ICHRA is usually described as a different way for employers to pay for health insurance. Look more closely, and it begins to reveal a different structure for employer-sponsored healthcare.

An employer has a difficult year. Its health insurance renewal arrives 30 percent higher. Management changes carriers or provider networks to make the numbers work. An employee then discovers that the pediatrician her children have known for years is no longer in the network.

What does the employer’s difficult year have to do with her children’s relationship with their pediatrician?

Under traditional group health insurance, far more than it probably should.

That example is not theoretical to me. In 35 years of helping Ohio’s smallest employers, I have delivered brutal increases, watched owners struggle with decisions they never wanted to make and seen employees absorb the consequences when deductibles, carriers and provider networks changed. Some changes were unavoidable. Others were not. Either way, the employer’s business circumstances reached deeply into the employee’s personal healthcare relationships.

When I first began working with Individual Coverage Health Reimbursement Arrangements, or ICHRAs, I viewed them mainly as another way to fund health insurance. The basic mechanics are simple:

The employer determines how much it will contribute.
Employees use that money to reimburse premiums for qualifying individual health insurance they select for themselves.
The employer no longer chooses one group insurance policy and asks the entire workforce to fit inside it.

That is the mechanism. But it is not the whole story.

Follow the implications far enough and ICHRA begins to look less like a new employee benefit and more like a new piece of healthcare infrastructure. It changes who chooses the policy, where the insurance relationship lives, how the employer defines its commitment and where the covered population is pooled.

That leads to a much larger question:

Could ICHRA eventually do to traditional group health insurance what the 401(k) did to defined-benefit pensions?

The comparison is not exact. It does not need to be. The more useful question is whether ICHRA aligns incentives strongly enough to move employers from selecting and maintaining one health plan toward funding many individual choices.

The real comparison is not simply defined contribution to defined contribution.

It is incentive to incentive.

At a Glance

This article develops six principal ideas:

The 401(k) comparison is fundamentally an incentive story. The 401(k) gave employers a way to exchange an open-ended pension obligation for a defined contribution. ICHRA gives employers a way to exchange the volatile annual burden of maintaining a group plan for a defined contribution toward coverage employees choose for themselves.
ICHRA connects two systems that had largely operated apart. It creates a bridge from employer funding to the individual-market infrastructure established by the Affordable Care Act.
Health insurance becomes a more individual decision. Employees select coverage around their own families, doctors and prescriptions instead of having those choices determined by the employer’s annual plan decision.
ICHRA can help employers offer health benefits for the first time. A company that has considered health insurance out of reach can begin with a contribution it believes it can sustain.
Once adopted, ICHRA may develop considerable staying power. Employee choices, administrative systems and successive new hires can turn the original decision into an enduring operating structure.
Persistence could strengthen the individual market itself. More employed people and recurring employer contributions could create a deeper, better-balanced risk pool, improve carrier economics and encourage better products.

None of those outcomes is guaranteed. Pricing, carrier participation and networks remain local. Contributions can fall behind premiums, choice can overwhelm employees and regulation can change. ICHRA does not eliminate healthcare inflation or make every policy good. Even so, its incentives and early adoption merit examination.

Why ask this question now?
The 401(k) lesson: incentives can reshape a benefit system
The bridge between employer funding and the individual market
Health insurance is too personal for one employer decision
The larger opportunity may be employers offering benefits for the first time
Why ICHRA may become institutionally persistent
How persistence could change the risk pool and the product
Where the thesis can fail
The HSA experience offers a useful lesson
A promising structure, not a finished verdict

Why ask this question now?

ICHRA became available in 2020, just as the pandemic disrupted workplaces, employment and nearly every ordinary business decision. Its entrance was quieter than many advocates expected.

The more recent direction looks different.

2022 to 2023: The number of American workers offered ICHRA coverage nearly tripled.
2024: Overall HRA adoption increased nearly 30 percent, while ICHRA adoption among larger employers increased 83 percent.
2025 to 2026: The HRA Council reported that ICHRA-covered lives roughly doubled and exceeded 500,000. More than 20,000 businesses offered either an ICHRA or a Qualified Small Employer HRA, up from approximately 13,000.
Large employers: Adoption among employers with 1,000 or more employees increased 178 percent in the Council’s aggregated data.

