The ICHRA Revolution

How Individual Coverage Health Reimbursement Arrangements Are Transforming Employer-Sponsored Healthcare in 2025

April 6, 2025

Key Points

1. ICHRAs offer significant cost advantages with individual premiums up to 63% lower than group plans in key markets
2. Adoption surged 84% among mid-market employers in 2024, signaling a fundamental shift in benefits strategy
3. Employees gain unprecedented plan choice while employers maintain budget control and reduce administrative burden

What is an individual coverage health reimbursement arrangement? / Healthinsurance.org

Introduction

The healthcare benefits landscape continues to evolve rapidly, with employers seeking innovative solutions to balance rising costs with employee satisfaction. Among these solutions, the Individual Coverage Health Reimbursement Arrangement (ICHRA) has emerged as a transformative approach that fundamentally changes how employers provide health benefits.

As of April 2025, ICHRAs have gained significant traction in the market, presenting a compelling alternative to traditional group health insurance. This comprehensive analysis explores the current state of ICHRAs, examining their implementation, benefits, challenges, and market trends with particular attention to their relevance for small to medium-sized enterprises (SMEs) and the insurance brokers who serve them.

Since their introduction in January 2020, ICHRAs have experienced remarkable growth, with adoption increasing 29% year-over-year in 2024 alone. More notably, ICHRA adoption among companies with 50 or more employees surged by 84% between 2023 and 2024, indicating growing interest from mid-market organizations. This shift represents a fundamental rethinking of employer-sponsored health benefits, moving from the traditional one-size-fits-all group plan model to a more personalized, employee-directed approach.

This report provides a detailed examination of ICHRAs from multiple perspectives: the fundamental mechanics and regulatory framework, market adoption trends, the employee experience, implementation strategies for SMEs, and the crucial role of insurance brokers in facilitating ICHRA adoption. By synthesizing the latest data and insights, this analysis aims to equip stakeholders with the knowledge needed to navigate the evolving health benefits landscape effectively.

ICHRA Fundamentals

Definition and Core Mechanics

An Individual Coverage Health Reimbursement Arrangement (ICHRA) is a type of health reimbursement arrangement that allows employers of any size to reimburse employees tax-free for individual health insurance premiums and qualified medical expenses. Unlike traditional group health plans where employers select a limited number of options for all employees, ICHRAs enable employees to choose their own individual health insurance policies from the marketplace.

According to PeopleKeep, "An individual coverage HRA (ICHRA) is a formal group health plan that allows organizations of any size to reimburse their employees tax-free for their individual health insurance premiums and other qualifying medical expenses listed in IRS Publication 502." This arrangement fundamentally shifts the health insurance model from employer-selected to employee-selected coverage.

The core mechanics of an ICHRA are straightforward:

1. Employer Contribution: The employer sets predetermined tax-free allowance amounts for employees.
2. Employee Purchase: Employees purchase their own individual health insurance plans from the marketplace.
3. Reimbursement Process: Employees submit proof of their qualified expenses, and employers reimburse them up to their allowance amount.

This model provides significant flexibility for both employers and employees. As PeopleKeep explains, "With an ICHRA, instead of the employer choosing one health policy for everyone, each employee can shop for their preferred individual health insurance policy through an insurance broker or on the public and private health insurance exchanges. Now, employees can choose a plan with the network, doctors, and monthly health insurance premiums that work best for them."

Legal and Regulatory Framework

ICHRAs were established through regulatory action in 2019 and became available to employers beginning January 1, 2020. The creation of ICHRAs represented a significant expansion of health reimbursement arrangements, which had been limited following the implementation of the Affordable Care Act (ACA).

GBS Benefits explains the regulatory context: "Health reimbursement arrangements (HRAs) are self-insured group health plans that reimburse medical expenses, as defined under Internal Revenue Code (IRC) Section 213(d). An HRA must be paid for solely by the employer. After the enactment of the Affordable Care Act (ACA), to comply with the ACA mandates an HRA was required to be 'integrated' with another group health plan, cover only dental/vision expenses, or cover only retirees."

The introduction of ICHRAs changed this landscape by allowing HRAs to be integrated with individual market coverage. As GBS Benefits notes, "An ICHRA allows employers to set up HRAs that can be integrated with, and reimburse premiums for, individual health insurance coverage if certain conditions are met."

Key regulatory requirements for ICHRAs include:

• Employee Classes: Employers can divide employees into classes (such as full-time, part-time, seasonal, etc.) and offer different ICHRA terms to different classes.
• Substantiation Requirements: Employers must verify that employees have qualifying individual health insurance coverage.
• Notice Requirements: Employers must provide written notice to eligible employees at least 90 days before the beginning of the plan year.
• Affordability Considerations: For applicable large employers (ALEs), ICHRAs must meet ACA affordability standards to satisfy employer mandate requirements.

For 2025, the affordability threshold has been updated: "Beginning in January 2025, the new Affordability Rate is 9.02%," according to Take Command Health. This means that for an ICHRA to be considered affordable, an employee's cost for self-only coverage cannot exceed 9.02% of their household income.

Tax Implications for Employers and Employees

One of the most significant advantages of ICHRAs is their favorable tax treatment for both employers and employees. The tax benefits create a win-win situation that enhances the appeal of this health benefits model.

