VC investors bet big on ICHRA: why the market is heating up

Venture capitalists must stay attuned to the pulse of the economy at all times to succeed in their competitive industry. Lately, venture capitalists are turning their attention — and money — towards Individual Coverage Health Reimbursement Arrangement (ICHRA) administrators. This investment signals a major shift in how employers approach health insurance benefits. As traditional employer-sponsored health insurance becomes increasingly unsustainable, ICHRA is emerging as a disruptive force, similar to how 401(k) plans made a big splash in the 1980s.

For more insight into how venture capitalists are making a major healthcare investment, read on.

What are ICHRAs?

First things first — many working in benefits administration still aren't fully familiar with what ICHRAs are and how they work. An ICHRA is an employer-sponsored health benefit that allows businesses to reimburse employees for their individual health insurance premiums and other qualified medical expenses on a tax-free basis.

Unlike traditional group health plans, an ICHRA provides employers with a defined contribution model. In other words, businesses can set a fixed amount to help employees cover healthcare costs, including insurance premiums, copayments, and deductibles. To use ICHRA funds, employees must be enrolled in an individual health insurance plan.

ICHRA is available to employers of all sizes as long as they have at least one W-2 employee who is not a self-employed owner or the spouse of a self-employed owner. There are no minimum or maximum contribution limits, giving businesses the flexibility to customize their healthcare benefits while maintaining predictable costs. An ICHRA can also help simplify coverage for employers with employees working in multiple states.

This flexible yet predictable structure makes ICHRA an attractive alternative to traditional employer-sponsored insurance for businesses looking to save on healthcare spending.

Why ICHRA is attracting VC attention

Investment in ICHRA providers (also known as ICHRA vendors) is booming. A 2025 report from Bailey & Co estimates that ICHRA adoption is growing at a rate of 60% year-over-year. Today, hundreds of thousands of U.S. employees nationwide receive ICHRA or Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) plans as part of their health benefits. (HRA Council)

So why all the fuss about ICHRAs suddenly? ICHRAs came onto the scene in 2020 to serve as a flexible alternative to traditional group health insurance. With an ICHRA, employers allocate a fixed, tax-advantaged amount for employees to purchase their own health insurance, rather than selecting a single plan. This model enables businesses to predict their healthcare spending more accurately, providing employees with a broader range of coverage options.

With millions of potential enrollees on the horizon, venture capitalists see a massive growth opportunity in ICHRA providers. As more businesses shift toward cost-containment strategies and employees demand greater flexibility in their benefits, investors are betting that ICHRAs will become a dominant model in employer-sponsored healthcare. The combination of regulatory support, scalability, and rising costs make the market ripe for innovation and consolidation, further fueling VC interest.

A shift in employer health benefits

Many companies see ICHRAs as major healthcare investment opportunities. Some compare the swift rise of ICHRA plans to the transition from pension plans to 401(k)s. This shift away from pension plans placed a significant portion of the responsibility for saving for retirement on employees, rather than the employer. 401(k) plans substantially lowered the risk for employers. Similarly, ICHRA helps employers save. With an ICHRA, employers can move away from unpredictable group health insurance expenses while giving employees more control over their health coverage.

Understandably, benefits administrators, CFOs, and HR leaders appreciate the cost predictability that comes with ICHRAs.

Venture capital's role in fueling growth

We can look to recent venture capitalist investments to see which companies in the ICHRA space have a bright future. Investors see ICHRAs as a fundamental shift in how companies structure health benefits.

Thatch, a health benefits platform, raised $40 million in a Series B funding round led by Index Ventures with a16z, General Catalyst, The General Partnership, ADP Ventures, SemperVirens, and more.. This investment will enhance the platform, enabling employers and brokers to manage health benefits more efficiently. We aim to reduce business costs while providing employees with greater flexibility in selecting their healthcare coverage.

These are some recent venture capitalist investments fueling growth in the industry:

Industry challenges

While many remain optimistic that the popularity of ICHRA will continue to grow, the success of this expansion depends on several important factors:

1. Regulatory stability. As a relatively new healthcare model, ICHRA's long-term success will depend on regulatory support.

2. Employer adoption. While employees may express an interest in ICHRA opportunities, it's up to the employers to adopt and implement these programs

3. Employee education. Employees must navigate plan selection independently, which can be overwhelming without proper guidance. Those not familiar with ICHRAs may feel overwhelmed and opt out of participating altogether

4. Insurance carrier participation. Only time will tell if the level of engagement from major insurance carriers will be enough to shape the breadth of options available under ICHRA

The takeaway

The current momentum of ICHRA's popularity suggests that it is more than just a passing trend. As more businesses seek alternatives to traditional health insurance, we anticipate the industry will continue to grow and evolve, reshaping employer-sponsored benefits.

If you want to learn more about how ICHRAs work and how they can help your company stay on budget, set up a free demo with Thatch today.