The latest figures come from the HRA Council’s 2026 data report. The Council is an industry organization, not a federal statistical agency. Its voluntarily submitted data comes from 17 administration platforms and more than 200,000 enrollment records, which it estimates capture 75 to 80 percent of ICHRA activity.

Those limitations caution against false precision, but the direction remains clear. Adoption has continued across successive reports and is spreading beyond the smallest employers.

The evidence does not prove that ICHRA will become the dominant structure for employer health benefits. It shows that the market has moved beyond a theoretical experiment.

We are no longer asking only whether ICHRA can work. The emerging question is what happens if adoption persists long enough to change the market around it.

Where this leaves us: We are early enough that the final outcome remains uncertain, but far enough along that dismissing ICHRA as a niche arrangement is becoming difficult.

1. The 401(k) lesson: incentives can reshape a benefit system

For much of the twentieth century, a traditional pension asked the employer to make a long-term promise. The employer sponsored the plan, managed its assets and assumed the responsibility and financial liability embedded in the retirement benefit. That promise could become especially painful when falling sales, inflation or industry decline arrived while pension obligations continued to grow.

The 401(k) changed that relationship. Under a defined-contribution arrangement, the employer and employee could contribute to an individual account, but the employer no longer promised a particular retirement income. The Department of Labor describes the distinction plainly: under a traditional defined-benefit pension, the employer bears the investment risk; under a 401(k), the employee’s eventual benefit depends on contributions and investment results.

The risk did not disappear. It moved.

The history is more accidental than many people realize. Congress added Section 401(k) through the Revenue Act of 1978 to address a narrow dispute over deferred compensation. The IRS formally described the rules in 1981. Benefits consultant Ted Benna is widely associated with recognizing how pretax contributions and employer matching could turn the obscure provision into a practical workplace savings plan.

The system did not immediately replace pensions. Early 401(k)s were often supplemental. Over time, however, the incentives began pushing in the same direction.

Employers could exchange an unpredictable long-term obligation for a defined contribution.
Employees received an individual account, tax advantages, portability and the possibility of employer matching.
The financial industry received a recurring flow of retirement assets and a reason to build products, administration and education around them.

The 401(k) did not become dominant merely because it was a clever product. It became dominant because several powerful participants had reasons to move it forward. Each new participant then made the system more familiar and useful to the next.

Traditional group health insurance creates a different legal obligation, so the comparison should not be pushed too far. A fully insured employer does not directly assume every medical claim; the insurer does. But the employer still bears the annual economic and organizational burden. It receives the renewal, chooses the carrier and network, determines its contribution and delivers the changes to employees. In experience-sensitive arrangements, the health and claims of its population can influence the outcome more directly.

The timing can be brutal. A 30, 40 or 50 percent renewal arrives whether the company is thriving or struggling to make payroll. Management must absorb the increase, transfer more to employees, reduce benefits, change carriers or stop offering coverage.

ICHRA does not make health insurance inflation disappear. Individual premiums still change. But the employer can define its contribution separately from the selection of one policy for the entire workforce. As I explained in a separate analysis of ICHRA renewal volatility, the employer gains more control over its response while remaining exposed to the broader individual market.

If one structure leaves employers carrying a volatile responsibility they never particularly wanted, while another allows them to define their commitment and still provide a meaningful benefit, employers have a reason to move.

Where this leaves us: The 401(k) comparison is not important because retirement accounts and health insurance are identical. It is important because both structures give employers a powerful incentive to replace a difficult promise with a defined contribution. Whether ICHRA grows will depend less on the elegance of the analogy than on the strength of that incentive.

2. ICHRA built a bridge between two systems

An employee using ICHRA may purchase the same ACA-compliant individual policy that was already available through the Marketplace or directly from an insurance company. The deductible, prescription coverage and provider network do not become better merely because an employer reimburses the premium.

The innovation is in the architecture surrounding the policy.

The Affordable Care Act had already created much of the necessary individual-market infrastructure: guaranteed access regardless of health, community rating, coverage standards, premium assistance and organized marketplaces. Whatever one thinks about the ACA as a whole, those rules made the individual market a more plausible home for employer-funded coverage.

But a critical connection was missing. The tax advantages and financial support associated with employer health benefits remained largely attached to employer-selected group coverage.

