A replacement for group health insurance is attracting more businesses looking to put the brakes on skyrocketing health care costs: Individual Coverage Health Reimbursement Arrangements, or ICHRAs.

ICHRAs allow employers to give employees money to buy their own individual health insurance to cover medical expenses. The fixed, monthly contributions are tax deductible for the employer, while employees buy individual plans tax-free from local marketplace options, which may be more varied and personalized than workplace offerings. Spouse and family can be covered as well.

This model enables employers to budget for predictable increases (3–5%) rather than react to large jumps in annual renewal costs, which are not known ahead of time and can be in the double digits.

Frustrated? You’re not alone. That frustration is leading many employers to look for alternatives.

Adoption Rising as Employers Seek Predictable Costs

In fact, the HRA (Health Reimbursement Arrangement) Council, gathering information from 15 member organizations, reports that ICHRA adoption is up 34% between 2024 and 2025 among large employers with more than 50 FTEs.

As Jan. 1 renewals approach and premiums rise sharply, I sat down with employee benefits advisors Jeff Gee and Edwin Croft from HUB International to discuss the implications of ICHRA for employers looking to better manage their medical insurance costs.

A Range of Companies Would Save Under ICHRA

Gee said many types of companies would benefit from an ICHRA, especially ones that have a history of high usage and high claims. Under ICHRA, individual rates are based only on age and ZIP code, not group health history. Medical practices are “prime candidates,” he said because they tend to have high utilization.

While Gee focused on high-claim industries, Croft pointed to another reason employers are switching. “On a traditional group plan, you have participation requirements that can be tough for certain employers. If they’re butting up against that year in and year out and getting tough renewals because of it, then you’re going ICHRA all day long.”

Some companies may wonder if they can offer both – a group plan and an ICHRA. Croft says no because the insurer of the group plan would object. “We aren’t a big fan of offering too many plans. We typically try to mirror plans that they currently have and then maybe add one or two to it. That just makes it easier for the employee and the employer.”

Administration Has Come a Long Way

The administration of ICHRA has improved since it began in 2020, but it’s still challenging. The simplest way to set up an ICHRA is through a defined contribution model in which companies offer employees a set monthly amount that they can use to buy any medical plan they choose, Croft said. He added that “ICHRAs basically get you out of reacting to the unpredictable health insurance increase business, yet still providing an employer sponsored group medical plan.”

Once the employer contribution is set, the next question is how employees choose their plans. Employees can do the shopping themselves, but new technology platforms, a major source of new investment, are making the selection easier. Blue Cross, for example, presents options for employees to sort through rather than sending them out into the marketplace on their own.

Regional factors also influence how smoothly ICHRAs work in practice. Gee said Blue Cross has such a large footprint in South Carolina, for example, that their plans will likely be the primary option for employees. “When something goes wrong – and things always go wrong – sometimes it’s easier to pick up the phone and call the folks in your own backyard instead of trying to work through a contact routing tree at a national ICHRA administration firm.”

Individual Rates Trump Small-Group Plans

Gee believes companies or practices with 75 or fewer employees may have the most interest in ICHRAs because small-group plans are much more limited.

Medical practices looking for cost relief could look at small-group rates with Blue Cross, but individual rates are going to be significantly less expensive. “For example, Gee said he worked with one medical group earlier this year who was seeing over 15% savings with ICHRA compared to their current health plan. When comparing ICHRA rates to other fully insured options in the small group market, the savings was closer to 30% for the same group.”

“ICHRAs basically get you out of the health insurance business, but you can still provide a benefit,” Croft said.

Lack of information is the challenge small groups are up against, he said, because they have no idea what’s coming every year with renewals. “And they’re getting tired of it.” Ultimately, the appeal comes down to cost control and predictability.

Employers Can Get Quotes Quickly

For companies ready to explore their options, the process is straightforward. Croft says individual plans are on a calendar year renewal. If your group plan is also on a Jan. 1 renewal, it’s a lot easier to move over to the ICHRA platform.

All employers need to do to get a quote is to provide census data on the group, ZIP codes and information on their existing plan to use as a baseline, Gee said. The turnaround on getting quotes is quick, sometimes 24 hours.

Tax Advantages, But Some Downsides

Prior to ICHRA, smaller employers would ask if they could offer a stipend, Gee said. The answer was yes, but they’d lose tax advantages. Now they can keep the tax deductible arrangement, and with the administrative platforms under the ICHRA model, employees are getting their own plan with the employer adding structure.

Still, ICHRAs aren’t without complications. The downside is some administrative lift on the front end, Gee said. Employers can make different contribution levels for different classes of employees – and the options are many – but only about two of them are realistic. Finding a contribution amount that doesn’t penalize your older staff can be somewhat challenging.

It’s Worth Exploring

Adoption has surged nationwide, thanks to improved administration and technology platforms. While setup requires some initial effort, ICHRAs give employers greater budget control and employees access to personalized coverage options. Even if offering ICHRA at your practice isn’t an immediate priority – groups often take a year to fully study and adopt the model – exploring the option now, getting an initial quote, and considering it for the future may make be your best first move.