ICHRAs Might Actually Be the Future

A May 2025 McKinsey employer benefits survey found that most employers are trending unhappy with their group health plans and will likely change carriers in the next four years.

The survey also suggests that employers will look to their brokers (old or new) to guide that shift, and they are evaluating broker relationships based on who can provide the most robust toolbox for a broad range of healthcare solutions and to proactively manage medical costs.

So, employers want something better, and they want you to help them find it. But what is it?

At least some Council firms think individual coverage health reimbursement arrangements (ICHRAs) could be it and are investing heavily to offer this solution. Others believe ICHRAs appear shiny now, but because they will always be tied to some extent to the vagaries of the individual market, they will never really take off for large groups. A third group is somewhere in the middle, suspecting ICHRAs will eventually reach broad mainstream adoption, but not until the individual market stabilizes, regulatory hurdles are lowered, and much more education is provided to make employers familiar and comfortable with this option.

Despite the mixed opinions, one thing is certain—far more Council firms are all in on ICHRAs than before.

ICHRA Headwinds

The ICHRA concept has been around for small businesses for almost a decade. In 2016, Congress created qualified small employer health reimbursement arrangements (QSEHRAs), which allow businesses with fewer than 50 employees to contribute pretax dollars to an HRA for employees to purchase qualifying coverage on an Affordable Care Act (ACA) exchange. The idea was to give small employers a way to limit overall benefits exposure via a defined contribution approach and to provide a relatively easy-to-administer option vis-à-vis traditional group plans. In June 2019, building on the general principles and structure of the QSEHRAs, the Departments of Labor and Health and Human Services (HHS), along with the Internal Revenue Service (the “tri-agencies”), jointly issued rules allowing employers of all sizes to establish ICHRAs.

The foundation underlying QSEHRAs and ICHRAs is the same: employers make tax-advantaged, fixed contributions, and employees shop for their own coverage on the individual market. The two approaches do have some notable differences. ICHRAs, for example, are available to any employer regardless of size. Employers offering ICHRAs can also offer group health plans, while employers with QSEHRA programs cannot offer group health plans. Simple enough, right? Remember, though, we’re talking about healthcare.

The detailed regulatory requirements for these regimes are—no surprise here—different. QSEHRAs, for example, must be offered to all of a small business’s full-time employees, but employers can limit ICHRA offers to permitted subclasses of employees. The ICHRA class rules, including minimum class sizes, create their own set of compliance complications. But for large employers subject to ACA coverage mandates, the interplay of ICHRA affordability determinations, actual individual-coverage affordability for employees and their families living in different rating areas, and exchange tax credit eligibility is where the real complexity comes in.

Recall that ICHRAs, unlike QSEHRAs, are a regulatory construct; there is no statute guiding or constraining them. But that does not mean that the Affordable Care Act or any of its myriad regulations do not apply. The tri-agencies have, to their credit, endeavored to make ICHRAs workable for employers of all sizes, but the regime does not—so far—map cleanly with the broader ACA framework. Affordability safe harbors, for instance, are different for ICHRAs than traditional group plans, as are permissible variations in employer contributions (based on, for example, dependent age). A big selling point for ICHRAs was relative ease of administration for employers versus traditional group plans, but that “ease” erodes when you dive into the details, particularly for the large group segment.

There also are significant non-legal challenges associated with ICHRAs for large groups. While empowering employees to shop for their own coverage may sound appealing, this setup can raise equity issues for groups spread across geographic areas (a fixed dollar amount goes far further in the individual market in some areas than others) and can disrupt post-purchase customer support (e.g., claims support) when an employee is covered under an individual plan rather than the group’s broker-supported plan. Some Council ESRPmembers also say that stigma persists among large-group employers and employees regarding exchange plans and there is some sense that moving from a traditional group plan to the individual market is somehow a less desirable benefit for employees.

All of that said, a majority of Council firms appear to have determined that the ICHRA tailwinds overcome the headwinds, or that they will in the not-too-distant future. A June 2025 McKinsey-Council survey of employee benefits brokers found that 38% of participants offer ICHRA arrangements to clients and another 23% are considering offering them. We have heard of multiple firms making big investments in their own ICHRA technology platforms, vendor platforms, and compliance and business development teams to support dedicated ICHRA strategies and client offerings.

ICHRA Tailwinds

The tailwinds are indeed as real as the headwinds. Cost predictability for employers via fixed premium contributions is a huge one. Greater employer demand for something other than the “same old” from their brokers is another. There also is clear political appetite to promote ICHRA adoption on both sides of the aisle. While the first Trump administration created ICHRAs, they ultimately were embraced by the Biden administration as well. Now, HHS under the second Trump administration has been given a mandate to expand the ICHRA marketplace, and the agency has created stakeholder working groups to collaborate on how best to do that from a regulatory standpoint. Meanwhile, there are bicameral efforts on Capitol Hill to codify the ICHRA regime and give it some future-proofing against political shifts and legal challenges.

Overall, it is a (rare) favorable environment to try to reduce some of the legal challenges facing ICHRAs— an opportunity The Council aims to capitalize on. Based on ongoing conversations with Council members that are offering or considering offering ICHRAs, we are developing a list of priority “fixes” around eligible classes, affordability calculations, employer contribution rules, and easing administrative burdens. If we can address even some of these hurdles, it may move overall ICHRA administration from the headwind to the tailwind list for large groups.

Even absent regulatory reforms, and despite very real challenges facing the individual market, federal policymakers and at least some in the industry are bullish about ICHRA uptake in the very near future. Current conservative estimates put ICHRA adoption around 450,000 lives, but ICHRA adoption has consistently risen each year since 2020, according to the HRA Council’s 2025 report on QSEHRA and ICHRA growth trends. ICHRA adoption for large employers increased by 34% between 2024 and 2025 alone, and small employer adoption was up nearly 20% in the same period, the report shows.

Nobody has a crystal ball to predict ICHRAs’ future or the timeline for significant market penetration, but they certainly seem to have moved from an interesting idea to something worth real consideration for the broker toolbox.