If you’re a total rewards leader who’s just hearing about an individual coverage health reimbursement arrangement (ICHRA), it’s likely because the option has only been around for the last five years.
It may also be because this type of benefit—which allows employers to offer pre-tax dollars so employees can purchase their own individual health plan, rather than elect coverage through a group plan—is not currently the predominant form of employer-sponsored healthcare. Just 4% of firms offering health benefits gave workers funds to purchase non-group health insurance in 2024, according to a KFF survey.
Still, this option may be of interest to small employers that wouldn’t otherwise be able to offer health coverage to their workers, or businesses with specific employee populations. Here are three questions for HR teams considering offering an ICHRA, according to industry experts.
Why would your organization offer an ICHRA? The answer to this question depends on the size of the employer and how they view their role as a benefits provider, said Josh Miley, ICHRA solution leader with consulting firm WTW.
“If you’re a small employer or a startup, the reason why you would do an ICHRA is because it gives you a manageable entry point into offering benefits,” he said. Employers with fewer than 50 workers aren’t required to offer health insurance, but ICHRAs generally have a lower barrier to entry, as they don’t have requirements such as minimum participation rates.
Larger employers that are thinking about switching from a group health plan to an ICHRA will need to consider “cost and complexity,” Miley said. As health costs continue to rise and HR teams are tasked with “the administrative burden” of managing a complex ecosystem of brokers, vendors, compliance, and regulatory professionals for their healthcare, they may want to evaluate whether these efforts are commensurate with the value employees get out of the benefits, he said.
Who would benefit from an ICHRA? When doing an analysis to determine whether an ICHRA makes financial sense for the organization, HR leaders should look at not only how the cost of group-sponsored plans compares to the cost of similar plans on the individual market, but also whether workers would have “meaningful choice” if offered an ICHRA, said Miley. The price and quality of individual plans can vary greatly in different states, so employers should consider factors like how many carriers are located in the regions where their workers are based, or whether they offer lower-deductible plans, such as a gold plan.
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HR leaders should also try to get a sense of employees’ appetite for ICHRAs when considering who would benefit, said Julia Zuckerman, VP and senior consultant in Segal’s compliance practice. Many companies take a “paternalistic” approach to healthcare coverage, and employees are typically happy to let them lead. But she noted “there are definitely some people interested in more choice, and who are more sophisticated and motivated to think about the best coverage options for them.”
How would your company implement an ICHRA? Should your executive leadership team decide they want to offer an ICHRA plan to the workforce, there’s a fair amount of change management that has to happen ahead of the rollout, particularly for larger employers switching from group coverage.
HR teams should anticipate questions from employees about what the process looks like for buying a health plan themselves, as well as communicate about issues that may come up when the employer isn’t managing the plan for them, Miley said. Workers should know that they may lose coverage if they miss a premium payment, for example, or see a dependent lose coverage when they turn 26.
Successfully transitioning from an ICHRA requires “educating your employee population,” said Ben Light, VP of partnerships with Zorro, an ICHRA platform. Leadership can help employees understand that this is a new way to elect healthcare coverage, and make sure they know what information to secure ahead of time—such as potential doctors, facilities, and medications—in order to choose the right plan.