Eyeing cost and flexibility, more workers opt for alternatives to employer health plans
As healthcare costs in the U.S. continue to soar and employees demand more flexibility in benefits, HR leaders are exploring alternatives to traditional employer-sponsored health plans — and more workers are embracing them.
One option gaining traction is the Individual Coverage Health Reimbursement Arrangement (ICHRA), which saw adoption surge by 29% among small employers and 84% among large employers from 2023 to 2024, according to healthcare tech company Softheon.
An ICHRA is a relatively new type of health reimbursement arrangement enabling employers of any size to reimburse their employees for some or all of the premiums they pay for health insurance purchased on their own. ICHRAs were created under the Trump administration in 2019 and became available the following year.
They represent a departure from previous rules under the Affordable Care Act (ACA, aka Obamacare), which prevented employers from reimbursing employees for individual market premiums as it was seen as violating the ACA’s intended market reforms. The concern was that employers could create non-compliant group plans by reimbursing individual policies without meeting ACA standards.
It’s little wonder why alternatives to traditional plans are becoming more appealing. According to Softheon’s survey of 1,000 adults in the U.S., 86% express significant concerns about their healthcare coverage, with cost transparency and affordability as top priorities. More than 6 in 10 respondents cite high cost as their primary concern, while about the same number believe employer financial support would improve their healthcare experience.
“Healthcare plan selection needs to be simpler and easier,” says Eugene Sayan, founder and CEO of Softheon and its subsidiary W3LL. Sayan, whose company has helped more than 30 million Americans navigate healthcare marketplaces, emphasizes that giving individuals control over their coverage choices is crucial for addressing current healthcare challenges.
ICHRAs represent a marked departure from traditional group health plans, offering advantages for employers and employees alike, say their advocates.
Brandy Burch, CEO of benefits platform Benefitbay, explains the fundamental appeal: “Instead of being locked into a one-size-fits-all group plan, employees can select coverage that fits their specific health needs, preferred providers and budget. This flexibility is particularly valuable for today’s workforce, where employees span multiple states, have diverse health priorities, and expect benefits that align with their personal and family situations.”
Jack Hooper, founder and CEO of Take Command Health, a health reimbursement arrangement (HRA) plan that has businesses large and small as clients, questions the traditional model, where employers make healthcare decisions for their workforce. “The vast majority of companies don’t exist to choose health insurance plans,” he said. “Why should a company that builds software or delivers packages be making healthcare decisions for their employees?” Hooper said organizations typically save 30% or more on healthcare through ICHRA implementation.
Still, the transition to an ICHRA is not without its drawbacks.
Becky Greenfield, a healthcare attorney and partner at Wolfe Pincavage, raises important concerns from a provider perspective. “Through ICHRA legislation, employers are permitted to shift coverage from employer-sponsored coverage to individual exchange plan coverage, which tends to have significantly lower reimbursement rates than employer-sponsored coverage,” she said.
She also points to potential risks for employees, noting that exchange plans tend to have much higher deductibles and other cost-sharing obligations. Accordingly, people will have greater exposure to out-of-pocket costs if their employers force them into an ICHRA, she said.
For HR leaders, the charge is understanding the pros and cons of such arrangements and effectively communicating those to teams. Apparently there’s a long way to go. According to Softheon’s survey, just 2 in 10 workers are aware of ICHRAs.
Hooper stresses the importance of proper employee support, explaining: “We have a team of licensed health insurance professionals that help employees navigate the process of choosing and enrolling in the right individual plan so they keep their favorite doctors and medication in network.”
Despite the challenges, the alternatives to old-fashioned employer-supported health plans are poised to expand even further. Major insurance providers are in the process of growing their ICHRA-related product lines, while political support for the plans remains strong.
As Burch notes, “The demand for flexible, personalized benefits is only growing, and ICHRAs provide a sustainable model for the future of employer-sponsored healthcare.”