Choice and Control Contain Healthcare Costs

The employee benefits market is under stress.

Many employers with fully insured plans face the largest rate increase in 15 years, says Chris Ellis, co-founder and CEO of the fintech-powered individual coverage health reimbursement arrangement (ICHRA) platform, Thatch. Traditional group plans are losing value and don’t work for a modern, increasingly mobile workforce—employers and brokers need to think outside the box to solve these problems effectively.

“You’ve got a lot of people who put off care during COVID working their way back through the system,” Ellis says. “So, you just have more utilization. Specialty drugs like GLP-1s are driving up pharmacy costs. Medical supply chains are being disrupted by tariffs. And then, of course, the general background inflation in the U.S. economy. That’s a perfect storm leading to this double-digit cost increase that most employers are looking at for 2026.”

On top of that, the federal government is cutting healthcare spending: roughly $1 trillion of Medicaid spending will be pulled out of the system through 2034 under the One Big Beautiful Bill passed in July. That means more uninsured Americans and thus more uncompensated medical care, Ellis explains, which means insurance companies are left with no choice but to recoup costs by raising employers’ rates.

The increased popularity of level funding—plans that combine self-funding with a stop-loss component—is also helping push up costs for fully insured plans, according to Ellis. “The good risk is getting pulled out of the small group, fully insured risk pools and going into level-funded pools,” he says. “As a result, the cost of small business health insurance is going up, and so you have this interesting effect where only one of every three small businesses (those under 50 employees) offers coverage. For the rest, their employees are getting coverage from Medicaid or the Affordable Care Act.”

Employers need more options to manage healthcare costs. For Ellis, that solution lies at least partially in ICHRAs.

Flexibility and Affordability

ICHRA benefits have two key components: an employer-funded allowance paired with an employee-selected individual health plan or Medicare Parts A and B, or C coverage. These pretax allowances can cover premiums, cost-sharing such as copays, or other qualified medical expenses.

ICHRAs offer much more flexibility and options for affordability than traditional one-size-fits-all fully insured plans, Ellis says. Employers have more control over their healthcare spending each year, as there is no maximum limit for employer reimbursements, and employers have discretion as to how those reimbursement dollars can be used. On the other hand, employees can select individual health coverage from any carrier based on their specific needs or geographic location, rather than being restricted to a handful of group health plans. And for brokers, ICHRAs may just be the unlock to continuing a relationship with a client that traditional plans are no longer a fit for.

“Being able to have individual carriers play in the employer market allows new opportunities for innovating on cost,” Ellis notes. “For example, Ambetter Health has unique networks that can offer more attractive premiums to employers and their employees.”

Congress is also putting weight behind ICHRAs, notes Bruce Johnson, head of policy for Thatch. Besides bills introduced in September intended to expand access to ICHRAs, Johnson also points to Congress’s recent focus on preventive care as a potential boost for these plans. “We saw an effort that passed the House earlier this year that would allow individuals to use HSA funds for gym memberships,” he says. “ICHRA is also a great way to do that because it allows employees who have excess funds to use those dollars on medical devices and services that can help with holistic and preventive care.”

Choosing the Right ICHRA Provider

When brokers choose an ICHRA provider for their clients, they should look for platforms with a strong infrastructure, according to Ellis. “We’re moving from a model where there’s one employer and one carrier and one flow of funds between them, to now, an employer and all of their employees, who may all have different carriers all across the country,” he explains. “Navigating how you map the transactions from each employee to the employer to the carrier and manage the flow of funds requires deep infrastructure built into carriers in order to properly reconcile all of the tax benefits for the employer and the employee.”

With Thatch, employers can sign up for an ICHRA in just a few minutes, employees face no discontinuity in their coverage, and brokers have tools to communicate the ICHRA value proposition to their clients, all of which Ellis believes differentiates Thatch from the rest of the market.

“ICHRA is not a silver bullet, but when it works, it really works,” Ellis says. “As more employers adopt ICHRAs and the pool of individuals who are on an ICHRA-connected plan grows, more carriers are entering the market than exiting. We believe that will unleash a wave of innovation that will ultimately contribute to solving the healthcare cost crisis.”