In 2019, the Treasury Department, IRS, Department of Labor and Department of Health and Human Services issued the final HRA rules allowing employer-funded HRAs to be integrated with qualifying individual coverage beginning in 2020.

The ACA created the individual-market infrastructure. ICHRA built the bridge to employer funding.

I find that insight difficult to overstate. The insurance policy may not be new. The pathway carrying tax-advantaged employer money to it is.

ICHRA may not be the final form of individually controlled health benefits. Its immediate importance is that it separates two functions employers have historically combined: funding coverage and choosing it.

The architects of the rule understood more of the problem than I initially assumed. They pointed to a continuing decline in small firms offering health coverage and noted that 80 percent of employers offering coverage provided only one option. The rule was intended to expand coverage, increase choice, encourage competition and mitigate adverse selection.

The individual mandate attempted to broaden the risk pool by requiring most people to obtain coverage or pay a penalty. The federal payment was reduced to zero beginning in 2019, but the economic problem remained. Guaranteed-issue coverage works best when healthy premium payers join people who need substantial care. The Congressional Budget Office has explained that employment-based coverage historically reduced adverse selection because workforces contain mixed health risks and employer contributions encourage enrollment.

ICHRA creates the possibility of directing those same employer contributions and mixed employee populations into the individual market without recreating a mandate. Instead of compelling individuals to buy coverage, the system gives employers a tax-advantaged way to help them buy it.

This is not limited to small employers. An Applicable Large Employer may use a properly structured offer in connection with its employer shared responsibility obligations. That design decision is essential. If ICHRA had been confined to tiny businesses, it might always have remained a useful niche. Access by large employers gives it a possible path to scale.

Where this leaves us: ICHRA may eventually accomplish through aligned incentives part of what the individual mandate attempted through compulsion: bring more employed, premium-paying people into the individual market. The bridge exists. We still need to see how much traffic it can carry.

3. Health insurance is too personal for one employer decision

When Jan and I selected a pediatrician for our children, we interviewed several doctors before choosing one. Our children came to know and trust Dr. Brown. She spoke directly with them and created the kind of relationship that made it easier for a child to be honest about how he or she felt.

Now imagine that relationship ending because an employer received a difficult renewal or simply decided to change plans.

I have watched versions of that throughout my career. An employer changes carriers or networks. Employees then have to reconsider doctors, prescriptions and planned procedures.

The employer may have a legitimate reason. A bad renewal can make the plan impossible to maintain. I also remember an employer abandoning a level-funded arrangement after a favorable result because management had never become comfortable with the structure. The plan was working, but the employer chose another direction. In either case, the people receiving care live with the consequences.

Why should the financial condition or momentary preference of an employer have so much power over an employee’s relationship with a pediatrician?

Employer-sponsored group insurance joins two things that are not naturally related: the business circumstances of the employer and the continuity of an employee’s personal healthcare relationships.

ICHRA begins to separate them.

The deeper structural shift is that the individual, rather than the employer group, begins to become the organizing unit of coverage and choice. The risk remains pooled across the individual market, but the coverage decision moves closer to the person receiving care.

The employer still decides how much to contribute and may change or end that contribution subject to applicable rules. But the employee selects the policy. A difficult business year does not automatically require everyone to abandon the same carrier and network.

An employee-selected individual policy also creates the possibility of greater portability. Employer funding generally ends with employment, but the policy may survive through personal funds, a Marketplace premium tax credit or a contribution from another employer. As people change jobs more frequently, coverage capable of surviving some employment transitions is better aligned with the way many people now work.

That is not guaranteed continuity. Individual plans renew annually. Carriers change networks or leave markets, and moving may require a new policy. Employees can select only from plans available where they live.

ICHRA therefore does not solve every form of healthcare disruption. It potentially removes one important source of it: the employer’s decision to replace everyone’s insurance at once.

Where this leaves us: Health insurance involves doctors, prescriptions, children and deeply personal decisions. ICHRA moves the choice closer to the person receiving care. Its success will depend on whether the individual market offers choices worth owning.

4. The larger opportunity may be employers offering benefits for the first time

Many ICHRA discussions begin with an employer trying to escape an expensive group renewal. That is the obvious application. The larger market may be employers that have no group plan to replace.