For employers, ICHRA contributions are:

• Tax-deductible as a business expense
• Exempt from payroll taxes (FICA, FUTA, etc.)
• Flexible in amount, with no statutory maximum contribution limits

Remodel Health highlights these tax advantages: "One of the standout advantages of ICHRAs is the tax savings. Employer contributions are tax-free, reducing payroll taxes while maintaining meaningful support for employees. Employees, in turn, benefit from tax-free reimbursements for individual health insurance premiums and wellness programs. For example, a small nonprofit with 20 employees could save $15,000 annually in payroll taxes by switching to an ICHRA."

For employees, the benefits include:

• Tax-free reimbursements for qualified medical expenses and premiums
• No income tax on ICHRA funds received and used for qualified expenses
• Potential premium tax credits for marketplace plans (if the ICHRA is considered unaffordable)

These tax advantages create significant financial incentives for both employers and employees to consider ICHRAs as an alternative to traditional group health insurance.

Market Adoption and Trends

Current Adoption Rates

The ICHRA market has experienced substantial growth since its introduction in 2020, with particularly strong momentum in recent years. According to the HRA Council, ICHRA adoption grew by 29% between 2023 and 2024, demonstrating continued market expansion.

Most notably, larger employers are increasingly embracing ICHRAs. BenefitsPRO reports that "ICHRA adoption for companies with 50 or more employees has surged 84% since 2023, suggesting greater interest for mid-market organizations in the year ahead." This rapid growth among larger employers indicates that ICHRAs are no longer perceived as just a small business solution but are gaining traction across the market spectrum.

Current estimates suggest there are approximately 500,000 employees covered by ICHRAs nationwide. Redesign Health notes that "estimates hover around 500,000 covered lives in ICHRA arrangements nationwide, which grew by roughly 30% from 2023 to 2024." The HRA Council provides similar figures, stating that "as of 2024, the HRA Council estimates there are more than half a million employees with an ICHRA."

A particularly interesting trend is that ICHRAs are enabling employers who previously offered no health benefits to provide coverage for their employees. According to Redesign Health, "The majority (83%) of new ICHRA adopters didn't previously offer health benefits. This signals that ICHRA is filling a critical gap. Small businesses find the flexibility of the ICHRA beneficial, as traditional group plans are unaffordable to many small employers. Now they can offer a competitive health benefit within their budget."

Employer Satisfaction Rates

While specific data on the reported 94% satisfaction rate among current ICHRA users was not directly confirmed in the research materials, multiple sources indicate high levels of employer satisfaction with ICHRAs, primarily due to cost control, administrative simplicity, and the ability to offer personalized benefits.

The Strategic CHRO highlights that ICHRAs allow "employers to control costs effectively by setting reimbursement limits, providing more predictable budgeting for health care expenses." This cost predictability is a significant factor in employer satisfaction, particularly as traditional group health insurance costs continue to rise.

PeopleKeep notes that "ICHRAs help with cost control since you reimburse employees for insurance rather than purchasing it for them. Not only do you avoid annual rate hikes, but you also get to set your own predetermined budget for healthcare expenses." This ability to establish fixed budgets while still providing valuable benefits contributes to employer satisfaction with the ICHRA model.

The flexibility to tailor benefits to different employee classes is another satisfaction driver. Take Command Health explains that ICHRAs offer "Customization (employers can tailor benefits by creating 'employee classes' to offer different reimbursement levels)," allowing employers to design more personalized benefits packages.

Projected Growth and Market Penetration

The future outlook for ICHRA adoption appears robust, with significant growth projected through 2030. According to Take Command Health, "HHS projects that in the next 5-10 years, roughly 800,000 employers will offer Individual Coverage HRAs to pay for insurance for more than 11 million employees. Take Command estimates that as many as 50 million employees and family members could participate in an ICHRA plan in the coming years."

OnPay provides similar projections: "Businesses are taking notice of ICHRA as a premium reimbursement option as healthcare costs in the United States continue to rise. Some data suggests that roughly 800,000 employers are considering using an ICHRA in the next five to ten years."

Oliver Wyman, as cited by Redesign Health, "projects that it could grow 80% year-over-year if current trends hold." This accelerated growth rate would significantly expand ICHRA's market presence in the coming years.

Milliman notes that "the U.S. Departments of Treasury, Labor and Health and Human Services estimate 800,000 employers will offer an ICHRA by the end of the year 2025 insuring 11 million individuals, which indicates total enrollment in the individual marketplace will likely increase." This growth is expected to have ripple effects throughout the individual insurance market, potentially strengthening and stabilizing this marketplace.

Several factors are driving this projected growth:

1. Rising healthcare costs making traditional group plans increasingly unaffordable
2. Changing workplace dynamics including remote work and distributed teams
3. Increasing awareness of ICHRA benefits among employers and brokers
4. Expanding individual market options in many states
5. Favorable regulatory environment supporting ICHRA implementation

Employee Perspective

Plan Selection Patterns

While the research materials did not specifically confirm the 46% gold plan selection rate mentioned in the original request, they do provide insights into employee plan selection patterns and preferences within the ICHRA framework.

The freedom of choice is a central feature of ICHRAs that influences plan selection. As PeopleKeep explains, "With an ICHRA, employees can access plans that may offer broader coverage options or specialty services that might not be available in traditional employer-sponsored group health plans. This flexibility can lead to higher employee satisfaction with their healthcare options."

