Group health insurance has been the traditional coverage option for employers seeking to offer health benefits. But today, employers are searching for ways to better manage their costs and support their teams through more personalized health benefits.
This is why an increasing number of employers are turning to the individual coverage health reimbursement arrangement (ICHRA). This health benefit is an alternative to group plans. It allows employers to offer their staff more control over their healthcare choices. However, the addition of the ICHRA to the healthcare industry has changed how people interact with the individual market, insurance companies, and medical care.
If your organization is considering an ICHRA, it’s vital to understand its growing impact on U.S. healthcare.
In this blog post, you’ll learn:
- How the ICHRA offers a flexible, tax-free alternative to traditional group health plans.
- The top five ways the ICHRA is reshaping the healthcare industry.
- The many benefits of the ICHRA, including how it addresses affordable healthcare challenges.
An ICHRA is an IRS-compliant health benefit for businesses of all sizes and industries. With it, employers can reimburse their employees tax-free for their individual health plan premiums and other qualified out-of-pocket medical care expenses.
Here's how the ICHRA typically works:
The ICHRA can only cover W-2 employees and their eligible dependents. You can also offer an HRA to retirees under IRS Notice 2002-45. To continue using the benefit, employees must regularly attest that they’re still enrolled in their individual health plans.
Below are some other key features of the ICHRA:
An ICHRA is an excellent benefit option for employers looking to provide employees with a flexible and quality health benefit.
The rising costs of group health insurance are becoming challenging for many U.S. employers. According to a recent survey, 47% of small businesses with group health coverage say a 15% premium increase would prevent them from continuing to offer the benefit1.
Due to increased health insurance costs, the ICHRA is becoming more popular than ever. Between 2024 and 2025, ICHRA adoption rose 52% among small employers. During the same time period, adoption increased between 34% and 49% for larger businesses2. By 2032, the federal government estimates millions of individuals will enroll in an ICHRA instead of a group health plan3.
But how is this sudden interest in the ICHRA changing the industry? Let’s delve into the top five ways in the sections below.
Group coverage gives employers all the power over their health benefits. This is because only employers can choose, buy, and offer group plans to their staff. That means insurance companies focus on providing plans that a business owner would find most attractive — not the employee.
Employees must have an individual health plan to use the ICHRA benefit. As a result, insurers must address the growing need for individual health insurance coverage. Insurance carriers now must focus on the individual market and the quality of their health plans to compete with other insurers for consumers' attention.
This can lead to better health insurance options and greater provider networks for individuals shopping for coverage. More individuals buying policies on the individual market can also lead to lower premium costs. This is because insurers spread risk across all covered lives on the plan.
People want to work at a company with a quality employee benefits package with perks supporting their health and well-being. Traditional health plans use a one-size-fits-all model, which may not meet the diverse needs or budget of every employee.
One in five employees with employer-sponsored coverage is underinsured, meaning:4
According to KFF, 66% of employers only offered one group plan choice in 2025.5 In contrast, 97% of people who enrolled in individual health insurance had access to three or more qualified health plan issuers6. Remodel Health’s 2026 National ICHRA Report data also found that employees with an ICHRA chose 14 plans on average per employer in 2025. This shows that employees are choosing the plans that best fit their needs.
The ICHRA empowers employees to choose a plan that provides enough healthcare coverage for their personal and family needs. Employees have more choices when selecting the right policy based on the providers they visit and how much medical care they use. This can create a fairer healthcare system.
The ICHRA has also significantly contributed to increased healthcare consumerism. Because employees can purchase their own health plan after assessing their personal budget, they’re more active in deciding their medical costs and needs. This leads to greater plan comparison and seeking value in their healthcare options.
The average annual premium for group health insurance in 2025 was $9,325 for self-only coverage and $26,993 for family coverage. These are premium increases of 5% for self-only policies and 6% for family plans. In contrast, there was only an increase of 4% in employee wages, and inflation rose 2.7%.5
A major perk for employers offering an ICHRA is predictable costs from year to year. Employers decide the monthly amount of money they want to provide their employees, avoiding the rate hikes that come with traditional plans. This caps their total risk and helps them manage their business’s health benefit costs.
ICHRA is customizable enough to meet employees’ unique financial situations. They can choose healthcare coverage and medical services without straining their budgets.
While enrollments on the ACA market dropped in 2026 due to the expiration of enhanced premium tax credits, ICHRA continues to become more popular. As more employers shift away from group health plans, carriers focused primarily on group coverage may get left behind. However, the increase in profits likely to result from high enrollment in individual health insurance coverage isn’t far behind.
Employees must stay with their current employer to access their group plan. Yet, a 2024 BLS Summary found that people switch jobs on average every 3.9 years7.
If they leave their job, employees with a group plan must enroll in a new medical plan and start paying toward a new deductible and annual limits mid-year. They may even need to choose new providers or continue seeing their old providers for an out-of-network cost. This break in health plan coverage, payments, and physicians can disrupt the quality of medical care.
Employers offering an ICHRA can’t pay for employees’ individual health insurance premiums if they leave their company. However, the employee’s health plan is portable. They can keep their plan and continue paying their monthly premiums on their own, ensuring they receive continuous care from the same medical providers.
The Federal Reserve found that 26% of adults skipped medical expenses in 2025 due to cost8. The ICHRA has become popular with younger individuals who weren’t focused on their health before as a way to help them afford coverage.
Even though these individuals may have been healthy, a balanced risk pool helps keep ACA health plan premiums down for everyone. It also helps stabilize the individual insurance market and promote healthy communities.
According to the HRA Council, here are the ages of HRA enrollees in 20249 and their percentage of total stand-alone HRA enrollment:
It’s important to note the geographic locations of high ICHRA adoptions, such as New York City, Atlanta, and Los Angeles. With more individuals getting access to preventive care through ICHRA-supported plans, the likelihood of untreated illnesses and preventable health complications decreases.
Getting preventive health services also helps prevent overburdening the healthcare system and keeps the national medical debt low.
The introduction of the individual coverage HRA has improved the healthcare industry. The benefit allows employees to choose their coverage, provides greater flexibility than traditional group health insurance plans, and increases competition among insurers. Moreover, it’s affordable for all employers, regardless of their budget.
If you need support administering your ICHRA benefit, PeopleKeep by Remodel Health can help! Our HRA administrator software enables you to manage your ICHRA so you can focus on other essential aspects of running your business. If you're ready to start, chat with one of our HRA specialists.
This blog article was originally published on January 8, 2025. It was last updated on June 5, 2026.