Why ICHRAs are the future of large-group health insurance

While ICHRAs are now a viable and much-needed third option for funding employer-sponsored health coverage, we’re still only at the bleeding edge of what the model is capable of.

Eric Kasen, Executive Vice President, Brown & Brown Insurance Services, waited nearly 30 years for health insurance in America to catch up with his vision of a private exchange for employees. “There’s never been a true solution to lower the cost of health care from an employer’s perspective that could actually work,” he says. “It’s just cost-shifting and marketing that’s designed to increase profits for carriers.”

That changed with the introduction of Individual Coverage Health Reimbursement Arrangements (ICHRAs) in 2020. The model lets employers contribute pre-tax funds toward the health insurance premiums their employees purchase on the individual market.

“The minute the Health and Human Services said employers could use the defined contribution model through an HRA, I thought, finally,” remembers Eric. “I never understood why they didn’t allow it when the Affordable Care Act was introduced 10 years earlier.”

Today, Eric encourages consultants in his office to present ICHRA as an option to their clients right alongside fully insured and self- or level-funded plans. But many companies and their benefits consultants are still in the dark about ICHRAs’ true power to transform coverage for the 153 million people who get their health insurance from their employer.

And Eric’s not the only one. According to a survey published in SureCo’s 2024 State of Employee Health Benefits, benefits consultants across the country said over a third of their book of business needs an alternative solution to traditional, fully insured coverage options.

Controlling costs and decreasing plan design changes for large companies

The appeal of ICHRAs lies in their ability to provide employers with greater control over health care expenditures. They allow companies to create a fixed budget for health benefits, which shields them from unpredictable or untenable premium increases.

Still, “there’s this misconception out there that ICHRAs are only a solution for small employers or those in distressed situations—and that couldn’t be further from the truth,” says Matthew Kim, SureCo’s CEO and Co-Founder. The bigger the client, the bigger the potential pain—and the bigger the potential savings.

Changing to an ICHRA model generates substantial savings for large employers, with some experiencing savings of more than 60%. On average, benefits consultants who have moved their clients to an ICHRA model saw 16% savings.

Take RFK Community Alliance, a client out of Eric’s Dedham, Massachusetts, office. The non-profit human services agency reaped $1.4 million in annual premium savings by moving its 400+ employees to an ICHRA. Moreover, 93% of RFK’s employees saw their premiums decrease for the same or similar plans as well. “This was a group that was looking at over a 20% increase for the third consecutive year. They needed another option,” says Eric.

ICHRAs also offer cost control for the long-run, not just a quick fix to get through the next year. The need for this stability only increases with company size. SureCo’s survey, which was conducted by Censuswide, an independent market research firm, found that most companies (85%) have changed health care carriers or plan design at least once over the past five years—but larger the company, the more often they ping-pong between carriers and plans. For example, 55% of companies with 150 to 500 employees had changed plans two or more times in the past five years, which increased to 67% for companies with 1,001 to 2,000 employees and 77% for companies with 2,001 to 2,500 employees.

ICHRAs can increase employee satisfaction within big organizations

The more employees a company has, the more likely they are to have a geographically, economically, and generationally diverse workforce. While group plans offer a one-size fits all approach, it rarely meets the needs of every (or even most) employee.

ICHRAs offer unmatched flexibility by allowing employees to purchase the plan that works best for their specific needs, budget, and location. “We find that when companies move to an ICHRA, their employees choose an average of 32 unique plans, and that number only increases as the number of employees goes up. We have one group that opted into 162 individual plans,” says Matthew.

The flexibility of ICHRAs also enables employers to tailor contributions to different employee classes, which makes them an ideal solution for diverse organizations with multiple types of workers (think: full-time, part-time, seasonal, temporary, etc.). “With an ICHRA, we can increase health care participation for organizations that want to bring value to employees who can’t typically afford the group health plan, like retail workers and food service employees,” says Eric. “You used to class out people because you didn’t want to offer them a certain benefit, but now you can create a separate class because you want to bring them into the fold. That’s a much-needed change in tune.”

Overcoming ICHRAs’ administrative barriers

So if the cost savings and employee satisfaction are there, why don’t more consultants embrace ICHRAs for their larger clients? It comes down to a lack of understanding and the need to overcome administration barriers. The larger the employee population, the more complex ICHRA administration can become. Many brokers and HR teams shy away from the unknown and incorrectly assume that an ICHRA will simply be way too much work. With the right administrative partner, however, it can be just as easy—if not easier—than administering a traditional group plan.

“I look for three things from an ICHRA vendor,” says Eric. “Technology, customer support, and integrity.” For large companies to offer an ICHRA, they need a partner who will make it feel as much like a traditional group experience as possible. That means a great employee experience, first and foremost. You want a platform that will let employees filter plans by their doctors, their preferred plan types, and their budget (e.g., by deductible, co-pays, and out-of-pocket maximums). Employees have generally never been responsible for choosing their own plan before, so helping them understand what they’re buying is crucial.

The platform also needs to mimic the HR team’s group experience. “You should be able to offer hundreds of plans without any kind of eligibility or billing headache,” Eric adds. Look for a partner who offers HRIS and payroll integrations and direct-to-carrier payments. Asking employees to submit for reimbursement and provide plan substantiation documents quickly becomes unsustainable when your employee count gets into the hundreds or thousands.

Support for the consultant, the client, and the client’s employees is also essential when looking at ICHRA vendors for large groups. “I need a partner who doesn’t lose sight of what matters, which is really the boots-on-the-ground customer,” says Eric. “I’m a customer. My clients are customers. Their employees are customers. I need a partner who views all of us as customers.”

Matthew agrees. “We see ICHRAs work best when the consultant, the company, and us as the administrator, are all driving toward the same goal.”

Vetting potential ICHRA vendors for large groups

You can vet potential ICHRA partners by asking the following the questions:

Will this partner…

Will this platform…

If the answer to any of those questions is “no” or “I don’t know,” they are likely not equipped to handle large group ICHRA administration.

Related: 10 FAQs about ICHRAs

The future of ICHRA

While ICHRAs are now a viable and much-needed third option for funding employer-sponsored health coverage, we’re still only at the bleeding edge of what the model is capable of. Both Eric and Matthew envision a future where all employee benefits are fully customizable and easy to administer.

“I see this transforming the entire employer benefit delivery model, soup to nuts, from health care solutions to non-medical solutions to financial solutions,” says Eric. “I picture people going in and designing their own health care, their own life insurance, their own critical illness. I hope one day we can start pulling in retirement programs like IRAs. This has the potential to improve the outcomes of employees’ physical, mental, and financial wellbeing giving them the freedom of choice.”

It’s a future that Matthew is already working on. “We’re building the first private enterprise health marketplace, and ICHRA is just the first step,” he says. “As more people and companies adopt this model, it will create more demand for carriers to create products specifically for this cohort and price them competitively. For the first time, the health coverage system will work as it should—in service of the employee.”

Eric Kasen is Executive Vice President of Brown & Brown Insurance Services.

Matthew Kim is the CEO and co-founder of SureCo.

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