As employers' health care premiums rise to the tune of 8.5% for 2024, HR professionals and benefits consultants are exploring alternatives to group coverage. The first stop for many companies feeling the full weight of that increase – which is nearly double what it was from 2022 to 2023 – is to consider moving from fully insured plans to a self-funded strategy. 

While transitioning a company to a self-funded model can show some initial cost savings, it's not always a silver bullet for employers in the long run. For many organizations, an individual coverage health reimbursement arrangement (ICHRA) is the better solution. Below, we explore how ICHRAs can pick up where self-funding leaves off. 

First, let's break down the key differences between the two health insurance options.   

Self-funded plans 

Self-funded plans, sometimes called administrative services only (ASO) plans, function much like their fully insured counterparts. However, they come with an increased risk for employers, tend to have a high degree of administrative complexity, and offer little in terms of predictable cost savings.  In addition, they:

• Differ from traditional plans in risk tolerance and funding, plan design flexibility, and overall administration. 

• Can be customized and offer employers more choice over plan designs, carriers, and third-party administrators (TPAs). 

• Shift the financial risk from the carrier to the employer, allowing for reinsurance via individual and aggregate stop-loss arrangements. 

ICHRAs 

An ICHRA is a type of employer-provided health benefit plan that allows employees to choose their own health insurance coverage and to receive tax-advantaged funds from their employer for a portion of their plan's premiums and qualified medical expenses. With an ICHRA, choice is the central theme.   

• Employers enjoy being able to choose exactly how much they want to contribute, tax-free, to employees' health coverage.  
• At the same time, employees have an abundance of choice in their health plans like never before; they can shop around for the individual health plan that best fits their needs instead of settling for one or two options selected by their employer. 

5 reasons ICHRAs could be a an alternative to self-funding 

1. Predictable pricing 

Moving from fully insured to self-funded doesn't eliminate the claims risk for a company; it simply shifts that risk to the employer, making it a yearly gamble. An ICHRA, on the other hand, disperses the risk across the much larger individual market, so pricing remains much more stable.