A growing number of employers are giving their employees more control over their health insurance by providing them with money to purchase their own coverage through Individual Coverage Health Reimbursement Arrangements (ICHRAs). This approach allows small businesses that previously couldn’t afford traditional insurance to offer some form of health coverage to their workers. It also provides employers with a more predictable healthcare cost structure.
What are ICHRAs?
ICHRAs represent a departure from traditional employer-sponsored health insurance. Instead of offering one or two group plans and paying most of the premium, employers contribute a set amount to each employee’s health insurance coverage. Employees then select their own insurance plans from a variety of options available in the individual insurance market. Companies using ICHRAs typically hire outside firms to help employees make informed decisions about their coverage.
The use of ICHRAs began during the Trump administration and has seen significant growth in recent years. Advocates argue that this system provides small businesses with a more manageable healthcare expense, as they can budget a fixed amount per employee. For instance, Taro Health, a New York-based insurance startup, bases its contributions on the age of the employee and the number of people covered under the plan, resulting in monthly contributions ranging from $400 to over $2,000 per employee.
Benefits and Drawbacks
One of the primary advantages of ICHRAs is that they allow employees to choose insurance plans tailored to their specific needs. Some insurers offer specialized plans for individuals with particular health conditions, such as diabetes. Additionally, employees can maintain their coverage even if they change jobs, although they would then be responsible for paying the full premium.
However, there are also potential downsides to ICHRAs. Plans available on the individual market often have narrower provider networks compared to traditional employer-sponsored coverage. This can make it challenging for individuals who see multiple doctors to find a plan that covers all their healthcare providers. Furthermore, navigating the various insurance options and understanding terms like deductibles and coinsurance can be overwhelming for some employees. To mitigate this, employers typically provide support through brokers or technology platforms that help employees select appropriate plans based on their medical needs and anticipated healthcare requirements.
Growth and Future Prospects
While there are no comprehensive national statistics on ICHRA enrollment, the HRA Council estimates that around 450,000 people were offered coverage through these arrangements this year, representing a 50% increase from 2024. Despite this growth, ICHRAs still constitute a small fraction of employer-sponsored health coverage in the United States, where approximately 154 million people received coverage through their employers last year.
The future growth of ICHRAs may be influenced by several factors, including rising healthcare costs and potential tax incentives. A Republican tax bill currently under consideration in the Senate could include provisions that encourage the adoption of ICHRAs. Additionally, the expiration of enhanced government subsidies for individual market coverage through the Affordable Care Act could make ICHRAs more attractive to both employers and employees.
