied. That broader reimbursement coverage can interfere with HSA eligibility, even when the employee chooses an otherwise qualifying health insurance plan.

Importantly, the HRA’s available reimbursement rights matter, not simply whether the employee submits a claim. An employee may have disqualifying coverage through a general-purpose HRA even if no medical expenses are actually reimbursed.

For employers, this makes the design decision consequential before the first employee enrolls. A premium-only model provides a relatively straightforward way to separate employer premium allowances from the employee’s own HSA savings and eligible medical spending.

Other HRA Designs That May Be Compatible With HSAs

Premium-only arrangements are not the only HRA designs that may preserve HSA eligibility. IRS Revenue Ruling 2004-45 recognizes several compatible structures, subject to their specific conditions.

A limited-purpose HRA generally restricts reimbursement to permitted categories such as dental, vision, and preventive care.

A post-deductible HRA reimburses medical expenses only after the minimum annual HDHP deductible has been satisfied.

Other structures, including properly suspended HRAs, may also preserve eligibility under the relevant IRS rules. These alternatives require careful plan drafting and administration. Merely labeling an arrangement “limited-purpose” or “post-deductible” is insufficient if its actual reimbursement provisions allow incompatible benefits.

For employers evaluating an ICHRA, the appropriate structure depends on the intended benefits and the employee population.

What Changed for Bronze and Catastrophic Plans in 2026?

Even a properly structured premium-only ICHRA does not automatically make every employee HSA-eligible. An employee must still enroll in coverage that qualifies under the applicable HSA rules.

Historically, that usually meant identifying an individual-market plan expressly designed to satisfy the federal HDHP requirements. Beginning January 1, 2026, the rules are broader.

Section 71307 of Public Law 119-21 expanded the federal definition of an HDHP to include qualifying individual-market Bronze and Catastrophic plans available through an ACA Exchange. These plans can be treated as HDHPs for HSA purposes even when their deductibles or out-of-pocket limits fall outside the traditional HDHP requirements.

IRS Notice 2026-05 subsequently clarified how the rule applies. For employees considering individual health coverage, this expands the range of plans that may support HSA contributions.

However, eligibility still depends on the person’s other coverage and circumstances. A qualifying Bronze plan does not override disqualifying Medicare enrollment or a general-purpose medical reimbursement arrangement.

What About Off-Exchange Plans?

For employers offering CHOICE Arrangements, the purchase channel matters. An employee does not necessarily have to buy a Bronze or Catastrophic plan through an Exchange to receive the expanded HSA treatment.

Under IRS Notice 2026-05, an individual-market Bronze or Catastrophic plan purchased off-Exchange can qualify when the same plan is available through an Exchange. The guidance also addresses certain substantially identical off-Exchange variants and situations in which an employee has no reason to believe that a particular individual-market Bronze or Catastrophic plan is unavailable through an Exchange.

An off-Exchange plan may also qualify if it independently satisfies the traditional HDHP rules. Because these rules depend on plan characteristics and applicable IRS guidance, employees should confirm HSA compatibility rather than assume every off-Exchange plan qualifies.

Depending on the employer’s configured setup, Quick Enroll supports off-Exchange enrollment through Lirvion, while Self Enroll allows employees to enroll on their own through the Marketplace. The enrollment channel affects the process, but the HSA analysis must consider the actual health plan and the employee’s circumstances. The employer’s premium-only ICHRA design remains a separate part of that analysis.

How Premium Allowances and HSA Contributions Work Together

An ICHRA allowance and an HSA serve different purposes. The employer establishes an ICHRA allowance under the terms of its health benefits arrangement. In a premium-only design, that allowance is used for eligible health insurance premiums. The employee’s HSA is a separate, individually owned account used for qualified medical expenses under federal HSA rules.

For example, assume an employer provides a $500 monthly premium allowance and an employee selects eligible individual coverage with a $650 monthly premium. The premium-only ICHRA may reimburse up to $500 of the eligible premium, subject to its plan terms and substantiation requirements. The employee is responsible for the remaining $150.