According to the HRA Council’s 2026 report, more than two-thirds of small businesses offering ICHRA had not previously offered health benefits. Nearly one-third moved to ICHRA from the traditional small-group market.

ICHRA is therefore functioning both as an exit from one system and as an entrance into employer-supported healthcare for the first time.

I think of this as the first-time benefits market.

That finding fits what I have watched in the small-employer market. After the ACA took effect, many small companies decided that group health insurance was simply too much to absorb. Costs increased, plan choices narrowed and participation became difficult. For years, insurance prospecting often began by asking for a company’s renewal date. The answer quickly revealed whether the employer offered health insurance at all.

ICHRA makes the absence of a renewal date newly interesting.

Instead of asking, “Can this company afford to establish a traditional group health plan?” an employer can ask, “How much can we sustainably contribute toward our employees’ individual coverage?”

That is a lower and more adjustable starting point. It may allow a company that has considered health insurance out of reach to begin offering something meaningful. It may also help the employer recruit a person who would never consider a job without health benefits.

An ICHRA can also accommodate employees with very different economic and household circumstances. One may use the allowance toward a full-price individual policy, while another chooses a richer plan and contributes more personally. An employee eligible for Medicaid or CHIP may decline the ICHRA and use that coverage. When the ICHRA is considered unaffordable, an otherwise eligible employee may be able to decline it and seek a Marketplace premium tax credit. These interactions require careful explanation and are addressed more fully in ICHRA, Marketplace Subsidies and Medicaid.

The democratizing quality is not that every employee receives the same outcome. It is that the employer can begin helping without first finding one insurance answer that works equally well for everyone.

The adoption data does not prove that every worker was previously uninsured. Some may have had coverage through a spouse, Medicaid or the individual market. The report shows expanded employer support, not an equal increase in insured people.

Where this leaves us: ICHRA may grow as much by opening a door for employers that have never offered health benefits as by replacing existing group plans. That is not merely a different way to distribute current spending. It is a possible new source of private funding for individual coverage.

5. Why ICHRA may become institutionally persistent

What happens after an employer adopts ICHRA?

The organization begins operating differently. Management establishes a contribution strategy, employees choose individual coverage, and an administrator handles eligibility and reimbursements. Enrollment and education develop around individual decisions. New employees enter the same system.

After a few years, returning to group coverage would require more than changing carriers. Employees could be asked to abandon policies and provider relationships they selected for themselves. The employer would again choose the carrier, network and plan structure for everyone.

That does not create contractual lock-in. An employer can decide that ICHRA no longer works. Poor individual-market renewals, weak networks, employee frustration or administrative problems could send the company back to group coverage.

But it does create institutional persistence.

Early retention data points in that direction. The 2026 HRA Council report indicates that 89.5 percent of small employers and 77.4 percent of Applicable Large Employers offering ICHRA were renewing from a prior year. These industry-reported figures from a young market are not proof of permanent behavior, but they suggest that many employers do not view ICHRA as a one-year emergency measure.

The longer the system remains in place, the more normal the defined-contribution model may feel to employers and employees. The original decision becomes an operating structure rather than an annual experiment.

That persistence can produce consequences beyond the company. Each employer that remains with ICHRA continues directing participating new employees into individual coverage. Successive hires keep directing lives and premium dollars into the same individual-market structure.

Where this leaves us: The important question may not be how many employers adopt ICHRA in one year. It may be how many adopt it and then see little reason to leave. Persistence is the mechanism that gives adoption a chance to compound.

6. Persistence could change the risk pool and the product

Insurance works by pooling unlike risks. Premiums from people with relatively low claims help pay for those who experience very high costs. No underwriting screen can permanently separate them because health changes. Illness, pregnancy and accidents arrive without notice.

A sustainable pool therefore needs more than enrollment. It needs enough premium, enough diversity of risk and enough continuity to absorb expensive outliers across time.

Employment-based insurance has historically helped limit adverse selection because employers assemble workforces for reasons unrelated to healthcare needs. Workforces include people across the health spectrum, and employer contributions encourage enrollment by people who might not purchase coverage solely because they expect to use it.

ICHRA can redirect that useful population dynamic into the individual market.

When an employer moves an eligible class to ICHRA, it cannot simply send employees with known claims into individual coverage. Federal safeguards include permitted employee classes, minimum class sizes in certain situations, same-terms rules and restrictions on offering employees within the same class a choice between group coverage and ICHRA.

