The individual coverage health reimbursement arrangement (ICHRA) is revolutionizing how employers provide health benefits. It offers a way for businesses to give their employees more flexibility and choice in their health coverage.
But before recommending an ICHRA to your clients, it’s important to understand how it works. Each employer has unique needs, and what works for one might not work for another.
In this article, we’ll review the benefits and potential drawbacks of an ICHRA to help you determine whether it’s the right choice.
In this blog post, you’ll learn:
- How ICHRAs compare to group health insurance plans.
- How ICHRAs provide health savings for employers.
- How Remodel Health can help you offer an ICHRA to your clients.
Learn more about ICHRAs and how they benefit brokers.
What is the ICHRA?
The ICHRA emerged in 2020 as an alternative to traditional group health insurance plans. With an ICHRA, employers can offer a defined contribution for the cost of their employees’ individual health plans instead of purchasing a pricey group policy for their entire workforce.
According to KFF1, the average annual premium for employer-sponsored health plans in 2024 was $8,951 for single coverage. That’s $745 each month. Premiums for individual policies often cost less than those for group health plans. KFF2 found that the average benchmark premium for Marketplace plans in 2024 was $477. Individual premiums may be even cheaper in the state(s) where your client operates.
More employers take advantage of the ICHRA each year. A recent report by the HRA Council shows a 21% rise in ICHRA adoption between 2024 and 2025. This growth is driven by employers looking for more flexible and cost-effective employer-funded health benefit plans.
Advantages of the ICHRA
The ICHRA is a health coverage solution for several reasons. Let’s review the advantages for your clients.
ICHRAs provide cost control
With group health plans, your clients may fall victim to steep yearly rate increases. In many markets, it isn’t uncommon to see double-digit rate hikes. That’s not an issue with the ICHRA. Employers enjoy predictability by setting a fixed budget for healthcare costs.
For example, an employer can offer employees a monthly allowance of $200 for their individual health insurance premiums. If an employee’s monthly premium is $220, the employer is only required to cover the $200 they’re offering. The employee will pay the remaining $20 out of their own pocket for coverage. The one caveat here is that applicable large employers (ALEs) need to offer an affordable allowance to satisfy the ACA’s employer mandate.
ICHRAs offer customization
Group health insurance is one-size-fits-all. ICHRAs are the opposite. You can tailor this health benefit to meet the needs of your client’s workforce.
With the ICHRA, employers can offer different allowances based on employee class. For example, employers can offer their full-time employees $300 while offering part-time employees $150 for their health plans. They can also vary allowances based on age and family status.
ICHRAs also provide a personalized approach to healthcare for employees since they can choose their own individual health insurance plans that best fit their needs.
ICHRAs have tax advantages
The money employers contribute to ICHRA is tax-free. Your client’s contributions don’t count as taxable income for their employees either.
ICHRAs meet the employer mandate
The Affordable Care Act (ACA) requires applicable large employers (ALEs) to provide affordable health coverage that meets minimum essential coverage (MEC) and minimum value (MV) standards. Otherwise, they’ll face penalties. As long as you design your client’s ICHRA to meet these requirements, they’re in the clear. This means offering an affordable allowance (or using affordability safe harbors) to at least 95% of your client’s full-time employees.
ICHRAs offer portability
The modern workforce wants modern health benefits. Health insurance tied to employment presents financial instability if someone suffers from involuntary job loss or leaves the company. While the ICHRA isn’t a portable health benefit, employees’ individual health plans are. Employees can retain their health plan coverage if they change jobs, offering them continuous access to their preferred healthcare policies without disruption. They just won’t have their ICHRA allowance to assist them if they leave.
Disadvantages of the ICHRA
No health benefit is perfect. While the ICHRA works for thousands of employers, it may not be the perfect fit for every business. There are three primary drawbacks to it.
ICHRAs can pose an administrative burden
There’s a level of administrative complexity with an ICHRA. Setting up and managing an ICHRA may require significant administrative effort and understanding of compliance requirements, which can be burdensome for some employers.
ICHRAs come with a learning curve
Since group health plans have been the tried-and-true option for decades, most employers know how they work. Your client’s first time hearing about the ICHRA may be when you present it to them as a health benefit option. Plus, their employees might not fully understand how to navigate the individual insurance market, potentially leading to confusion or dissatisfaction with the benefit.
ICHRAs could be more expensive in some areas
For some large groups in certain areas, offering an ICHRA may not be cheaper than a traditional group health plan or self-funded arrangement. While an ICHRA has many advantages beyond cost savings, it may not be the solution for every group.
How Remodel Health can help
Remodel Health offers a straightforward solution to the challenges employers and health insurance professionals face. With our ICHRA+ platform and white-glove customer service, you can give your clients a solution to their biggest health insurance challenges.
When you work with us, we’ll evaluate your client’s situation to see if an ICHRA is a good fit for them. We conduct a comprehensive analysis of your client’s current benefits offerings and what ICHRA plan design and contribution structure would work best for them. That way, you and your client can see exactly what to expect.
We take care of:
- Plan design
- Legal plan documents
- AutoPay for employee individual health insurance premiums
- Required ICHRA plan notices
- Providing necessary data for compliance filings
Plus, your client’s employees can shop for individual medical insurance plans directly through Remodel Health instead of trying to figure out the individual marketplace on their own.
Conclusion
Group health insurance doesn’t work for everyone. Your clients want a more flexible, cost-effective solution, and the ICHRA is it. If you’re interested in adding ICHRAs to your book of business, Remodel Health can help you create a tailored health benefits strategy for your clients.
- https://www.kff.org/report-section/ehbs-2024-summary-of-findings/
- https://www.kff.org/affordable-care-act/state-indicator/average-marketplace-premiums-by-metal-tier/?currentTimeframe=1&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D
What are employers offering for allowances? Download our 2024 ICHRA Report to find out.