Milliman highlights how this expanded choice contrasts with traditional group plans: "Compared to traditional group health plans, the individual market can offer greater freedom of choice for employees for a variety of reasons. Under a traditional group plan, an employer typically offers a finite number of plans – usually ranging from one to four options. This can result in employer-sponsored benefit packages that do not align with an employee's individual or family benefit and financial needs."

The research also indicates that plan selection is heavily influenced by geography, as individual market dynamics vary significantly by state. According to Liferaft's 2025 analysis, "33 states are now identified as 'ICHRA-friendly' for Bronze-level plans, marking an increase from 31 states in 2024, while 21 states exhibit favorable market dynamics for Silver-level plans, up from 17 states last year." This state-by-state variation likely impacts employee plan selection patterns.

Ohio stands out as particularly favorable for ICHRA implementation: "Ohio stands out as the leader among ICHRA-friendly states, with individual premiums 32% to 63% less expensive than small group plans. Several counties in Ohio, including Brown County and Clermont County, exhibit cost savings of 63% for individual plans compared to small group plans."

Carrier Retention

The research materials did not specifically address the 73% carrier retention rate mentioned in the original request. However, they do provide context for understanding why employees might choose to remain with the same carrier when renewing their individual plans under an ICHRA.

Factors that likely influence carrier retention include:

1. Satisfaction with current coverage and provider networks
2. Familiarity with the carrier's processes and customer service
3. Continuity of care considerations
4. Avoiding the need to establish new relationships with healthcare providers

The research does indicate that employees value stability in their healthcare choices. Total Control Health Plans notes that "16% of workers stayed at their jobs solely to retain access to insurance coverage," highlighting the importance employees place on continuity in their healthcare arrangements.

Impact on Employee Healthcare Choice and Satisfaction

ICHRAs fundamentally transform the employee experience by shifting from employer-selected to employee-selected health coverage. This change has significant implications for employee choice, satisfaction, and engagement with their health benefits.

PeopleKeep highlights that "ICHRAs give employees freedom of choice. Rather than limiting them to a single group plan their employer offers, employees can shop for individual plans that align with their unique needs and financial situations. This could lead to better health outcomes."

However, research also indicates that employee comfort with this model varies. Total Control Health Plans reports on a survey showing mixed employee preferences: "A recent survey found that the majority of employees prefer traditional employer-sponsored health insurance over cash-for-coverage plans. The survey, conducted by Softheon, a health coverage distribution technology firm, and its subsidiary W3LL, found that 80% of respondents would rather have their employer provide health insurance. In contrast, only 20% preferred receiving employer funds to purchase their own plan."

The same survey revealed nuanced attitudes toward ICHRAs: "When asked directly about receiving a cash stipend for health coverage: 29% said they were very comfortable with the idea, 40% said they were somewhat comfortable, and 31% expressed discomfort with the concept."

Employee concerns about ICHRAs primarily center around decision-making complexity: "30% of respondents worried about choosing the wrong plan and either getting too much or too little coverage, 29% were primarily concerned about paying too much for a plan, and 63% believed that employer assistance in navigating the ACA marketplace would improve their experience."

This suggests that while ICHRAs offer expanded choice, employees may need significant support and education to fully embrace and benefit from this model. As Redesign Health notes, "Four out of five respondents admitted to knowing little or nothing about ICHRAs, while 20% said they were somewhat or very familiar with the concept, even though they didn't have ICHRA coverage themselves. In light of this lack of awareness, if you plan to offer an ICHRA, you'll want to educate your staff about the arrangements and ensure employees understand that they are responsible for selecting their own individual health insurance plan under an ICHRA."

Demographic trends in ICHRA utilization are also emerging. Thatch reports that "the largest segment utilizing employer-offered ICHRAs is workers between 26 and 34." This younger demographic suggests two important trends: "1. Stabilized risk. Younger people enrolled in ICHRA can help stabilize risk pools overall, keeping plans at a lower cost. 2. Life-long familiarity. Considering Americans can stay on family health insurance until age 26, it's not unreasonable to assume many of these employees enrolling in ICHRA are enrolling in health insurance for the first time."

Comparative Analysis with Traditional Group Health Insurance

Cost Comparison

One of the most compelling aspects of ICHRAs is their potential cost advantage compared to traditional group health insurance. Multiple sources highlight significant cost differences that make ICHRAs an attractive option for many employers.

PeopleKeep emphasizes the rising costs of traditional group plans: "Group health insurance requires employers to contribute a set percentage of the monthly premiums, which can be costly for small businesses. On top of that, the cost of health insurance rises every year. Based on KFF data, the average cost of premiums for single and family coverage increased 7% in 2023."

In contrast, ICHRAs offer more predictable cost structures: "ICHRAs help with cost control since you reimburse employees for insurance rather than purchasing it for them. Not only do you avoid annual rate hikes, but you also get to set your own predetermined budget for healthcare expenses. With no annual contribution limits, ICHRAs allow you to offer your eligible employees as much or as little as you choose. Plus, unused allowances stay with the employer at the end of the plan year or when an employee leaves the organization."

The cost advantage varies significantly by state and region. Liferaft's 2025 analysis shows that "33 states are now identified as 'ICHRA-friendly' for Bronze-level plans, marking an increase from 31 states in 2024, while 21 states exhibit favorable market dynamics for Silver-level plans, up from 17 states last year."

