ICHRA: What Is It?

An Individual Coverage Health Reimbursement Arrangement differs from a traditional group health plan by shifting how coverage is provided. Instead of sponsoring a group policy, the employer offers a defined contribution that employees use to purchase their own individual health insurance. Working with a plan administrator, employees can choose from multiple insurers and plan options, and their share of the premium is typically paid pre-tax through payroll. For some employers, this approach can be more cost-effective and predictable than maintaining a group plan.

The Growing Conversation Around ICHRAs

Interest in ICHRAs has increased steadily since they became available for plan years beginning in 2020. Early discussions focused on understanding how the arrangement worked. More recently, the conversation has shifted to where ICHRAs fit and which employers benefit most.

Adoption data shows continued growth across employer sizes, including organizations with 50 or more full-time employees. At the same time, many smaller employers are using ICHRAs as their first entry into offering health benefits. Together, these trends suggest ICHRAs are no longer a niche option but a mainstream alternative being evaluated alongside traditional group coverage.

Why Cost Comparisons Alone Miss the Point

Premium comparisons are often the first step when evaluating an ICHRA, but they rarely tell the full story. Individual market premiums can be higher than small group rates in some regions and more competitive in others. Pricing varies significantly by county, carrier participation, and plan design.

The defining feature of an ICHRA is the employer’s ability to set a fixed contribution. While first-year costs may appear similar to a group plan, defined contributions can reduce long-term budget volatility by limiting exposure to unpredictable renewal increases. Evaluating an ICHRA effectively requires a multi-year view rather than a single renewal comparison.

Do Employees Want to Choose Their Own Coverage?

Historically, asking employees to select their own health insurance created real challenges. That experience has improved significantly. Many ICHRA administrators now provide decision-support tools that help employees compare plans, confirm provider participation, review prescription coverage, and estimate total out-of-pocket costs.

While not every employee prefers to shop independently, employer experience shows that with proper education and support, many employees are comfortable navigating the process. Choice still requires guidance, but it is far more manageable than it once was.

Network Access and Regional Differences

Provider access remains one of the most important factors in any health plan decision. Network quality in the individual market varies widely by state, county, and carrier. In some areas, individual and group networks are comparable. In others, individual plans rely on narrower or value-based networks.

Because employees enroll individually under an ICHRA, they may choose from multiple carriers and networks when available rather than being limited to a single employer-sponsored option. Whether that flexibility improves access depends entirely on local market conditions and should be evaluated by location.

Why Larger Employers Are Taking a Closer Look

Although ICHRAs were initially associated with smaller employers, interest among mid-sized and larger organizations continues to grow. Employers with multi-state workforces, diverse employee classes, or varying benefit needs often find the flexibility appealing.

For Applicable Large Employers, Affordable Care Act affordability and compliance requirements still apply. However, these requirements can be met within the ICHRA framework using established safe harbors and administrative tools. As a result, many employers are now evaluating ICHRAs as a long-term strategy rather than a short-term alternative.

Addressing Provider Continuity Concerns

A common employee concern is whether they will be able to keep their current doctors. Under an ICHRA, employees can review provider participation before enrolling and select plans that include their preferred providers when available. Employers can also structure contribution levels to make certain plan tiers more affordable.

Unlike group plans that place all employees into the same network, ICHRAs allow individuals to choose among available options. Whether that results in broader access depends on the specific offerings in each market.

Complexity, Subsidies, and Compliance

ICHRA rules include detailed affordability and eligibility requirements, particularly for Applicable Large Employers. While the regulations themselves have not changed, administration has improved significantly. Modern platforms automate affordability testing, apply safe harbor calculations, and help employees navigate subsidy eligibility.

For plan years beginning in 2026, the Affordable Care Act affordability threshold is 9.96 percent of household income. Affordability is measured based on the net cost of the lowest-cost Silver plan after applying the employer’s ICHRA contribution. These tools reduce administrative burden but still require thoughtful plan design and clear communication.

Responding to Cost-Shifting Criticism

Some critics argue that ICHRAs shift costs from employers to employees. Cost sharing exists in every benefits model, including traditional group plans. In practice, employer funding strategies vary widely.

What sets ICHRAs apart is transparency. Employees can clearly see the total cost of coverage and how employer contributions apply. The employee experience depends less on the ICHRA structure itself and more on how the employer chooses to fund it.

Employers That Often Align Well With ICHRAs

ICHRAs tend to work well for employers offering benefits for the first time, organizations facing volatile group renewals, and employers with remote or multi-state workforces. Fast-growing companies may also value the scalability of a defined contribution approach.

In each case, the common thread is a need for flexibility and long-term cost control rather than a one-size-fits-all plan design.

When an ICHRA May Not Be the Right Choice

ICHRAs are not a fit for every employer. In areas with limited individual market options or consistently higher individual premiums, group coverage may remain the better option. Employers with workforces tied closely to a specific carrier or hospital system may also face challenges.

Some organizations with unusually favorable group pricing may see little immediate benefit in switching. Without adequate employee education and support, any consumer-driven model can also create confusion.

The Bottom Line

ICHRAs are neither a cure-all nor a passing trend. They are a structured alternative to traditional group health plans that can offer cost predictability, geographic flexibility, and individualized choice when market conditions support them.

The most effective way to evaluate an ICHRA is through a direct comparison using current census data, local market pricing, and a multi-year perspective. In some cases, a group plan will remain the better solution. In others, an ICHRA may provide a more sustainable path forward.