Which Groups Are a Good Fit for ICHRA?

As employer-sponsored health benefits continue to rise, both employers and their trusted advisors continue to search for more cost-effective health insurance solutions. One option gaining significant attention is the individual coverage health reimbursement arrangement (ICHRA). 

Introduced in 2020, the ICHRA is a relatively new group plan model that allows employers to contribute a fixed dollar amount toward employees’ individual insurance rather than providing a traditional group health plan. Since first becoming available, adoption of the ICHRA has grown 1,000% according to the HRA Council.

If you’re wondering whether ICHRA might be right for your organization—and how the ICHRA market is evolving—you’re not alone. In this article, we’ll explore the following: 

• The challenges employers face in the health benefits market
• Which groups are a good fit for ICHRA 
• How to assess if ICHRA is the right solution for you

Rising costs and a changing workforce

Offering health coverage has become a major challenge for many businesses. 

• Over the past decade, costs for employer-sponsored family coverage have inflated by 52% according to KFF. 
• A 2025 Mercer survey projected that employers will experience a 6.5% increase in average health benefit costs between 2025 and 2026, even after implementing cost-reduction measures. 

These rising costs squeeze employer budgets, especially for small businesses and industries with slim margins.

At the same time, the workforce is changing. Companies increasingly rely on diverse employee groups—hourly workers, part-timers, seasonal staff, and distributed teams—who are often underserved by one-size-fits-all group insurance plans.

Many employers have struggled to offer any health benefits at all under these conditions. Only about half of employers offer any sort of health benefit, and approximately one-third of small businesses have had to drop health coverage from one year to the next, according to a study by JPMorgan. Those that do offer coverage can face double-digit rate hikes—costs that are frequently shifted to employees through increased cost-sharing, which can lead to lower participation and reduced access to care.

The situation is clear: traditional group plans don’t work for everyone, and many employers need a different approach to provide competitive benefits.

Traditional health plans leave gaps

Without affordable, adaptable benefits, employers risk serious problems with employee recruitment and retention. According to an Intuit Quickbooks Allstate Health Solutions survey, over three-quarters of employees would look for a new role if their benefits were inadequate. 

There may be compliance risks as well. For larger employers with 50 or more full-time-equivalent employees, not offering health coverage could mean ACA penalties for failing to meet the employer mandate.

Even those who do offer a traditional plan might find it’s not meeting their workforce’s needs. According to KFF, 76% of employers who offer health coverage only offer one type of plan. A single group plan forces diverse employees into a one-size-fits-all box. Younger, healthier employees might prefer a different coverage level than older employees or those with families—but under one group policy, everyone gets the same choice. 

And if you operate in multiple states or locations, a single insurance carrier’s network might not adequately cover all regions, leaving some staff with limited provider options. These gaps create frustration and can lead to wasted money on benefits employees don’t fully use.

The implication of these problems is significant: employee turnover, difficulty hiring, and lost productivity. Not adapting your health benefits strategy can hurt both your people and your bottom line. The good news is that an innovative solution has emerged that’s more flexible, portable, and designed to make a real difference—the ICHRA.

How ICHRA solves the problem

The individual coverage health reimbursement arrangement is designed to give employers budget control and flexibility while giving employees personal choice in their health coverage. 

Instead of buying a one-size-fits-all insurance plan, an employer can allocate a fixed amount of money (an allowance) for each employee. Employees then pick and purchase the individual health insurance that fits their needs, and use their allowance to cover the cost of their premiums (and optionally other medical expenses) tax-free. 

The ICHRA is distinct from the traditional model in several ways:

• Predictable costs for employers: You set your contribution amounts. Your health benefit spend is capped at the allowance you define, and unused allowances stay with your company. 
• Choice for employees: Workers get to choose from potentially dozens of plans on the individual market, finding one that includes their doctors and fits their health needs. 
• No participation requirements: Unlike group plans, ICHRA has no minimum participation rate. Even a very small business or a company with many part-time employees can offer an ICHRA.
• Flexible design: Employers can vary allowances by defined categories or “classes” of employees, as well as by age and family status. This flexibility lets companies tailor the health benefit to meet the unique needs of their workforce. 