The early demographics are encouraging. In the HRA Council’s 2026 data, 56 percent of Marketplace enrollments through ICHRA involved primary subscribers under age 45, and their dependents tended to be younger as well.

Younger does not automatically mean healthier. Credible claims and morbidity data across several years will be needed before anyone can say ICHRA has improved the market’s actuarial health. But the demographic direction is consistent with what the thesis would require.

If ICHRA adoption persists, the possible sequence looks like this:

More employers direct participating employees and employer contributions into individual coverage.
Those recurring inflows deepen the premium base and introduce people across a wider range of health risks.
A larger, better-balanced pool becomes more capable of absorbing high-cost claims.
More sustainable carrier economics give insurers a reason to remain in the market or enter it.
Greater carrier participation can improve plan choice, provider networks, benefits and service.
A better individual market makes ICHRA more attractive to the next employer.

That is the possible flywheel. Adoption improves the conditions for further adoption.

The consequences could extend beyond people receiving an ICHRA. Their policies participate in the same broader market as those purchased by self-employed people, early retirees and others without employer assistance. If employer-supported enrollment strengthens the pool, the effects can reach people with no relationship to the adopting companies.

A healthier individual market could lift boats far beyond the employers that helped strengthen it.

Medicare Advantage offers a loose illustration of how insurers behave when they see a large, durable market. Carriers compete through plan designs, networks and additional benefits. Its economics are different, so the comparison should not be pushed too far. The relevant lesson is that carrier investment follows dependable demand.

More carriers would not automatically lower the underlying cost of healthcare. Hospital prices, prescription costs, regulation and provider concentration would remain. Competition can still produce more choices, stronger service and pressure to improve value.

Where this leaves us: ICHRA’s largest possible contribution is not merely helping one employer escape one renewal. It is channeling employer money and mixed employee populations into the individual market persistently enough to improve the market itself. That outcome remains a hypothesis, but the mechanism is consistent with fundamental insurance principles.

Where the thesis can fail

A promising structure is not the same thing as a successful result.

The flywheel can stop at the county line

There is no single national individual insurance market. There is not even one uniform Ohio market. Availability, pricing and provider networks vary by county and rating area.

An employer may love the ICHRA concept and still discover that employees in one county have only one workable plan, while another employer has several carriers and credible networks. Statewide statistics can hide that local reality.

ICHRA can increase demand, but carriers must respond by maintaining or expanding useful products where employees live. If the local market is thin, individual choice becomes more theoretical than real.

Defined contribution does not eliminate healthcare inflation

An employer can control the ICHRA allowance. It cannot control individual-market premiums. If premiums rise and the contribution remains unchanged, employees absorb more of the increase. If the employer wants to preserve the same level of support, its contribution may need to rise.

Applicable Large Employers also need to consider affordability if they intend the ICHRA offer to satisfy employer shared responsibility requirements. A defined contribution gives the employer a decision. It does not isolate the company from the healthcare market.

Choice can become confusion

Employees may appreciate selecting their own plans, but individual coverage requires education and enrollment support. Provider networks, formularies, deductibles and household costs can differ substantially. Turning employees loose with a reimbursement amount and a link is not a benefits strategy.

Regulatory durability is essential

The 401(k) became foundational partly because employers, administrators and financial companies could build around rules that endured. ICHRA has operated under final federal regulations since 2020 and is incorporated into current IRS guidance. As with any tax-advantaged benefit, its long-term growth will depend partly on employers, carriers and administrators remaining confident that the framework will remain stable.

The practical test: Many employers may not need to adopt ICHRA today. But most employers should try to understand it. The concept must be tested against the actual workforce, actual contribution and actual individual plans available in every location involved. A practical ICHRA-versus-group comparison still has to be completed one employer at a time.

The HSA experience offers a useful lesson

I remember when Health Savings Accounts arrived. Employers wanted to know whether high-deductible plans would save money, whether the tax advantages justified the tradeoffs and whether consumer choice would reshape healthcare spending.

The results were less transformative than many expected. High-deductible plans often saved less premium than employers imagined, leaving limited room for a meaningful HSA contribution. The largest advantages tended to flow to people healthy enough not to spend the money and wealthy enough to leave it invested. Research continues to find large differences in HSA contributions and balances by income.

