ICHRA: A Cost-Effective Alternative to Traditional Health Plans

JULY 1, 2025

Most small businesses see value in offering health benefits to remain competitive. But as the cost of healthcare continues to go up, providing traditional health insurance may become unsustainable. Employers looking for ways to manage the expense, while giving employees better health plan options, may find value in funding an individual choice health reimbursement arrangement (ICHRA).

Under an ICHRA:

• Employers determine the benefit amount
• Employees choose their own individual health plan that meets their needs
• Employers use ICHRA funds to reimburse employees on premium or other qualified expenses, up to the benefit amount

Having a predefined contribution limit makes health insurance a more predictable expense for employers.

Traditional employer-sponsored health plans generally limit employees to one or two options selected by the company. ICHRAs allow employees to choose a health plan better suited to their preferences and needs. Employees may also contribute to a cafeteria plan to help cover premium over the ICHRA limit or other out-of-pocket medical expenses.

While offering an ICHRA generally requires less paperwork and day-to-day management, employers that want additional support can partner with an ICHRA administrator. Solutions range from simple plan administration services to employee communication and enrollment support tools. Many also provide support with COBRA notices and eligibility.