For many years, employers have turned to group coverage to boost employee morale, lower rates, and benefit from tax advantages. In recent years, these benefits have partially reversed. Employers concerned with rising group health insurance costs, limited plan flexibility, and growing employee dissatisfaction need a modern alternative to traditional group coverage. Individual Coverage Health Reimbursement Arrangements (ICHRAs) may provide this path forward.
This article gives context to the current state of employer-provided healthcare to help employers switch to the plans they need. With an ICHRA, employers can exert more control over their budgets, reduce administrative burdens, and improve employee retention and satisfaction rates over the long term.
The State of Employer-Provided Healthcare in 2025
Most employers use traditional group benefits plans to provide healthcare to their employees and have done so for decades. Adults aged 19-64 in the United States get their healthcare from their employer’s group plans around 60-70% of the time in most states. Meanwhile, non-group coverage exceeds 10% of covered employees in only six states.
The KFF’s 2025 Employer Health Benefits Survey provides significant insights into how employers perceive the current healthcare situation. In the last year, the cost of single coverage plans has increased by 5%, which is relatively stable compared to growth, but 2026 predictions indicate much higher premium increases.
Note: Prescription costs and market share consolidation among providers of weight-loss and diabetes medications are core contributors to these increases.
As a result, many employers seek different options for their employees’ healthcare. For firms with at least 10 employees, 8% now report being “somewhat likely” or “very likely” to offer ICHRAs in 2026/2027. This number jumps to 18% when extended to firms with 10-199 employees. This indicates a growing interest in alternative healthcare strategies to combat rising costs.
Essential Takeaway
In terms of deployment, ICHRAs are still very new. Employers, employees, and providers may not be familiar with how they work. However, growing concern over healthcare expenses, including the costs of weight management medications, has led to an increasing number of employers seeking non-traditional options.
How do ICHRAs Work Compared to Traditional Group Funding?
In traditional group-funded benefits plans, the employer establishes the plan for employees and their dependents, choosing to fund it through an insurance policy for insured plans or through their own financing for self-funded plans. Employees use the funds provided by the employer’s group plan to receive medical treatments after paying copays.
An ICHRA does not work the same way. In these plans, employees pay for their healthcare, with the promise that their employer will reimburse them up to the plan’s limits for premiums and qualified expenses. The employee’s individual plan must be ACA-compliant or Medicare to use an ICHRA.
This allows employers to recoup the costs of individual employee policies that provide more extensive coverage. The main difference between plans is that, instead of defining specific benefits, ICHRAs specify the available funding to purchase plans in individual markets or care marketplaces.
Note: The healthcare reimbursements from both group health plans and ICHRAs are not taxable to employees.
Benefits of ICHRAs vs Group Plans
Employers are switching to ICHRAs for reasons other than potential cost advantages over increasingly expensive traditional group plans. These reasons include:
- ICHRAs offer higher levels of personalization, allowing employers to design the budget, spending limit, and care eligibility for their plan with more freedom than would usually be granted by an insurance company.
- Employers can shop for the individual plans that make sense for them rather than rely on group plan participation. Employees can then choose the plan they want from these options. Both sides can benefit from this freedom, and employee satisfaction can go up as a result.
- ICHRAs remain tax-advantaged for employees, meaning the potentially higher limits and flexibility do not affect their filing status.
- Fewer or no minimums on participation rates means that ICHRAs can be far more flexible than group plans, which often require 70% participation. With an ICHRA, employers don’t have to worry about employees opting out for other coverage options.
As the costs of traditional group plans continue to rise, employers seek ways to offer employees more flexible options that also benefit their administrative teams.
Are All Employers Eligible for ICHRAs?
While ICHRAs do not require the same participation rates as group plans, not all employers will be eligible. If they are considered an Applicable Large Employer (ALE) as defined by the Affordable Care Act (ACA), then it’s important that employers make sure their contributions meet ACA affordability requirements. It is also important to work with a quality administrator to make sure other compliance requirements are met.
While ICHRAs do not impose overall contribution caps, employer reimbursements must generally follow a 3:1 ratio between the oldest and youngest employees, mirroring ACA age-rating rules. For employers with older employees who have high healthcare needs, the potential benefits of ICHRAs should be weighed against the possible restrictions.
Essential Takeaway
Although many employers are switching to ICHRAs to offer more flexible healthcare plans, group plans still account for the majority of employer-provided plans. Work with a local employee benefits consulting firm to learn whether an ICHRA could improve your employee healthcare strategy.
Client-First Employee Benefits Consultants Can Help
HR leaders, CFOs, and business owners know that healthcare costs continue to rise, leading to employee dissatisfaction, budgeting uncertainty, and shrinking plan flexibility. ICHRAs can return some of these benefits to employers, provided they meet the eligibility requirements, which is why so many businesses have switched in the last year and plan to switch in the coming years.
At New City Insurance, our employee benefits consultants take a personalized, technology-driven approach to healthcare planning. Our focus is on helping employers control their budgets, expand their choices, and lower their administrative burdens with the right healthcare strategies for 2026 and beyond.
Contact us today to schedule a consultation and learn how to turn benefits planning into a competitive advantage.