Crucially, ICHRAs can satisfy the ACA employer mandate for larger employers. By offering an affordable ICHRA allowance to full-time staff, an applicable large employer (ALE) is considered in compliance with the ACA employer mandate. This means even big companies can use ICHRA to control costs and stay compliant.

Which groups are a good fit for ICHRA?

Given these advantages, is ICHRA the right approach for everyone? Even though this health benefit is available to employers of all sizes, there are certain scenarios where it is most advantageous. Here are some groups and situations that are an especially good fit for ICHRA:

• Small businesses and startups: If you have a smaller team and found traditional group plans out of reach, ICHRA can be a game-changer. It’s a great option for small employers that lack the resources for a group plan or are offering benefits for the first time. In fact, 83% of employers who offered an ICHRA (or similar HRA) in 2025 had not previously offered any health coverage, according to the HRA Council. ICHRA is a great entry point for these businesses to finally give employees health benefits on a predictable budget.
• Industries with variable workforces: Sectors like restaurants, hospitality, retail, construction, landscaping, manufacturing and other blue-collar fields often have a mix of full-time, hourly, seasonal, and part-time workers. ICHRA’s flexibility and the portability of individual plans are ideal here. If an employee leaves, they don’t lose their insurance plan. They can keep it and continue to pay their premiums on their own. Meanwhile, because ICHRA has no minimum participation requirements, it opens the door to provide access to health insurance where it might not have been offered before.
• Multi-location and remote companies: If your employees are spread across different states or regions, a single group policy might not give everyone good provider networks. With ICHRA, each employee can buy a plan in their own area that includes their local healthcare providers. 
• ALEs seeking cost control: Employers who are subject to ACA rules are finding ICHRA to be an attractive strategy. In fact, ICHRA adoption among ALEs surged 34% between 2024 and 2025. It’s an effective way for companies with 50 or more FTEs to cap their health benefit costs while still meeting the mandate. Instead of facing annual double-digit premium jumps, the employer can decide what increase in allowance (if any) to budget each year. 
• Any employer looking for flexibility: Beyond those specific cases, virtually any organization that feels locked into an expensive group plan could consider ICHRA. Groups with unexpected high claim volume, underutilization, high turnover, or those simply seeking a plan with more flexibility have all started to implement ICHRA as their health benefit. 

Is ICHRA right for you?

If you see your business or client in the scenarios above: struggling with costly group plans, employing a diverse workforce with varied needs, or simply looking for a more flexible benefits solution, then ICHRA might be the answer.

It’s a growing, proven approach that can help control costs, widen employees’ coverage choices, and even enable companies to offer benefits for the first time. By switching to a defined-contribution model like ICHRA, employers are regaining predictability in their healthcare spending and employees are getting coverage that fits them better. It truly can be a win-win.

Of course, implementing an ICHRA does require some planning: you’ll need to design allowances, ensure affordability (for ACA rules), and help employees navigate their new choices. This is where partnering with the right solution becomes important. 

Vitable Health’s ICHRA solution is designed to make this transition smooth for both employers and brokers. Our team of experts walks each group through plan design, onboarding, and enrollment, and our platform provides employees with an intuitive plan shopping and selection experience. 

Additionally, Vitable pairs ICHRA with direct primary care access for employees, meaning your team gets unlimited virtual primary care visits, preventive screenings, mental health support, and more, with $0 out-of-pocket costs for those services. This care-backed ICHRA approach ensures that, in addition to their individual insurance plan, employees have a safety net of everyday healthcare, boosting utilization and satisfaction.

Ready to explore ICHRA for your organization? Reach out to learn how we can tailor an ICHRA to your team’s needs.