The future of employee benefits: Why ICHRAs are gaining popularity

In an era when employee benefits are more critical than ever, Individual Coverage Health Reimbursement Arrangements (ICHRAs) are emerging as a game-changer in the healthcare landscape. ICHRAs provide a flexible alternative to traditional health plans, allowing employees to choose individual health insurance policies that best suit their unique needs. This approach empowers employees and helps employers to manage their healthcare expenses better.

As organizations grapple with rising healthcare costs and the demand for personalized benefits, ICHRAs are gaining traction. Recent studies reveal that many employees are dissatisfied with their current healthcare options, increasing turnover rates. ICHRAs address these concerns by offering employees the freedom to select coverage that aligns with their circumstances while enabling employers to set fixed allowances for more predictable budgeting.

In this blog post, we will explore the growing popularity of ICHRAs and the potential future impact on the employer-sponsored benefits landscape. 

Understanding ICHRAs can provide valuable insights for navigating today’s complex benefits environment, whether you're an HR professional or a business leader.

What are ICHRAs?

The history of formalized healthcare in the U.S. is nearly 100 years old, but ICHRAs are a relatively new addition. Introduced in 2020, ICHRAs expanded the function of HRAs with individual health insurance policies for companies of all sizes. 

ICHRAs allow employees to purchase individual health insurance policies on the marketplace or directly from insurance carriers using an employer-supplied allowance. The ICHRA allowance can also reimburse other healthcare-related expenses, such as co-pays and prescriptions, depending on the terms of the ICHRA.  

Introduction of ICHRAs and rise in awareness

Since their introduction, ICHRAs have gained popularity among employers. Before ICHRAs formally hit the market in 2020, experts at the Department of Labor estimated a quick uptick in adoption, with 11 million Americans enrolling in an employer-sponsored ICHRA plan once employers adjusted to the new policy. The Congressional Budget Office estimates two million Americans will be part of an ICHRA plan by 2032.

Public interest in ICHRA has grown exponentially since its introduction into the market. According to Google Trends, the term in 2024 has grown in awareness nearly four times since the concept was introduced. This steady growth shows interest in the term and consumer awareness of the concept. While Google Trends doesn’t show an adoption rate, the growth of ICHRA as a search term does indicate awareness and interest in the program. 

Who is enrolling in ICHRA?

As ICHRA turns five, its popularity isn’t slowing down. In the past year, the adoption of ICHRAs by qualifying businesses has grown 29%, according to the HRA Council’s 2024 Growth Report.

Breaking it down further, the largest group to grow in ICHRA adoption is large employers, with more than 50 full-time employees. In the past year, ICHRA adoption for large employers grew 84%.

First-time providers

Many of the companies adopting ICHRAs are offering employees healthcare for the first time ever. 83% of employers selecting ICHRAs previously did not provide healthcare for their employees. 

This is, in part, due to the flexibility of ICHRAs. Smaller businesses aren’t required to offer health insurance, but ICHRAs make it easier for companies to offer coverage they were previously shut out of in the traditional insurance marketplace. Employees are more likely to stay at companies that offer compelling benefits, no matter the size, making ICHRAs a compelling offer for employee satisfaction and retention. 

Bigger businesses

As mentioned above, the largest adopters of ICHRAs are large employers or companies with at least 50 full-time employees. The Affordable Care Act requires Applicable Large Employers to offer affordable care to 95% of employees and their dependents, and many companies opt for the flexibility of ICHRAs.

One of the primary benefits of ICHRAs for employers is their inherent cost control. Employers set an allowance for each employee, which can help them manage overall healthcare expenses and better predict costs compared to traditional healthcare coverage, where premiums can fluctuate. 

Similarly, employers can avoid the annual rising cost of premiums all at once by adjusting allowances as needed. These cost-saving measures can be beneficial, especially to budget-conscious businesses or startups.

Younger employees

The largest segment utilizing employer-offered ICHRAs is workers between 26 and 34. This younger pool indicates two trends for the future of ICHRA:

1. Stabilized risk. Younger people enrolled in ICHRA can help stabilize risk pools overall, keeping plans at a lower cost. 

2. Life-long familiarity. Considering Americans can stay on family health insurance until age 26, it’s not unreasonable to assume many of these employees enrolling in ICHRA are enrolling in health insurance for the first time. Empowering employees to pick the health insurance that fits them best so early in their career could prime them to accept ICHRAs as the norm as they age. 

Urban employers

While ICHRA is gaining popularity nationwide, it’s being adopted most heavily by employers in large metropolitan areas. According to the HRA Council, these are the top five areas of ICHRA adoption in 2024:

1. New York City

2. Los Angeles

3. San Francisco/Bay Area

4. Twin Cities

5. Atlanta

Why are ICHRAs gaining popularity?

Recent research has highlighted frustration among employees regarding benefits, including healthcare coverage. According to the Pew Research Center, 43% of people who left their jobs in 2022 did so, citing poor benefits, including healthcare coverage.

ICHRAs allow employees to pick coverage on the marketplace that best suits them, giving them control over their benefits. This flexibility and adaptability can boost employee satisfaction and retention in an increasingly remote and hybrid work environment.  

Additionally, the rising cost of healthcare for employers has pushed this trend. By setting monthly allowances, employers can more efficiently control their healthcare spending. 

The future of healthcare and employer-sponsored benefits

Between 2022 and 2023 alone, the number of employers offering ICHRA for health benefits rose 64%. In contrast, overall plan cost has increased by more than 50%, according to the 2023 Employer Health Benefits Survey.

Considering its growth so far, combined with the rising cost of care, ICHRAS will likely continue to grow in popularity. They’re both a tool for personalized employee care and a cost-preserving method for employers. 

Employers don’t have to explore ICHRAs on their own. That’s where Thatch comes in. 

Thatch is democratizing the healthcare landscape and helping employers offer ICHRA coverage to their employees. 

If your team wants personalized, affordable healthcare, contact Thatch today to learn more. 

Advantages of ICHRAs for employers

ICHRAs aren’t just trendy; they come with plenty of benefits for employers.

Cost control

One of the primary benefits of ICHRAs for employers is their inherent cost control. Employers set an allowance for each employee, which can help them manage overall healthcare expenses and better predict costs compared to traditional healthcare coverage, where premiums can fluctuate. 

Similarly, employers can avoid the annual rising cost of premiums all at once by adjusting allowances as needed. These cost-saving measures can be beneficial, especially to budget-conscious small businesses or startups.

Personalization

For companies with diverse employees, ICHRAs can help provide the right coverage for each employee. Not only are ICHRAs a great choice for remote teams, where employees can shop for local plans, but they also empower employees to pick the best fit for their various family situations or health conditions. 

Tax benefits

Employer contributions to ICHRAs are tax-deductible, which can reduce the overall tax burden of the organization. Contributions are also exempt from payroll taxes, which could save an employer compared to providing traditional health benefits where payroll taxes apply.

Advantages of ICHRAs for employees

ICHRAs aren’t just beneficial for employers. Employees may also find the coverage advantageous. 

Flexibility 

ICHRAs benefit employees by choosing coverage on the marketplace instead of preselected by a traditional, employer-sponsored health plan. That means finding a plan that fits them, their healthcare needs, and their budgets. 

Satisfaction

No two employees are alike, and acknowledging that through healthcare coverage can help employees feel seen and heard. Improved benefits can boost employee satisfaction, morale, and even long-term retention.

The takeaway

ICHRAs may be new for many employers, but their popularity is growing rapidly. Ready to adopt ICHRA? Try a free demo with Thatch to learn more.