Wondering if ICHRAs have a role in your program? What you need to know 

Health benefit cost projections for 2026 have us all looking for the next silver bullet. One approach that has been getting a lot of press lately is the Individual Coverage Health Reimbursement Arrangement. There are many factors to consider before deciding if this is your next big strategy or just another shiny object – or maybe something in between. In this article, we will take a look at the ICHRA market today, the state of the market for individual plans, and other employer considerations for this type of program.

What is an ICHRA? ICHRAs first took effect in 2020. They are employer-funded health accounts that provide tax-free funds toward individual health insurance or Medicare premiums as well as § 213(d) medical care expenses. Employees choose their health coverage from individual plans offered through the ACA exchanges or Medicare. The accounts are typically administered by an ICHRA-specific administrator that submits the employee’s enrollment to the selected insurer, applies the employer’s defined contribution to the premium, and handles billing. Traditional group health plans are unavailable to any class of employees offered an ICHRA, to avoid the risk of healthy class members opting out of ICHRA.

Not a new idea. The idea of an employer providing funding for employees to shop for their own coverage is not new; the feasibility of using a defined contribution approach to medical coverage has been discussed for years. Back in 2011, in a survey conducted by the HR Policy Association, 36% of employers responding said they would consider moving to a defined contribution strategy for health benefits in the next 10 years. When the rule expanding ICHRAs was finalized in 2019, the federal government expected relatively swift adoption, projecting that around 11 million individuals would get their coverage through an ICHRA by 2025. The reality is nowhere near that: EBRI estimates that between 350,000 and 700,000 workers and their dependents are covered by an ICHRA today.

What do we know about enrollment and interest in ICHRAs today? It’s important to note that the latest report from the HRA Council indicates that 83% of employers offering an ICHRA had not previously provided any health benefits — suggesting that ICHRAs are playing a role in expanding access to health coverage, particularly among small businesses, rather than displacing traditional group plans. A Mercer survey conducted in early 2025 asked employers if they were likely to implement an ICHRA anytime soon. Overall, very few responded positively, but there was some traction among the smallest employers in our survey — 6% of those with fewer than 200 employees said they were likely to do so. The current sweet spot for ICHRAs is likely at or below that threshold. Of course, it’s possible that may change as the market evolves. There have been a number of well-publicized investments in ICHRA platforms, and many insurers have said that ICHRA is an important part of their strategy.

Strategic opportunity to carve out specific group(s) for ICHRA coverage. For large employers, using ICHRAs in a targeted way might be a strategy worth exploring — for example, as a way to offer a modest health benefit to employees currently not eligible for coverage. ICHRA rules allow employers to set up different employee “classes”, each with different reimbursement rates. The eligible classes are: full-time or part-time status, seasonal employment, temporary employees of staffing firms, salaried or hourly classification, union status, employees in a waiting period, non-resident aliens with no US-based income, differing work locations, or any combination of two or more from the list.

ICHRA funding requirements and administration may be the greatest challenges. While they are certainly a different animal than traditional group coverage, ICHRAs are minimum essential coverage and can satisfy employer shared responsibility requirements – including affordability and minimum value — if structured properly, thereby avoiding penalty assessments. Recall that employer shared responsibility does not apply to small employers with less than 50 full-time or full-time equivalent employees. Likewise, larger employers may have groups of employees not covered by the employer shared responsibility rules, like part-time employees or variable-hour employees during a nonassessment period under the look-back method.

Assuming employer shared responsibility applies, affordability will depend on the employer’s contribution strategy. Rules proposed in 2021 (and never finalized) require testing an employer’s contribution against the lowest-cost silver plan that’s available to them, based on each employee’s age (as of the first day of the plan year) and residence (or alternatively, primary work site). The Centers for Medicare and Medicaid Services offers tools for these calculations.

The testing is done for every person in the ICHRA class, and often certain outlier employees will require different contribution strategies to maintain affordability and financial savings, which can involve using age-banded contributions in some cases. This becomes a challenge both in the administration and communication of the benefit.

Premium-only ICHRAs that only reimburse employees’ premiums paid for health insurance avoid § 105(h) nondiscrimination testing. A plan that reimburses not just health insurance premiums but other § 213(d) medical expenses remains subject to the 105(h) nondiscrimination rules.

Long-term, the success of ICHRAs is bound together with the strength of the ACA market.  In this area, considerations include:

• Choice. The number of insurance companies offering health plan options on an exchange, and the number of plan options available, varies significantly by market.  The traditional employer-sponsored health benefits model is employee-centric; sponsors typically provide a curated set of medical plan choices selected to meet the range of employee needs. In the current individual market, there could be many more options to sort through — or there could be gaps in product availability. Either way, employees may be far more challenged to find an appropriate plan than if they were selecting an employer-provided plan. It will be important for the ICHRA administrator to provide employees with support for plan selection during ACA open enrollment (Nov. 1, 2025 – Jan. 15, 2026).
• Cost and cost increases. Rates vary, and fluctuate, by market. The median projected increase for ACA plans in 2026 is 18%.  
• Access to providers. Provider networks for individual market plans are often not as extensive as they are for group plans. Narrow networks are a key lever that insurers use to keep costs down in the ACA market.
• Stability. Every year insurers enter and exit markets; Aetna is the most notable exit for 2026.  Going into 2026, major changes affecting the market include the removal of premium tax subsidies and new administrative requirements that will make enrollment more challenging for some individuals.

Employee experience. Consider that in the group plan market, employers provide communications and support to employees before, during and after plan enrollment. Employees often seek help from their employer when they encounter issues with the health insurance company. The ICHRA model completely removes employer involvement with the insurance company.  Also consider that younger, healthier employees may see premium savings, while others might face higher premiums.   

Final thoughts. We’ve provided a lot of information here! To sum up, let’s revisit the question we posed at the beginning — whether ICHRAs could be your next big strategy. The answer is, of course, “it depends.” The market considerations described above will be more or less impactful depending on the coverage your employees have today and their expectations. This type of offering will likely be better received by employees of businesses that did not previously provide health insurance versus employees who must switch from a group plan to the individual market. So:

• If you are considering offering health benefits for the first time, it makes sense to evaluate ICHRA alongside employer-sponsored coverage, weighing cost and value, to see what type of offering would better meet your organizational objectives. 
• If you are considering providing health benefits to a subset of employees not currently eligible for your employer-sponsored plan, an additional consideration would be perceived equity issues.
• In all cases, an evaluation of the individual market in your locations will be a critical factor in the decision.

As a more budget-conscious alternative to traditional group health insurance, ICHRAs create an avenue for employers to offer benefits that they may not otherwise be able to afford. The need to consider the state of the individual insurance market along with ICHRA vendors and products adds a layer of complexity to the decision. We will keep you updated on this market as it evolves.