For generations, employment-based health insurance has been a cornerstone of the U.S. health care system. Most workers receive their private coverage through an employment based plan, with employers selecting coverage options and contributing toward the cost of premiums.
Paul Fronstin, Ph.D.
Director, Health Benefits Research, Employee Benefit Research Institute (EBRI)
Driven by rising costs and the risks of tying health benefits to employment, policymakers, economists, and business leaders have for decades debated whether there might be a different approach. Instead of sponsoring a group health plan, what if employers provided workers with a fixed contribution and allowed them to choose and purchase their own coverage?
The idea has existed for years but faced major obstacles because people with preexisting conditions could be denied coverage or charged higher premiums in the individual insurance market. The Affordable Care Act fundamentally changed that landscape. Today, individuals can purchase coverage regardless of health status, and many qualify for financial assistance to help reduce premium costs. These changes created the foundation for a new type of employer benefit known as an Individual Coverage Health Reimbursement Arrangement, or ICHRA.
An ICHRA allows employers to provide tax-free funds that employees can use to purchase health insurance in the individual market. Rather than selecting and administering a group health plan, employers can contribute a defined amount of money that employees can use to choose the coverage that best meets their needs.
Although ICHRAs have attracted significant attention, EBRI estimated that fewer than 1 million people were covered through an ICHRA in 2025 – far below the millions once projected only a few years earlier.
Supporters believe ICHRAs give workers more health plan choices while giving employers more predictable benefit costs through a fixed contribution. Interestingly, many employers adopting ICHRAs had not previously offered health benefits, suggesting the new arrangement may be expanding coverage among small businesses rather than replacing traditional plans.
Larger employers have generally been more cautious, citing concerns about giving up control over plan design and the complexity of managing coverage across multiple regions.
There are also important questions about how employees navigate health plan choices. More choice can be valuable, but only if people can make informed decisions. EBRI’s Consumer Engagement in Health Care Survey finds that most people spend less than two hours choosing their health plan each year, even though that decision can affect both their health care costs and access to care for an entire year. Research shows that more choice does not always lead to better decisions, underscoring the need for tools that help consumers compare plans and understand tradeoffs.
Looking ahead, ICHRAs may represent the beginning of a broader evolution in employment-based benefits. The retirement system underwent a similar transition over several decades as employers moved from traditional pensions toward defined contribution retirement plans. Whether health benefits will experience a comparable transformation remains uncertain.
Economic conditions could also influence adoption. During a future downturn, employers may look more closely at alternatives to traditional group health plans while workers continue to place a high value on health insurance.
For now, ICHRAs are not replacing traditional employment-based coverage on a large scale. But they are creating new options for employers and employees alike, reopening an important conversation about how health benefits might be delivered in the future. As the individual insurance market continues to evolve, ICHRAs may prove to be one of the most significant innovations in workplace health coverage in decades.
