Employers Increasingly Putting Health Insurance Decisions in Workers’ Hands
A growing number of employers are shifting health insurance decisions to their employees by adopting Individual Coverage Health Reimbursement Arrangements (ICHRAs). Instead of offering traditional group insurance plans, these employers provide workers with money to purchase their own coverage.
ICHRAs were created during the Trump administration and have seen significant growth in recent years. Advocates argue that this approach helps small businesses that struggle to afford traditional insurance, caps rising healthcare costs for employers, and aligns with conservative goals of increasing consumer choice in healthcare.
“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. The arrangement allows employers to contribute to employees’ health insurance costs while letting workers choose their own plans.
How ICHRAs Work
Employers using ICHRAs typically hire outside firms to help employees make informed decisions about their coverage. The contributions are often based on factors such as the employee’s age and the number of people covered under the plan. For instance, Taro Health, a New York-based insurance startup, contributes between $400 and over $2,000 monthly per employee based on these factors.
This approach gives employees more control over their healthcare coverage. They can select from dozens of plans in the individual insurance market, potentially finding coverage more tailored to their needs. Some insurers offer specialized plans, such as those designed for people with diabetes.
One significant advantage of ICHRAs is that employees can maintain their coverage even if they change jobs. While they may have to pay the full premium, this continuity means they won’t have to find a new plan that covers their existing doctors.
Challenges and Limitations
Despite the benefits, ICHRAs also present challenges. The individual market plans often have narrower coverage networks compared to traditional employer-sponsored coverage. This can make it difficult for patients who see multiple doctors to find a plan that covers all their healthcare providers.
The process of shopping for individual insurance can be overwhelming due to the numerous coverage choices and complex terms like deductibles and coinsurance. 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 ICHRAs currently represent a small fraction of employer-sponsored health coverage in the United States, they are growing rapidly. The HRA Council estimates that about 450,000 people were offered coverage through these arrangements this year, representing a 50% increase from 2024. Executive Director Robin Paoli suggests the actual number could be twice as high.
Several factors could drive further adoption of ICHRAs. Rising healthcare costs may prompt more companies to limit their financial exposure. Potential tax breaks and incentives in the proposed Republican tax bill could also encourage more employers to adopt ICHRAs. Additionally, the expiration of enhanced government subsidies for Affordable Care Act marketplace coverage could make ICHRAs more attractive to both employers and employees.
As the healthcare landscape continues to evolve, ICHRAs are likely to play an increasingly important role in how employers approach health insurance for their workers.