Ohio presents a particularly dramatic example: "Ohio stands out as the leader among ICHRA-friendly states, with individual premiums 32% to 63% less expensive than small group plans. Several counties in Ohio, including Brown County and Clermont County, exhibit cost savings of 63% for individual plans compared to small group plans."

These cost advantages make ICHRAs particularly appealing to employers who have previously been unable to offer health benefits due to cost constraints. Redesign Health notes that "the majority (83%) of new ICHRA adopters didn't previously offer health benefits. This signals that ICHRA is filling a critical gap. Small businesses find the flexibility of the ICHRA beneficial, as traditional group plans are unaffordable to many small employers. Now they can offer a competitive health benefit within their budget."

Administrative Comparison

The administrative aspects of ICHRAs present both advantages and challenges compared to traditional group health insurance. While ICHRAs offer certain administrative simplifications, they also introduce new compliance requirements and processes.

The Strategic CHRO highlights the administrative challenges: "The transition to ICHRA from traditional group health plans can be administratively intense. Employers must establish clear processes for reimbursing employees' medical expenses, which may require additional resources or software solutions to manage efficiently. This task can be time-consuming and requires a solid understanding of both individual and group health plan dynamics."

Key administrative differences include:

Traditional Group Health Insurance:

• Employer selects a limited number of plans for all employees
• Administration primarily involves enrollment and premium payment
• Carrier handles most claims processing
• Annual renewal process with potential carrier negotiations

ICHRA:

• Employees select their own individual plans
• Employer must verify employee coverage (substantiation)
• Employer must process reimbursement requests
• Employer must provide required notices to employees
• Different compliance requirements based on employer size

For applicable large employers (ALEs), there are additional administrative considerations related to ACA compliance. ICHRA.com explains: "For the plan to be considered affordable, an employee's cost cannot exceed more than 9.02% of an employee's household income for 2025. This is up from 8.39% for 2024. Each year the threshold changes and the employer must recalculate affordability. Large employers do not typically know an employee's household income so 'safe harbors' have been put in place as benchmarks enabling employers to determine affordability for their plans."

Many employers turn to third-party administrators or ICHRA administration platforms to manage these requirements efficiently. Take Command Health, PeopleKeep, and similar vendors offer solutions that streamline the administrative aspects of ICHRA implementation.

Flexibility Comparison

Flexibility represents one of the most significant differences between ICHRAs and traditional group health insurance. This flexibility manifests in multiple dimensions, benefiting both employers and employees.

For employers, ICHRAs offer:

1. Budget Flexibility: Employers can set different allowance amounts for different employee classes, allowing for more targeted benefits allocation.
2. Plan Design Flexibility: Rather than designing a limited number of group plans, employers can focus on setting appropriate allowance amounts.
3. Geographic Flexibility: ICHRAs work well for companies with employees in multiple states, as employees can select plans available in their specific location.

For employees, ICHRAs provide:

1. Plan Selection Flexibility: Employees can choose from all available individual market plans in their area rather than being limited to employer-selected options.
2. Provider Network Flexibility: Employees can select plans that include their preferred healthcare providers.
3. Coverage Level Flexibility: Employees can choose plans that match their personal healthcare needs and financial situation.

Milliman emphasizes this contrast: "Compared to traditional group health plans, the individual market can offer greater freedom of choice for employees for a variety of reasons. Under a traditional group plan, an employer typically offers a finite number of plans – usually ranging from one to four options. This can result in employer-sponsored benefit packages that do not align with an employee's individual or family benefit and financial needs."

Take Command Health summarizes the flexibility advantages: "ICHRA offers several advantages: Customization (employers can tailor benefits by creating 'employee classes' to offer different reimbursement levels), Flexibility (employees can choose the individual health insurance plan that best fits their personal or family health needs), and Tax Benefits (both employers and employees can enjoy tax advantages, as ICHRA reimbursements are generally tax-free for qualified expenses)."

This flexibility is particularly valuable in today's diverse workforce, where employees have varying healthcare needs and preferences. The ability to personalize health benefits represents a significant evolution in employer-sponsored healthcare.

Implementation Strategies for SMEs

Unique Challenges for Small to Medium Enterprises

Small to medium enterprises (SMEs) face distinct challenges when implementing ICHRAs, though they also stand to gain significant benefits from this health benefits model.

One primary challenge is the administrative burden, which can be particularly difficult for SMEs with limited HR resources. The Strategic CHRO notes that "employers must establish clear processes for reimbursing employees' medical expenses, which may require additional resources or software solutions to manage efficiently. This task can be time-consuming and requires a solid understanding of both individual and group health plan dynamics."

Another challenge is employee education and support. Total Control Health Plans highlights that "four out of five respondents admitted to knowing little or nothing about ICHRAs," indicating a significant knowledge gap that employers must address. This education burden can be particularly challenging for SMEs without dedicated benefits communication resources.

Compliance requirements represent another potential hurdle. While smaller employers (under 50 full-time equivalent employees) have more flexibility, they must still adhere to specific ICHRA regulations. PeopleKeep explains that "when the federal government created the ICHRA, it provided specific regulatory guidelines to ensure employers administer the plan compliantly. These guidelines dictate a range of factors, from employee eligibility to plan documents and employee notices."

