Are you tired of the one-size-fits-all approach to employee health benefits? Have you ever wondered if there’s a more flexible, personalized option that could meet both your employees’ needs and your organization’s budget?
The individual coverage health reimbursement arrangement (ICHRA) is an alternative to traditional group health insurance. Introduced in 2020, this modern approach to health benefits gives employers an affordable way to provide comprehensive coverage. According to the HRA Council1, ICHRA adoption among U.S. employers grew by 29% from 2023 to 2024.
In this article, we’ll explain how ICHRA benefits employers, employees, and brokers alike.
In this blog post, you’ll learn:
- Why the ICHRA is more cost-effective compared to a traditional group plan.
- How employers can help employees with the cost of individual plans.
- How employers can vary ICHRA allowances using different classes of employees.
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What is ICHRA?
The ICHRA is an employer-funded health benefit. With an ICHRA, employers offer their employees a monthly allowance for their individual health insurance premiums. This allows employers to help with their employees’ healthcare costs without the need to invest in an expensive traditional group health plan.
Here’s how it works:
- Employers set an allowance amount. Budget control is one of the most powerful features of the ICHRA. There’s no annual limit on employer contributions with an ICHRA, so they can offer as much as they would like to their employees. According to our 2024 ICHRA Report, the average monthly ICHRA contribution amount was $524. Employers can also vary allowance amounts using employee classes, such as part-time and full-time employees. For example, they can offer their full-time employees $400 per month, while legally offering part-time employees $200. Employers can also differ allowances based on their employees’ age and family size.
- Employees purchase their own individual health plans. Eligible employees need individual health insurance coverage to participate in the ICHRA. Having coverage through a spouse’s or parent’s medical plan doesn’t count. Employees can shop for individual health insurance policies that provide minimum essential coverage (MEC) on the Health Insurance Marketplace. They can also go directly to a licensed agent or health insurance company for coverage from a private exchange.
- Employees receive money for premium costs. Suppose an employee has a monthly premium of $425, and their employer offers $400 as an ICHRA allowance. In that case, they only have to spend $25 out-of-pocket for their individual health insurance coverage.
How the ICHRA benefits employers
Traditional group health plans are expensive. According to KFF2, the average annual health insurance premiums were $8,951 for single coverage and $25,572 for family coverage in 2024. These costs increase every year, especially with high benefit utilization. With ICHRA, employers can avoid the stress of annual rate hikes since they set their own benefits budgets. Rate hikes are also smaller with individual plans because there’s no medical underwriting in the ACA individual market. The ICHRA also comes with tax benefits. The money employers set aside for their eligible employees’ individual health coverage is tax-free.
In addition to the cost, fully-insured traditional group health insurance plans often have steep participation requirements. Usually, between 70% and 75% of your workers need to participate. Employers don’t have to worry about participation requirements with ICHRA.
Employers with self-funded plans can significantly benefit from switching to an ICHRA. If the self-funded plan is seeing large ongoing claims, employers can eliminate their risk with ICHRA.
Plus, health benefits can significantly improve an organization’s recruitment and retention efforts since they’re the most important perk employers can offer. PeopleKeep by Remodel Health’s 2024 Employee Benefits Survey found that 81% of employees said an employer’s benefits package is an important factor in whether they accept a job.
While organizations of all sizes can offer ICHRAs, they’re especially beneficial for larger employers. The ICHRA satisfies the Affordable Care Act’s (ACA) employer mandate for applicable large employers (ALEs) that need to offer affordable coverage.
How the ICHRA benefits employees
The ICRHA also has several benefits for employees. A diverse workforce deserves personalized health benefits, not a one-size-fits-all plan. A 25-year-old employee in good health might not require the same level of coverage as a 45-year-old employee with a chronic condition. So why should an employer offer them the same coverage?
The ICHRA offers flexibility for employees. They have the power to choose the individual health insurance plans that work best for them. Whether it’s the lowest-cost silver plan or the highest-cost gold plan on the market, the choice is up to them.
Plus, the money they receive from their employer is on a tax-free basis. It won’t count as part of their taxable income.
How the ICHRA benefits brokers
A broker can easily grow their book of business with an ICHRA. By incorporating ICHRAs into their offerings, brokers can diversify their revenue streams beyond traditional group health insurance policies while increasing client engagement.
The ICHRA offers several benefits to medical insurance brokers:
- Expanded client base: ICHRAs allow employers of all sizes to offer employee allowances for individual health insurance premiums. This flexibility for employers opens new markets for brokers. They can now target employers who prefer defined contributions over traditional group plans. You can earn revenue from partnerships with ICHRA vendors like Remodel Health for groups that aren’t a good fit for group coverage.
- Regulatory compliance: The growing complexity of healthcare regulations makes maintaining compliance a challenging but crucial task for employers. Brokers can provide valuable expertise in compliance requirements related to ICHRA, simplifying the process for employers and increasing the broker’s value to their clients.
- Educational role: With many employers and employees unfamiliar with ICHRA, brokers have the opportunity to educate clients about its benefits and implementation. This positions brokers as knowledgeable experts, enhancing their reputation and building stronger client relationships.
- Support for employee choice: Since ICHRA is linked to individual plans, employees have the option to choose coverage that better fits their personal needs. Brokers can assist them in selecting appropriate individual plans and ancillary benefits, thereby broadening their service scope and increasing client satisfaction.
By collaborating with Remodel Health to provide ICHRAs to your clients, your clients gain access to our cutting-edge ICHRA+ software and exceptional white-glove service from experienced professionals who genuinely care. Our devoted team of experts guarantees that your clients receive the comprehensive support they deserve.
Conclusion
Understanding how the individual coverage HRA (ICHRA) works can transform the way you look at employee benefits. By leveraging this model, organizations can provide tailored health coverage solutions that meet the varied needs of their employees, all while managing their health benefit costs effectively.
No matter a company’s size or budget, Remodel Health’s ICHRA+® solution makes it easy for every broker to design an ICHRA. We offer customized benefits that provide cost savings and flexibility for your clients.
This blog article was originally published on August 6, 2020. It was last updated on May 29, 2025.
- https://www.hracouncil.org/report
- https://www.kff.org/report-section/ehbs-2024-section-1-cost-of-health-insurance/
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