If you run a business, you know the annual health insurance renewal drill. You open the envelope, brace yourself, and find out how much more you'll be paying this year. Maybe one employee had a complicated surgery. Claims were higher than expected across the board. Either way, your premiums are going up—and there's not much you can do about it.
This cycle is pushing more employers toward a different approach: the Individual Coverage Health Reimbursement Arrangement, or ICHRA. Since becoming available in January 2020, ICHRA adoption has grown by over 1,000%. Quote requests from employers have increased 400–800% for 2026 and 2027, according to the HRA Council. Something is clearly resonating.
Here's what's driving the shift—and how to know if ICHRA makes sense for your business.
ICHRA is a health benefit where employers provide employees with a tax-free monthly allowance to purchase their own individual health insurance. Instead of selecting and managing a group health plan, you set a budget. Employees use that budget to buy coverage that fits their needs—through the ACA Marketplace, directly from insurers, or through Medicare if they're eligible.
The reimbursements are tax-free for employees and tax-deductible for employers. The IRS requires no minimum or maximum contribution, and you can offer different amounts to different employee classes (full-time vs. part-time, salaried vs. hourly, by geographic location).
With traditional group insurance, your costs depend on factors you can't control. A single high-cost claim can drive increases in renewal premiums of 20%, 30%, or more. You're betting on your employees' collective health status each year.
ICHRA changes the math. You set a fixed contribution—say, $400 per month per employee. That's your cost. Period. If an employee has a health crisis, it doesn't affect what you pay. If healthcare costs rise nationally, your contribution stays the same unless you decide to change it.
For a company with 50 employees contributing $500 per month each, the annual healthcare budget is $300,000. Not approximately $300,000. Exactly $300,000. That predictability matters when you're planning payroll, managing cash flow, or forecasting next year's expenses.
Traditional group plans force everyone into the same box. The 26-year-old who goes to the doctor once a year gets the same plan as the 58-year-old managing a chronic condition. One size fits none particularly well.
With ICHRA, each employee selects their own plan based on their own situation. They can choose their preferred doctors, pick the deductible level that makes sense for their finances, and select coverage that fits their family. The young, healthy employee might choose a lower-premium plan and pocket the savings. The employee with ongoing health needs can select more comprehensive coverage. Everyone ends up with something that actually works for them.
This isn't just a nice-to-have. When employees choose their own coverage, they're more likely to understand it and use it effectively. They're also more likely to keep that coverage if they leave your company—the plan is theirs, not tied to your business.
Group health insurance comes with participation requirements. Most insurers require 70% of eligible employees to enroll, which can be challenging for small businesses where employees may have coverage through a spouse or decline for other reasons.
ICHRA has no participation requirements. If only half your employees want to use the benefit, that's fine. You're not scrambling to hit enrollment thresholds or paying for employees who don't like the coverage.
This flexibility extends to workforce complexity. Employees in different states? No problem—each person buys coverage in their local market. Mix of full-time and part-time workers? You can offer different contribution amounts to other classes. Remote team spread across the country? ICHRA handles geographic diversity without the administrative gymnastics that multi-state group coverage requires.
Here's something many employers don't realize: if your ICHRA contribution is below a certain threshold, lower-income employees may still qualify for ACA premium tax credits. This means your contribution, plus government subsidies, can combine to provide better coverage than either could on its own.
For 2026, an ICHRA is considered "affordable" if the employee's cost for the lowest-cost Silver plan (after your contribution) doesn't exceed 9.96% of their household income. If your contribution exceeds that threshold for a particular employee, they can decline the ICHRA and access full marketplace subsidies instead.
This creates flexibility that group plans can't match. Your healthcare dollars stretch further for employees who need the most help, at no extra cost to you.
ICHRA isn't the right fit for every situation, but it works particularly well for:
Small businesses are struggling with participation requirements. If you've had trouble hitting the 70% enrollment threshold for group coverage, ICHRA eliminates that barrier.
Companies with employees in multiple states. Managing group coverage across state lines is complicated and expensive. ICHRA lets each employee access their local insurance market.
Businesses with variable workforces. High turnover, seasonal workers, or a mix of full-time and part-time employees all create challenges for group plans. ICHRA's flexibility handles these situations cleanly.
Employers are frustrated with renewal unpredictability. If you're tired of budgeting for healthcare costs that swing wildly year to year, ICHRA's defined contribution model provides the stability you're looking for.