HSAs nevertheless proved valuable. They changed benefit conversations, created a durable market and gave people who understood them a useful financial tool. But they did not remake employer health insurance in the way some early advocates imagined.

ICHRA may follow a similar path. It could become an important structure without producing better results for every employer. The underlying policy may still have a narrow network, large deductible or difficult premium. Administration and employee education will still require work.

There is also an important difference. The HSA mostly changed how a person paid for cost sharing around an insurance plan. ICHRA can change who chooses the insurance policy, who funds it and where the insured population is pooled. Its potential structural reach is therefore larger.

The more useful test: ICHRA’s success should be measured by whether it improves the way employers fund coverage, employees select it and insurers pool the resulting risk, not by whether it solves every healthcare problem or produces immediate savings in every case.

A promising structure, not a finished verdict

I spent years criticizing much of the Affordable Care Act. I do not arrive at this conclusion as a natural cheerleader for government healthcare policy.

But good public policy can emerge when a consistent set of rules aligns human incentives toward a useful outcome. Looking at ICHRA, I have to acknowledge the possibility that the government got an important piece of this right.

The ACA established a market in which individuals could obtain coverage regardless of health. The ICHRA rules created a pathway for employer money to reach it. Employers can support healthcare without choosing one policy for everyone, employees can select coverage for their own households, and continued adoption can bring more premium and a broader population into the individual pool.

For the first time in decades of delivering difficult renewals, I can see a plausible path by which several persistent problems begin working in the other direction. Employers that previously offered no health benefit can begin contributing. Those exhausted by volatile renewals can establish a more deliberate commitment. Employees can move closer to owning the insurance decision, while their participation can deepen the individual pool and encourage the next employer to join.

That is not a prediction. It is a structure with the capacity to become self-reinforcing.

In 1981, when the IRS formally described the rules surrounding a narrow tax-code provision, it was not obvious that the 401(k) would alter the role of the traditional pension and redirect an enormous flow of retirement savings into individual accounts. The system developed one employer, one administrator and one employee at a time.

We may be standing near a similar moment in employer-sponsored healthcare.

Carrier participation must grow. Local markets must offer credible choices. Employer contributions must remain meaningful. Employees must receive enough help to make good decisions. The early demographic and adoption trends must eventually be confirmed by claims experience and long-term retention.

We will see.

What I can say now is that ICHRA is more than another way to reimburse an insurance premium. It separates decisions that were never naturally connected, aligns incentives that previously pointed in different directions and creates a bridge capable of carrying employer funding into the individual market.

ICHRA is not yet the 401(k) of health insurance. But the possibility is now substantial enough to take seriously.

About the Author

For more than three decades, Ted Stevenot has helped Ohio small businesses and their owners evaluate health insurance and employee benefits as a partner at McCarthy Stevenot Agency, Inc.

He writes the Broker’s Desk series to document the real-world decisions, conversations and observations that come from helping small businesses navigate health insurance.

Talk With McCarthy Stevenot Agency

An ICHRA can be compelling as a structure without being the best fit for every employer or workforce.

A meaningful comparison should consider employee locations, ages and coverage needs; actual individual-market premiums and provider networks; the employer’s proposed contribution; and the group health insurance alternatives available to the company.

Contact McCarthy Stevenot Agency to discuss whether an ICHRA or traditional group health plan makes sense for your Ohio business, or call 513-891-9888.

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Disclaimer

Broker’s Desk is a series of observations from more than three decades of helping Ohio small businesses and their owners navigate health insurance. Some articles explain a process. Others examine the tradeoffs behind real employer decisions. Client-identifying details may be omitted or generalized to protect privacy.

ICHRA contribution strategies, individual-market premiums, plan availability, provider networks and affordability calculations vary by employer, employee circumstances and location. Federal requirements may also change over time. Adoption figures cited in this article come from the identified third-party industry reports. Discussion of ICHRA’s possible long-term market effects represents analysis, not a prediction or a recommendation for any particular employer.

This article is provided for general informational purposes and is not legal, tax or actuarial advice. Employers should review their specific circumstances with appropriate insurance, tax or legal professionals.

Will ICHRA Become the 401(k) of Health Insurance?