If the employee also meets the applicable HSA eligibility requirements, the employee may contribute separately to an HSA, within the applicable annual limits. The $500 ICHRA allowance does not become an HSA contribution, and unused ICHRA funds cannot simply be transferred into the employee’s HSA.

An employer wishing to contribute to an employee’s HSA must arrange those contributions separately and follow the applicable tax and benefits rules.

Can Employees Pay Their Remaining Premium Pre-Tax?

In some circumstances, yes.

Employers may establish a qualifying cafeteria plan under Internal Revenue Code Section 125 that permits employees to pay their share of eligible off-Exchange individual health insurance premiums on a pre-tax basis. That option must be properly established and administered. It does not arise automatically from offering an ICHRA.

Individual-market coverage purchased through an ACA Exchange generally cannot be paid for through this type of pre-tax cafeteria plan arrangement because of the restriction in Section 125(f)(3), subject to the statute’s separate exception for qualifying employer group-market Exchange arrangements.

This distinction can affect how employers design payroll deductions and explain employee premium responsibilities. It is also separate from the rules governing an eligible employee’s contributions to an HSA.

What Can Change HSA Eligibility During the Year?

HSA eligibility is not necessarily fixed for the entire year. An employee who qualifies in January may experience a change in coverage or personal circumstances that affects contributions later.

For example, enrolling in Medicare generally ends eligibility to make HSA contributions for applicable months, even if the individual continues holding and spending funds from an existing HSA.

An employee may also become covered under a spouse’s general-purpose health Flexible Spending Account (FSA) or HRA that reimburses ordinary medical expenses. That coverage can interfere with HSA eligibility, even when the employee’s own medical plan remains HSA-compatible.

A switch from qualifying coverage to a plan that does not qualify under the applicable HDHP rules can have a similar effect. These changes can occur following marriage, employment changes, plan renewals, or other qualifying life events.

Because HSA contribution limits may need to be adjusted when eligibility changes, employees should review their circumstances during the year rather than relying solely on their original enrollment decision. An employee who becomes ineligible to contribute generally may still use previously accumulated HSA funds for qualified medical expenses.

Questions Employers Should Address Before Launch

Before finalizing an ICHRA design, employers and their advisors should consider:

1. What does the ICHRA reimburse? Are reimbursements restricted to eligible premiums, or does the design extend to medical expenses?

2. Which individual plans are available? Do employees have access to traditional HSA-qualified HDHPs or Bronze and Catastrophic plans qualifying under the expanded 2026 rules?

3. How will plan compatibility be explained? Are employees clearly informed that ICHRA participation alone does not establish HSA eligibility?

4. How will premium balances be handled? Will the employer offer a separate cafeteria plan for qualifying off-Exchange employee premium payments?

5. What other health benefits exist? Could an employee’s FSA, spouse’s coverage, HRA, or Medicare enrollment affect HSA contributions?

6. What happens when coverage changes? How will enrollment changes and coverage verification be handled during the year?

7. Who administers the HSA? Are the parties responsible for HSA contributions, account administration, and individual tax reporting clearly identified?

Addressing these questions early can help employers communicate benefits more accurately and avoid confusion during enrollment.

How Lirvion Supports Premium-Only CHOICE Arrangement Administration

Lirvion is designed around premium-only CHOICE Arrangement (ICHRA) administration. Our platform helps employers manage defined allowances, verify individual health coverage, track premium payment activity, and support ongoing reconciliation and reporting.

Enrollment workflows are part of that administrative experience, allowing employees to move toward individual coverage through supported enrollment paths based on their employer’s setup.

Lirvion does not administer HSAs or determine an employee’s individual HSA eligibility. Employees remain responsible for evaluating their eligibility and reporting HSA contributions correctly, including through their federal tax filings, with assistance from qualified tax professionals when appropriate.