Since 2020, employers have had the option to offer employees pre-tax dollars that can be used to purchase health plans on the individual market, rather than contribute to a traditional group health plan.
The benefit, known as an individual coverage health reimbursement arrangement (ICHRA), had a slow start due to the Covid-19 pandemic, and remains one of the less common ways of offering health benefits—in 2024, just 4% of firms surveyed by KFF gave workers funds to purchase non-group health insurance. ICHRAs are becoming more prevalent, though, as the share of employers with 50 or more workers offering ICHRA plans rose by 34% from 2024 to 2025, according to data from the Health Reimbursement Arrangement Council.
While ICHRAs are most popular among small businesses that might not otherwise be able to afford health insurance for their workers, more large employers are starting to look into the benefit as a way to combat higher health costs, experts told HR Brew.
How ICHRAs work. ICHRAs first became available to most employers through a rule that was issued by the first Trump administration in June 2019 and took effect on Jan. 1 of the following year.
Each year, employers offering ICHRAs contribute a certain amount of money that workers and their dependents can use toward qualified medical expenses. Employees must be enrolled in an individual health coverage plan (such as those offered through the Affordable Care Act Marketplace or from a private insurance company) to use the funds, which are not taxed.
Employers can start offering ICHRAs at any time. If they decide to do so, they must notify employees 90 days before the beginning of each plan year; after that, new employees should be notified as soon as they’re eligible.
Why ICHRAs are on the rise. Employers are drawn to ICHRAs for different reasons, according to healthcare industry sources who spoke with HR Brew.
Small businesses may be attracted to the plans because they allow them to provide health coverage to workers for the first time. Businesses with fewer than 50 workers aren’t required to offer health insurance, but might find ICHRAs are a good fit “because it lowers the barrier” for them to offer the benefit, said Stacy Edgar, CEO and co-founder of Venteur, which helps businesses administer ICHRAs. ICHRAs don’t have minimum participation requirements, for example, whereas group health plans often require a certain percentage of the workforce (typically 70%) to elect coverage. Additionally, there are no minimum or maximum requirements stipulating how much businesses must contribute to an ICHRA.
Larger employers that already offer group health insurance may also consider switching to ICHRAs due to the potential cost savings, Edgar noted. The biggest account in Venteur’s pipeline right now is a company with more than 110,000 employees that is expected to save $350 million from switching to an ICHRA, she said. Venteur calculates such cost-savings by comparing claims data, pharmacy spend, and networks between plans.
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Projected health costs have been rising steadily since 2023, according to the Business Group on Health, and this year, are driven largely by coverage of GLP-1 medications used to treat diabetes and obesity. In general, individual marketplace premiums have risen at a lower rate than group healthcare premiums in recent years, said Josh Miley, ICHRA solution leader with consulting firm WTW.
Such trends have prompted employers to take a closer look at whether the totality of their healthcare investments—which may include not only group health insurance, but also fees for brokers and administrators, as well as additional point solutions—is delivering value for their workforces, he explained. Whether an ICHRA is a more cost-efficient option than a group plan may depend on a number of factors, including the demographics of the workforce, where in the US employees are based, and how much money a company is willing to contribute to the plan.
What the end of ACA subsidies could mean for ICHRAs. A number of policy changes on the horizon could throw a wrench into the nascent ICHRA market, as they’re expected to make it more costly and burdensome to sign up for individual marketplace coverage, Healthcare Brew recently reported.
One issue on benefits leaders’ minds is the end of enhanced premium tax credits that had made ACA health plans more affordable, and are set to expire at the end of the year. Should these credits sunset, ACA enrollees are expected to see their out-of-pocket premiums increase by more than 75% on average, KFF estimates.
While these estimates may cause some employers to put their ICHRA plans on hold, it’s not certain anticipated costs will look much better on the group health insurance side, Miley said. “When you start to compare the very high trend environment that we’re in on the group side, anyway, it mitigates some of that comparison to those individual marketplace increases that we’re seeing.”
Should individual marketplace plans become more costly, more companies might actually decide to provide ICHRA plans to their workers, suggested Ben Light, VP of partnerships with Zorro, an ICHRA platform. Employees who had been buying their own health insurance through the individual marketplace, but can no longer afford it, “will look to their employers” for support, he predicted.