Despite these challenges, ICHRAs offer compelling advantages for SMEs, particularly those that have been unable to offer traditional group health insurance due to cost constraints. Remodel Health notes that "ICHRAs were introduced in January 2020 as a mechanism to provide employees with tax-free money to purchase individual health insurance through the Individual Insurance Marketplace. This development represents a shift away from the traditional group health insurance model, which is known to be less flexible, especially for small businesses wanting to provide better benefits without breaking the bank."

Compliance Considerations by Business Size

Compliance requirements for ICHRAs vary based on employer size, with different considerations for small employers versus applicable large employers (ALEs).

Small Employers (fewer than 50 full-time equivalent employees):

• Not subject to the ACA's employer mandate
• More flexibility in ICHRA design and implementation
• Still must adhere to basic ICHRA requirements (substantiation, notices, etc.)
• May consider QSEHRA as an alternative (subject to contribution limits)

Paycor clarifies: "Small businesses with fewer than 50 full-time employees don't have to provide health insurance under the ACA (Affordable Care Act)." This exemption from the employer mandate gives smaller employers more flexibility in their ICHRA implementation.

My Benefit Advisor notes an alternative for very small employers: "ICHRA is similar in some ways to a Qualified Small Employer HRA (QSEHRA), which is for employers with fewer than 50 employees that don't offer a group health plan (GHP). There is a limit to the amount of money an employer can reimburse and is set by the IRS each year (In 2025, $6,350 for self only and $12,800 for family)."

Applicable Large Employers (50 or more full-time equivalent employees):

• Subject to the ACA's employer mandate
• Must ensure ICHRA offers meet affordability requirements
• Required to calculate affordability using safe harbors
• Must report ICHRA offerings on Form 1095-C

ICHRA.com explains the affordability requirements for ALEs: "For the plan to be considered affordable, an employee's cost cannot exceed more than 9.02% of an employee's household income for 2025. This is up from 8.39% for 2024. Each year the threshold changes and the employer must recalculate affordability."

The same source notes the practical challenges of affordability calculations: "Large employers do not typically know an employee's household income so 'safe harbors' have been put in place as benchmarks enabling employers to determine affordability for their plans."

All employers, regardless of size, must comply with certain basic ICHRA requirements:

• Verify that employees have qualifying individual health insurance
• Provide required notices to eligible employees
• Maintain proper plan documentation
• Process reimbursements in compliance with IRS guidelines

Implementation Best Practices

Successfully implementing an ICHRA requires careful planning and execution, particularly for SMEs with limited resources. Based on the research materials, several best practices emerge:

1. Conduct thorough market analysis

• Evaluate individual market options in your employees' locations
• Compare individual market premiums to group health insurance costs
• Assess the "ICHRA-friendliness" of your state(s)

Liferaft's analysis provides valuable insights: "According to Ideon's latest map and 2025 Landscape Report, 33 states are now identified as 'ICHRA-friendly' for Bronze-level plans, marking an increase from 31 states in 2024, while 21 states exhibit favorable market dynamics for Silver-level plans, up from 17 states last year."

2. Partner with experienced vendors

• Select an ICHRA administration platform to streamline processes
• Consider working with a benefits broker familiar with ICHRAs
• Utilize technology solutions for compliance and administration

3. Develop a comprehensive employee education strategy

• Create clear explanations of how ICHRAs work
• Provide guidance on selecting individual health insurance
• Offer support resources for navigating the marketplace

Total Control Health Plans highlights the importance of education: "63% believed that employer assistance in navigating the ACA marketplace would improve their experience." This indicates that employee support is crucial for successful ICHRA implementation.

4. Design appropriate allowance structures

• Determine optimal allowance amounts based on market analysis
• Consider creating employee classes if appropriate
• Ensure allowances are competitive and meet employee needs

5. Establish clear administrative processes

• Develop procedures for substantiating employee coverage
• Create efficient reimbursement workflows
• Implement documentation systems for compliance

6. Monitor and adjust

• Gather employee feedback on the ICHRA experience
• Track utilization and satisfaction metrics
• Make adjustments based on employee needs and market changes

Thatch emphasizes the strategic importance of health benefits: "Offering employer-provided health insurance can reduce turnover. Companies can typically hire better talent if they have health insurance as a company benefit. Research shows as many as 96% of Americans think it's important that a job offer health insurance benefits."

By following these best practices, SMEs can maximize the benefits of ICHRAs while minimizing implementation challenges and administrative burdens.

The Role of Insurance Brokers

Challenges Facing Brokers in ICHRA Implementation

Insurance brokers play a crucial role in the health benefits ecosystem, but the rise of ICHRAs presents them with both opportunities and challenges. Several sources highlight the specific challenges brokers face when working with ICHRAs.

Redesign Health identifies broker incentives as a significant barrier to ICHRA adoption: "Brokers remain the largest hindrance to scale. Current incentive structures lead brokers to favor renewing high-margin group plans, leaving ICHRAs at a disadvantage. ICHRA administrators must find ways to align broker economics for this market to reach exponential growth."

This economic misalignment stems from how brokers are traditionally compensated. With group health plans, brokers typically receive a percentage of premiums, creating a financial incentive to maintain these arrangements. ICHRAs potentially disrupt this model by moving employees to individual market plans, which may offer different (often lower) commission structures.

