Expansion of ICHRAs in New Legislation Could Transform Employer Health Benefits

The One Big Beautiful Bill Act (OBBBA), recently passed by the U.S. House of Representatives, includes a significant provision to codify and expand Individual Coverage Health Reimbursement Arrangements (ICHRAs). Introduced by the Trump administration in 2019, ICHRAs allow employers to provide employees with tax-advantaged funds to purchase individual market health insurance plans. This approach aims to increase health insurance affordability and accessibility while giving employees more control over their health coverage choices.

Currently, a majority of Americans obtain their insurance through employer-sponsored plans, which often obscure the actual costs of coverage. In contrast, individual market plans have become more cost-effective, presenting an opportunity for employers to reduce expenses through ICHRAs. Market responsiveness data indicates that consumers enrolled in individual plans react more strongly to premium changes, thereby encouraging cost-conscious decisions and promoting competition among insurers and providers.

The adoption of ICHRAs could disrupt traditional employer-sponsored insurance by incentivizing employees to select plans that align better with their needs and budgets, potentially driving down overall healthcare spending. Moreover, this model supports flexibility for workers, including part-time employees and entrepreneurs, by decoupling health insurance from employment status. Small businesses, which often struggle with the cost of providing benefits, could also find ICHRAs a more viable option for offering coverage to their workforce.

Despite being a relatively new mechanism, with around 500,000 enrollees in 2023, projections suggest that the use of ICHRAs could grow substantially, reaching approximately 2 million workers by 2032. The proposed legislation would rebrand ICHRAs as CHOICE plans to simplify the concept and encourage broader adoption by employers. Future proposals like the Worker’s Choice ICHRA could allow employers to offer both traditional plans and ICHRAs, enhancing coverage options and parity.

Overall, the expansion and codification of ICHRAs represent a significant policy development with the potential to reshape employer-sponsored health insurance, enhance consumer choice, and promote cost efficiency within the U.S. health insurance market.