ICHRA for Nonprofits

Nonprofits can use an ICHRA, and fixed grant and reimbursement budgets are a good reason to.

A nonprofit sets allowances by class like any employer. The practical questions are budget certainty, lower-wage roles and how funding sources view benefit costs.

Ask Whether an ICHRA Fits

What To Know

What nonprofits should check.

Open to Nonprofits

Employers of all sizes can offer an ICHRA, including nonprofits.

Fixed Budgets

Grants and contracts often fix what can be spent. A set allowance per class makes benefit cost known.

Lower-Wage Roles

Entry-level roles make the affordability test harder. Test those classes first.

Part-Time and Program Staff

Part-time and grant-funded staff can be their own classes where a permitted class fits.

Funder Rules

Some funders limit what benefits can be charged. Check grant terms before changing.

Board Approval

Boards often approve benefit changes. Build that into the calendar.

The Numbers

ICHRA Costs and Federal Grant Rules

A nonprofit that charges payroll to grants has to show where each benefit dollar goes. An ICHRA changes the dollar and the way it is allocated.

The grant cost rule

Under the federal Uniform Guidance, fringe benefit costs, including employee health insurance, are allowable when they are reasonable and are required by law, by an organization-employee agreement, or by an established written policy. They must be allocated consistently with the pattern of benefits the employees receive. They may be assigned to specific employees or allocated using the entity’s salaries and wages, and where the second method is used, separate allocations are required for groups of employees unless the costs do not differ significantly among them.

Source: 2 CFR 200.431(a), (c) and (d). This applies to federal awards; other funders have their own rules.

An illustration for a 25-employee nonprofit

Scenario Annual employer cost Share charged to grants at 60 percent Charged to other funds
Group plan at $550 a month per employee $165,000 $99,000 $66,000
ICHRA at $450 a month per employee $135,000 $81,000 $54,000

Illustrative figures. If the ICHRA allowances differ by class, the nonprofit should check whether one fringe rate still reflects the cost for each group of employees.

What to put in the file

  • The written plan document and board approval, which are the established policy the rule asks for.
  • The cost model by class.
  • The allocation method, and the reason one rate is or is not enough.
  • The effective date, so a mid-year change is traceable in the books.

Grant allocation questions belong with the nonprofit’s accountant and the grant manager.

Questions We Get

The questions nonprofits ask about ICHRAs.

Can a nonprofit offer an ICHRA?

Yes. Employers of all sizes may offer one.

Do grants limit benefit spending?

They can. Check grant terms before changing benefits.

Does the affordability test apply?

Larger employers must pass it, and it affects premium tax credits for everyone. Test every class.

Can grant-funded staff be a separate class?

Only if a permitted class fits, such as part-time or salaried. Counsel should confirm.

Who approves the change?

Often a board. Add its meeting dates to the calendar.

Is there a social services page?

Yes. Our home health and social service page covers agencies in detail.

Can you model a nonprofit allowance?

Yes. We model each class against your actual headcount and budget.

General information about individual coverage HRAs, not legal or tax advice. Plan-specific questions belong with ERISA counsel and your tax advisor, and we will bring them in.

Sources

Where these details come from.

This page summarizes public guidance reviewed in October 2026. Rules change, so confirm current requirements with counsel.

CMS: Individual Coverage HRAs →

U.S. Department of Labor: Employee Benefits Security Administration →

Let’s Get to Work

Send us your renewal.

We’ll tell you whether it looks competitive, where we see opportunity, and the five questions we’d put to your carrier. No cost, and no obligation to move anything.

What to send

The renewal letter
Your current plan summary
Contribution split by tier
Enrolled counts by tier

Four documents — two more if your group is 50 or more. Nothing else; every extra one is a reason to postpone.

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