BenefitsPRO notes that brokers are "still exploring the best ways to articulate their value" in the ICHRA space. This suggests that brokers face challenges in effectively communicating the benefits of ICHRAs to their clients and demonstrating their expertise in this evolving area.

W3LL observes that "Group Plans Are Losing Ground. The pandemic has changed nearly every corner of society, and health insurance is no exception. Companies rebounding from shutdowns are looking for more affordable ways to offer insurance benefits to employees. And the ICHRA model is proving to be the ideal platform for many company budgets. The traditional group plans of pre-pandemic times are often too costly for today's businesses."

This market shift requires brokers to adapt their business models and value propositions, which can be challenging for those deeply invested in traditional group health insurance arrangements.

The Evolving Role of Brokers in the ICHRA Landscape

Despite these challenges, brokers have significant opportunities to evolve their roles and provide valuable services in the ICHRA landscape. The research materials suggest several ways brokers can adapt and thrive in this changing environment.

PeopleKeep advises that "health insurance brokers should shift from being salespeople to consultants, providing valuable educational resources for small and medium-sized business owners (SMBs)." This consultative approach positions brokers as strategic advisors rather than simply product salespeople.

The same source notes that "SMBs have unique challenges, such as budget constraints and difficulty meeting group health insurance participation requirements, so brokers should offer more flexible health benefits solutions like HRAs and health stipends." By understanding these specific challenges and offering tailored solutions, brokers can demonstrate their value to SME clients.

Take Command Health emphasizes the collaborative potential: "As a broker, you've got a powerhouse partner in Take Command. With our suite of data, tools, and resources, you've got everything you need to deliver a compelling pitch to the C-Suite. But how does this partnership look in action? It's all about collaboration and leveraging each other's strengths."

This suggests that brokers can enhance their value proposition by partnering with ICHRA administration platforms and leveraging their specialized tools and expertise. Rather than viewing these platforms as competitors, brokers can integrate them into their service offerings to provide more comprehensive solutions to clients.

Strategies for Brokers to Successfully Navigate the ICHRA Market

Based on the research materials, several strategies emerge for brokers seeking to successfully navigate and capitalize on the growing ICHRA market:

1. Develop deep ICHRA expertise

• Thoroughly understand ICHRA regulations and implementation requirements
• Stay current on market trends and regulatory changes
• Become familiar with state-specific individual market dynamics

2. Adopt a consultative approach

• Position yourself as a strategic advisor rather than a product salesperson
• Help clients evaluate whether ICHRAs align with their benefits strategy
• Provide comprehensive analysis comparing traditional group plans with ICHRAs

3. Partner with ICHRA administration platforms

• Establish relationships with leading ICHRA technology providers
• Leverage their tools and resources to enhance your service offerings
• Create integrated solutions that combine your expertise with their technology

4. Focus on employee education and support

• Develop resources to help employees understand and navigate ICHRAs
• Provide guidance on selecting individual health insurance plans
• Offer ongoing support throughout the implementation process

5. Explore new compensation models

• Consider fee-based consulting arrangements rather than relying solely on commissions
• Develop value-added services that justify consulting fees
• Create hybrid models that combine traditional commissions with consulting fees

6. Target high-potential market segments

• Focus on industries where ICHRAs offer particular advantages
• Identify employers struggling with traditional group health insurance costs
• Develop specialized expertise in serving SMEs with unique challenges

By adopting these strategies, brokers can position themselves as valuable partners in the evolving health benefits landscape, helping clients navigate the complexities of ICHRAs while building sustainable business models for themselves.

Future Outlook and Projections

Growth Projections Through 2030

The future of ICHRAs appears robust, with multiple sources projecting significant growth through 2030. These projections suggest that ICHRAs will become an increasingly important component of the employer-sponsored health benefits landscape.

Take Command Health provides one of the most optimistic projections: "HHS projects that in the next 5-10 years, roughly 800,000 employers will offer Individual Coverage HRAs to pay for insurance for more than 11 million employees. Take Command estimates that as many as 50 million employees and family members could participate in an ICHRA plan in the coming years."

OnPay offers similar estimates: "Businesses are taking notice of ICHRA as a premium reimbursement option as healthcare costs in the United States continue to rise. Some data suggests that roughly 800,000 employers are considering using an ICHRA in the next five to ten years."

Redesign Health cites more specific near-term growth projections: "Oliver Wyman projects that it could grow 80% year-over-year if current trends hold." This accelerated growth rate would significantly expand ICHRA's market presence in the coming years.

Milliman reinforces these projections: "The U.S. Departments of Treasury, Labor and Health and Human Services estimate 800,000 employers will offer an ICHRA by the end of the year 2025 insuring 11 million individuals, which indicates total enrollment in the individual marketplace will likely increase."

These projections suggest that ICHRAs are not merely a temporary trend but represent a fundamental shift in how employers approach health benefits. The anticipated growth would make ICHRAs a mainstream benefits option rather than a niche alternative.

