Employers Shift Health Insurance Decisions to Workers
A growing number of employers are putting health insurance decisions directly in the hands of their workers by adopting Individual Coverage Health Reimbursement Arrangements (ICHRAs). Instead of offering traditional group health insurance plans, employers are now giving workers money to purchase their own coverage.
This approach, created during the Trump administration, allows employers to contribute to employees’ health insurance costs while letting workers choose their own plans from the individual insurance market. Advocates argue that ICHRAs help small businesses that struggle to afford traditional insurance coverage and provide a predictable cost structure for employers.
“It’s maybe not perfect, but it’s solving a problem for a lot of people,” said Cynthia Cox of the nonprofit KFF, which studies healthcare issues.
How ICHRAs Work
Unlike traditional employer-sponsored health insurance where companies offer one or two group plans, ICHRAs allow workers to select from dozens of individual insurance options. Employers typically hire outside firms to help employees make informed decisions about their coverage.
The ICHRA model has been gaining traction since its introduction. Enrollment started slowly but has accelerated in recent years. According to the HRA Council, a trade association promoting these arrangements, about 450,000 people were offered coverage through ICHRAs this year, representing a 50% increase from 2024.
Benefits for Employers and Employees
For employers, ICHRAs provide cost predictability and shield them from annual insurance cost spikes, which can be particularly challenging for small businesses with employees having expensive medical conditions. Companies like Taro Health base their contributions on factors such as employee age and the number of people covered under the plan, resulting in monthly contributions ranging from $400 to over $2,000 per employee.
Employees benefit from being able to choose coverage tailored to their specific needs. Some insurers offer specialized plans, such as those designed for people with diabetes. Additionally, workers can maintain their coverage even if they change jobs, although they would then need to pay the full premium.
Challenges for Employees
Despite the benefits, ICHRAs also present challenges for employees. Individual market plans often have narrower provider networks compared to traditional employer-sponsored coverage, making it difficult for patients who see multiple doctors to find a plan that covers all their healthcare providers.
The process of selecting a suitable plan can also be overwhelming for many workers, given the various coverage options, deductibles, and coinsurance terms. To mitigate this, employers typically provide support through brokers or technology platforms that help employees choose appropriate plans based on their medical needs and anticipated healthcare requirements.
Future Growth Prospects
Several factors could drive further adoption of ICHRAs. Rising healthcare costs may encourage more companies to limit their financial exposure by switching to ICHRAs. Potential tax incentives in the proposed Republican tax bill could also boost their popularity. Additionally, the expiration of enhanced government subsidies for Affordable Care Act marketplace coverage could make ICHRAs more attractive to both employers and employees.
While ICHRAs currently represent a small fraction of employer-sponsored health coverage in the United States, with about 154 million people enrolled in work-based coverage last year, their growth trajectory suggests they may become an increasingly significant component of the healthcare landscape.