Companies that haven't offered benefits before. 83% of new ICHRA adopters had not previously offered health coverage. ICHRA provides an accessible entry point with a lower administrative burden than traditional group plans.
Businesses are converting contractors to W-2 employees. If you're bringing on employees who previously purchased their own coverage, ICHRA lets them keep their existing plans while you contribute to the cost.
The numbers tell the story. Since ICHRA became available in 2020:
• Overall adoption has grown more than 1,000%
• Large employer adoption increased 34% year-over-year in 2025
• Small employer adoption increased 52% year-over-year in 2025
• Employer quote requests have increased 400–800% for 2026 and 2027
• Industry forecasts project 5.8 million covered lives by 2026 and 15 million by 2032
The most substantial growth is coming from mid-sized employers (50–500 employees) who have the scale to benefit from defined contribution but lack the resources to self-fund traditional coverage. These businesses are finding that ICHRA offers enterprise-level flexibility without enterprise-level complexity.
Yes—when appropriately structured. For applicable large employers (50+ full-time equivalent employees), ICHRA can satisfy the ACA employer mandate if it meets affordability and minimum value requirements.
For 2026, the affordability threshold is 9.96% of household income (up from 9.02% in 2025). This means the employee's share of the lowest-cost Silver plan premium, after your ICHRA contribution, cannot exceed 9.96% of their income for the ICHRA to be considered affordable.
If you're an ALE considering ICHRA, work with a qualified advisor to ensure your contribution levels meet compliance requirements and avoid potential penalties.
ICHRA isn't a magic solution that saves every employer money. In some cases, traditional group coverage—especially for healthy employee populations—may still cost less on a dollar-for-dollar basis. The value proposition isn't purely about immediate cost savings.
The real advantages are control, predictability, and flexibility:
• You control your contribution amount
• Your costs are predictable year over year
• Employees get flexibility to choose coverage that fits their needs
• Administration is simpler, especially for complex workforces
For many businesses, that combination represents a better way to provide health benefits—even when the raw numbers are comparable to group coverage.
If ICHRA sounds like it might fit your business, the next step is a straightforward analysis:
1. Review your current healthcare spending and renewal history
2. Understand your workforce composition (locations, employment types, income levels)
3. Model different contribution scenarios to see how ICHRA compares
4. Consider employee communication and transition logistics
At Health Plans of NC, we help North Carolina employers evaluate whether ICHRA makes sense for their situation. We'll walk you through the numbers, explain the compliance requirements, and help you understand what your employees' experience would look like.
Contact us at 1-800-797-0327 or request a consultation to explore whether ICHRA is right for your business. There's no cost and no obligation—just a straightforward conversation about your options.
Can I offer ICHRA to some employees and group coverage to others?
Yes. You can offer ICHRA to certain employee classes (such as part-time workers or employees in specific locations) while offering traditional group coverage to others. However, you cannot provide both to the same class of employees—they must choose one or the other based on their class designation.
What happens if an employee doesn't use their full ICHRA allowance?
Unused funds stay with the employer. Unlike HSAs, ICHRA allowances don't roll over or belong to the employee. If an employee's premium costs less than your contribution, they only receive reimbursement for actual expenses incurred.
Do employees have to buy coverage through the ACA Marketplace?
No. Employees can purchase individual coverage through the Marketplace, directly from insurance carriers, or through a broker. The coverage must be ACA-compliant individual health insurance (or Medicare, for eligible employees). Short-term health plans and health sharing ministries don't qualify.
How do employees get reimbursed?
Typically, employees submit proof of their health insurance premiums to an ICHRA administrator (either a third-party platform or your payroll provider). Once verified, the reimbursement is processed through payroll as a tax-free payment. Most administrators make this process simple with online portals and mobile apps.
Can ICHRA cover more than just premiums?
Yes. ICHRA can reimburse employees for individual health insurance premiums, plus other qualified medical expenses such as deductibles, copays, and prescriptions. However, many employers choose to limit reimbursement to premiums only for simpler administration.
Is there a minimum company size for ICHRA?
No. ICHRA is available to employers of any size, from 1 to thousands of employees. This is different from QSEHRA (Qualified Small Employer HRA), which is limited to employers with fewer than 50 full-time equivalent employees.