Emerging Trends in the ICHRA Market

Several emerging trends are shaping the evolution of the ICHRA market and will likely influence its development through 2030:

1. Integration with broader benefits strategies

• ICHRAs becoming part of comprehensive benefits packages
• Combination with other health benefit options (HSAs, wellness programs, etc.)
• Strategic alignment with recruitment and retention goals

2. Technology-driven administration improvements

• Enhanced platforms for employee education and plan selection
• Streamlined reimbursement processes
• Improved compliance management tools

3. Market expansion across employer segments

• Continued growth among small employers
• Accelerating adoption by mid-market and large employers
• Industry-specific implementation models

4. Geographic expansion

• More states becoming "ICHRA-friendly" as individual markets stabilize
• Reduction in regional disparities in ICHRA viability
• State-specific regulatory adaptations

5. Employee experience enhancements

• More robust support for individual plan selection
• Improved education resources
• Simplified enrollment and reimbursement processes

Thatch highlights demographic trends that may influence future growth: "The largest segment utilizing employer-offered ICHRAs is workers between 26 and 34. This younger pool indicates two trends for the future of ICHRA: 1. Stabilized risk. Younger people enrolled in ICHRA can help stabilize risk pools overall, keeping plans at a lower cost. 2. Life-long familiarity. Considering Americans can stay on family health insurance until age 26, it's not unreasonable to assume many of these employees enrolling in ICHRA are enrolling in health insurance for the first time."

This suggests that as younger workers become more familiar with ICHRAs, adoption may accelerate further, creating a virtuous cycle of growth and market stabilization.

Potential Challenges and Regulatory Considerations

Despite the positive growth projections, several challenges and regulatory considerations could impact the future development of the ICHRA market:

1. Regulatory changes

• Potential modifications to ACA requirements
• Changes to tax treatment of health benefits
• State-level insurance market regulations

2. Individual market stability

• Fluctuations in individual market premiums
• Carrier participation in marketplaces
• Network adequacy and quality concerns

3. Employee acceptance

• Overcoming preference for traditional group plans
• Addressing concerns about complexity and choice overload
• Building trust in the ICHRA model

Total Control Health Plans highlights this challenge: "A recent survey found that the majority of employees prefer traditional employer-sponsored health insurance over cash-for-coverage plans. The survey, conducted by Softheon, a health coverage distribution technology firm, and its subsidiary W3LL, found that 80% of respondents would rather have their employer provide health insurance. In contrast, only 20% preferred receiving employer funds to purchase their own plan."

4. Broker adaptation

• Aligning broker incentives with ICHRA growth
• Developing new compensation models
• Building necessary expertise and resources

Redesign Health identifies this as a critical barrier: "Brokers remain the largest hindrance to scale. Current incentive structures lead brokers to favor renewing high-margin group plans, leaving ICHRAs at a disadvantage. ICHRA administrators must find ways to align broker economics for this market to reach exponential growth."

5. Administrative complexity

• Managing compliance requirements
• Streamlining reimbursement processes
• Supporting employees through the transition

The Strategic CHRO notes that "the transition to ICHRA from traditional group health plans can be administratively intense. Employers must establish clear processes for reimbursing employees' medical expenses, which may require additional resources or software solutions to manage efficiently."

Addressing these challenges will be crucial for realizing the full potential of ICHRAs in the coming years. Stakeholders across the ecosystem—employers, brokers, technology providers, and policymakers—will need to collaborate to overcome these barriers and facilitate continued market growth.

Strategic Recommendations

Recommendations for Employers

Based on the comprehensive analysis of ICHRAs, several strategic recommendations emerge for employers considering or implementing this health benefits model:

1. Conduct a thorough feasibility analysis

• Evaluate individual market options in your employees' locations
• Compare costs with your current group health insurance
• Assess potential tax advantages and budget implications
• Consider employee demographics and preferences

2. Develop a comprehensive implementation strategy

• Create a detailed timeline for ICHRA implementation
• Establish clear administrative processes
• Determine appropriate allowance structures
• Design employee classes if applicable

3. Prioritize employee education and support

• Develop clear, accessible educational materials
• Provide guidance on selecting individual health insurance
• Offer ongoing support for navigating the marketplace
• Address employee concerns proactively

Total Control Health Plans highlights the importance of education: "In light of this lack of awareness, if you plan to offer an ICHRA, you'll want to educate your staff about the arrangements and ensure employees understand that they are responsible for selecting their own individual health insurance plan under an ICHRA."

4. Partner with experienced vendors

• Select an ICHRA administration platform to streamline processes
• Consider working with a benefits broker familiar with ICHRAs
• Utilize technology solutions for compliance and administration

5. Monitor and optimize

• Gather employee feedback regularly
• Track utilization and satisfaction metrics
• Make adjustments based on employee needs and market changes
• Stay informed about regulatory updates

6. Consider a phased approach

• Start with a pilot program for specific employee segments
• Gradually expand to additional employee classes
• Use lessons learned to refine your approach

These recommendations provide a framework for employers to evaluate, implement, and optimize ICHRAs as part of their health benefits strategy.

Recommendations for Insurance Brokers

Insurance brokers play a crucial role in the health benefits ecosystem and have unique opportunities to add value in the ICHRA space. The following recommendations can help brokers successfully navigate this evolving landscape:

1. Invest in ICHRA expertise

• Develop deep knowledge of ICHRA regulations and implementation
• Stay current on market trends and regulatory changes
• Understand the nuances of individual health insurance markets

2. Reposition your value proposition

• Shift from product sales to strategic consultation
• Emphasize your role as a trusted advisor
• Develop comprehensive analysis tools comparing traditional group plans with ICHRAs

PeopleKeep advises that "health insurance brokers should shift from being salespeople to consultants, providing valuable educational resources for small and medium-sized business owners (SMBs)."

