Employer-sponsored health insurance has been the default for most Americans since the middle of the last century. But today, that system is showing its age: remote teams, rising premiums, and employee choice all collide to drive demand for something different and better. A new solution is gaining traction: Individual Coverage Health Reimbursement Arrangements (ICHRAs).
In this article, we’ll explain:
What employer-sponsored health insurance means
How ICHRAs fit into the picture
Why the shift is happening now
And how employers can adapt without losing control or coverage quality
Let’s start with the basics.
What is employer-sponsored health insurance?
Employer-sponsored health insurance is a benefit where companies provide or help pay for health coverage for their employees. It’s the most common source of health coverage in the U.S., accounting for over 53% of the population in 2023. (Source: Census.gov)
Traditionally, employers offered a group health insurance plan, negotiated with an insurer, and covered a portion of the premium. But this model assumes the following:
A mostly local, full-time workforce
One-size-fits-most coverage needs
The employer has the capacity to manage plan selection, renewals, and compliance
For growing companies, startups, distributed teams, or industries with fluctuating headcounts, that model doesn’t always hold up. And, given that healthcare as a perk is a major competitive advantage in the hiring process, employers that don’t fit this mold risk seeming less attractive to top talent.
Types of Traditional Employer-Sponsored Group Plans
Employers that offer traditional group plans typically choose one or two plans to offer from a range of health insurance plan types, each with unique features, provider networks, and cost structures. Understanding these main types helps employers and employees select the best fit for their needs.
Preferred Provider Organization (PPO)
PPOs are the most common type of employer-sponsored plan.
Network flexibility: Employees can see any doctor, but pay less for care within the plan’s network.
No referrals required: Employees can visit specialists directly.
Costs: Typically higher premiums and out-of-pocket costs, but greater provider choice.
Health Maintenance Organization (HMO)
HMOs focus on coordinated care and lower costs.
In-network only: Coverage is limited to providers within the HMO network, except for emergencies.
Primary care physician (PCP): Employees must choose a PCP and get referrals for specialists.
Costs: Lower premiums and out-of-pocket expenses, but less flexibility in choosing providers.
High Deductible Health Plan (HDHP) with Savings Option
HDHPs are designed for lower monthly premiums and higher deductibles.
High deductible: Employees pay more upfront before coverage begins.
Savings accounts: Often paired with a Health Savings Account (HSA) or Health Reimbursement Arrangement (HRA) for tax-advantaged savings.
Costs: Lower monthly premiums, but higher potential out-of-pocket costs.
Point of Service (POS)
POS plans combine features of PPOs and HMOs.
PCP required: Like an HMO, employees choose a primary care doctor.
Out-of-network option: Employees can see out-of-network providers at a higher cost.
Costs: Moderate premiums and flexibility.
Exclusive Provider Organization (EPO)
EPOs are similar to PPOs but with stricter network rules.
In-network only: No coverage for out-of-network care, except emergencies.
No referrals: Employees can see specialists without a referral.
Costs: Typically lower premiums than PPOs, but less provider choice.
Self-Insured vs. Fully-Insured Plans
Employers can choose how to fund their health plans:
Fully-Insured Plans: The employer buys health insurance from an insurance company, which assumes the financial risk and handles claims.
Self-Insured (Self-Funded) Plans: The employer pays employee medical claims directly, often using a third-party administrator. This option is more common among large employers and can offer cost savings and flexibility.
Supplemental and Ancillary Benefits
In addition to core medical plans, many employers offer supplemental benefits to enhance coverage:
Dental insurance
Vision insurance
Life and disability insurance
Accident or critical illness insurance
These options can be bundled with any main health plan type.
How ICHRAs modernize employer-sponsored healthcare
Enter the Individual Coverage Health Reimbursement Arrangement (ICHRA). Introduced in 2019, ICHRAs allow employers to offer tax-free dollars for employees to buy their own individual health insurance—either through a public exchange like Healthcare.gov or a private broker.
This flips the traditional model:
| Traditional Group Plan | ICHRA Model |
|---|---|
Employer selects one or two plans | Employee chooses any qualified plan |
Fixed plan network and benefits | Personalized coverage choice |
Employer pays a % of premium | Employer sets a fixed allowance |
Renewal risk and admin overhead | Outsourced compliance and automation |
Employees still get employer-sponsored coverage—just through a different channel.
(Source: ICHRA rules: IRS Final Rule 84 FR 28888)
Why employers are making the switch
1. Cost control
Group premiums have risen dramatically. In 2023, the average annual premium for employer-sponsored family coverage hit $23,968, with employers covering 73% of that cost. (Source: KFF, 2023 Employer Health Benefits Survey)
ICHRAs let employers set a fixed monthly allowance. No surprises. No renewal shocks.
2. Flexibility for remote and hybrid teams
With an ICHRA, employers can offer different reimbursement levels by employee segment (e.g., full-time, part-time, seasonal, geographic region). This is especially useful for distributed or growing teams.
3. Compliance relief
ICHRAs are ACA-compliant when structured properly. They satisfy the employer mandate for businesses with 50+ full-time equivalents (FTEs), as long as they meet affordability thresholds. (Source: IRS ACA Employer Mandate Guide)
4. Employee satisfaction
Instead of being forced into a one-size-fits-all group plan, employees choose the coverage, network, and insurer that works for them.
Many can also qualify for cost-saving plans via their state or federal exchange.
Is an ICHRA still considered employer-sponsored insurance?
Yes. ICHRAs are still employer-sponsored benefits.
The key difference is that the employer reimburses employees for health plans they own, rather than directly paying a portion of employer-selected insurance premiums. This distinction means employees can keep their coverage if they change jobs (and continue paying themselves). This also reduces risk and admin headaches for employers. Everyone gets more choice and control.
How to set up an employer-sponsored ICHRA
To offer an ICHRA, employers must:
Set a fixed monthly allowance per employee class. However, Thatch allows for dynamic allowances based on family size and the age of employees in the same class. This is allowable under the rules governing ICHRAs
Provide required notices at least 90 days before the plan year starts
Ensure employees enroll in a qualified individual health plan
Many employers use a partner like Thatch to automate the entire process—from eligibility tracking to claim reimbursement.
Pros and cons of employer-sponsored ICHRAs
Pros:
Predictable costs
Flexibility across teams and locations
ACA compliance
Personalized employee coverage
Easier onboarding and offboarding
Cons:
Requires employee education
Employees must actively shop for plans
Some markets may have limited insurer choices
Health Insurance Plan Comparison Table
| Plan Type | Network Flexibility | Cost Predictability | Employee Choice | Administrative Overhead |
|---|---|---|---|---|
PPO (Preferred Provider Organization) | High – in- and out-of-network access | Moderate | Moderate | Moderate |
HMO (Health Maintenance Organization) | Low – in-network only | High | Low | Low |
HDHP (High Deductible Health Plan) | Moderate | Moderate (higher out-of-pocket risk) | Moderate | Moderate |
POS (Point of Service) | Moderate – referrals needed | Moderate | Moderate | Moderate |
EPO (Exclusive Provider Organization) | Low – in-network only, no referrals | High | Low | Low |
Fully-Insured Group Plan | Varies by plan | Low – renewal risk passed to employer | Low | High |
Self-Funded Plan | Varies by network setup | Low – employer assumes claim risk | Low | High |
ICHRA (Individual Coverage HRA) | High – employee selects plan | High – employer sets budget | High |
FAQs: Employer-sponsored health benefits and ICHRAs
Can I offer both a group plan and an ICHRA? You can’t offer both to the same class of employees—but you can offer different options to different classes (e.g., group to full-time staff, ICHRA to part-timers).
Are ICHRAs tax-advantaged like traditional group plans? Yes. Reimbursements are tax-free for both employers and employees when rules are followed. Source: IRS Publication 969
Can I use an ICHRA to satisfy the ACA employer mandate? Yes, if your allowance is sufficient to meet ACA affordability requirements. Source: IRS ACA Affordability Threshold
Final takeaways
Employer-sponsored health insurance is evolving. The group model worked for decades, but today’s workforce needs more flexibility.
ICHRAs are fully compliant, tax-free alternatives that give employers cost control and employees more choice.
They’re not just a workaround—they’re fast becoming the new standard for employer-sponsored healthcare.
Resources for further reading
CMS: ICHRA FAQs
Federal Register: Final Rule on ICHRAs (84 FR 28888)
Healthcare.gov: Employer Coverage