3. Explore new business models

• Consider fee-based consulting arrangements
• Develop value-added services that justify consulting fees
• Create hybrid models combining traditional commissions with consulting fees

4. Build strategic partnerships

• Establish relationships with leading ICHRA administration platforms
• Partner with complementary service providers
• Leverage technology solutions to enhance your offerings

Take Command Health emphasizes the collaborative potential: "It's all about collaboration and leveraging each other's strengths. From goal setting and concept development to design iterations, communication rollout, and benchmarking, let's explore how partnering with Take Command can supercharge your ICHRA strategy."

5. Target high-potential market segments

• Focus on industries where ICHRAs offer particular advantages
• Identify employers struggling with traditional group health insurance costs
• Develop specialized expertise in serving SMEs with unique challenges

6. Create comprehensive client support resources

• Develop tools to help clients evaluate ICHRA feasibility
• Create employee education materials
• Offer ongoing support throughout the implementation process

By implementing these recommendations, brokers can position themselves as valuable partners in the evolving health benefits landscape, helping clients navigate the complexities of ICHRAs while building sustainable business models for themselves.

Strategic Considerations for the Future

Looking ahead, several strategic considerations will shape the future of ICHRAs and influence their role in the broader health benefits landscape:

1. Integration with broader benefits strategies

• How ICHRAs complement other health and wellness offerings
• Alignment with recruitment and retention goals
• Role in total compensation packages

2. Technological innovation

• Advancements in ICHRA administration platforms
• Enhanced decision support tools for employees
• Improved data analytics for employers

3. Market evolution

• Changes in individual health insurance markets
• Carrier participation and product offerings
• Premium trends and affordability

4. Regulatory developments

• Potential modifications to ACA requirements
• Changes to tax treatment of health benefits
• State-level insurance market regulations

5. Stakeholder adaptation

• Employer adoption across different segments
• Employee acceptance and satisfaction
• Broker business model evolution

Milliman notes that the growth of ICHRAs is occurring alongside broader workplace changes: "Due to the expansion of the individual market and the shift in workplace culture from traditional brick and mortar to 'work from home' and/or remote arrangements in the last few years, employers have begun revisiting their entire benefits package in an effort to advance recruitment and retention of their workforce."

This suggests that ICHRAs should be viewed not in isolation but as part of a broader evolution in how employers approach benefits in a changing workplace environment. Organizations that take a strategic, integrated approach to ICHRAs—considering them within the context of their overall benefits strategy, workforce needs, and business objectives—will be best positioned to realize their full potential.

Conclusion

The Individual Coverage Health Reimbursement Arrangement (ICHRA) represents a significant evolution in employer-sponsored health benefits, offering a fundamentally different approach to providing healthcare coverage. As of April 2025, ICHRAs have gained substantial traction in the market, with adoption growing 29% year-over-year in 2024 and a remarkable 84% increase among companies with 50 or more employees.

This comprehensive analysis has examined ICHRAs from multiple perspectives, revealing both their promising potential and the challenges associated with their implementation. The research highlights several key findings:

1. Market Growth: ICHRAs are projected to continue their rapid expansion, with estimates suggesting that 800,000 employers will offer ICHRAs by the end of 2025, covering approximately 11 million individuals. This growth is driven by rising healthcare costs, changing workplace dynamics, and the flexibility ICHRAs offer.
2. Cost Advantages: In many states, individual market premiums are significantly lower than small group plans, creating compelling cost savings opportunities. Ohio stands out with individual premiums 32% to 63% less expensive than small group plans in some counties.
3. Flexibility Benefits: ICHRAs provide unprecedented flexibility for both employers and employees. Employers can set customized allowance amounts for different employee classes, while employees can select individual plans that best meet their specific needs.
4. Implementation Challenges: Despite their advantages, ICHRAs present implementation challenges, particularly related to administrative complexity, employee education, and compliance requirements. These challenges vary based on employer size and resources.
5. Broker Evolution: Insurance brokers face both challenges and opportunities in the ICHRA landscape. While traditional compensation models may be disrupted, brokers can evolve their roles to provide valuable strategic guidance and implementation support.
6. Employee Perspectives: Employee reactions to ICHRAs are mixed. While many appreciate the increased choice, others express concerns about the complexity of selecting their own coverage. Comprehensive education and support are crucial for successful implementation.

For small to medium enterprises (SMEs) and the insurance brokers who serve them, ICHRAs offer particularly promising opportunities. SMEs that have struggled with the cost and complexity of traditional group health insurance can leverage ICHRAs to provide valuable benefits while controlling costs. Brokers can position themselves as strategic advisors, helping clients navigate the complexities of ICHRA implementation while developing sustainable business models.

As the healthcare benefits landscape continues to evolve, ICHRAs are likely to play an increasingly important role. Organizations that approach ICHRAs strategically—considering them within the context of their overall benefits strategy, workforce needs, and business objectives—will be best positioned to realize their full potential. By understanding the fundamentals, market trends, implementation considerations, and strategic implications of ICHRAs, employers and brokers can make informed decisions that enhance health benefits while controlling costs in the years ahead.