Individual Coverage Health Reimbursement Arrangements (ICHRAs) are a relatively new approach to employer-sponsored health coverage. Introduced through a 2019 federal rule and implemented in 2020, ICHRAs provide employers of any size with a flexible alternative to traditional group health plans. Under ICHRAs, employees may individually enroll in a qualified ACA Marketplace individual health plan and receive tax-free reimbursement from their employers for qualified medical expenses, including monthly premiums and other out-of-pocket costs.[1] Additionally, as with traditional employer-sponsored health plans, coverage can also be extended to the employee’s household members. ICHRAs are defined as “group health plans” under the Public Health Service Act, the Employee Retirement Income Security Act (ERISA), and the Internal Revenue Code, making them subject to the rules applicable to group health plans, including ERISA’s fiduciary requirements. [2]
In recent years, ICHRAs have been growing in popularity. According to the HRA Council, since 2023, ICHRA implementation has increased by 30% and is expected to continue growing.[3] For employers, especially those with an increasingly remote or out-of-state workforce, ICHRAs offer a cost-effective and administratively efficient way to provide health benefits. Rather than managing a one-size-fits-all group plan, employers can simply offer a defined contribution toward employees’ individual coverage. This approach can help control costs while giving employees more autonomy over their healthcare decisions. Employees, in turn, gain the flexibility to select plans that best match their medical needs, provider preferences, and financial situation.[4]
However, the rise of ICHRAs introduces significant financial and operational challenges, particularly for hospital revenue cycle management teams. One of the primary concerns is the increased variability in payer types, plan designs, and coverage levels that hospitals will encounter as more patients turn to individually selected insurance plans. With employees selecting their own health plan, hospitals are likely to see more complexity in billing as they deal with a wide range of plan structures and reimbursement rates. Many ICHRA plans also rely on narrow networks, potentially limiting patients’ access to providers or specialists.[5] This could lead to a rise in out-of-network claims, denied authorizations, and delayed payments for hospitals. Another growing concern is the risk of “choice overload”, particularly among individuals with low health-literacy. Faced with a wide array of individual health plans, some employees may struggle to make informed choices regarding their health plan, resulting in inadequate coverage. [6] In some cases, individuals may even attempt to game the system, by accepting their employer’s reimbursements without ever enrolling in a health plan. These behaviors can leave patients with higher out-of-pocket costs and contribute to an already growing population of uninsured or underinsured individuals. Ultimately, the added complexity introduced by ICHRAs could further strain hospitals’ administrative processes and increase the likelihood of balance billing or bad debt, especially if patients are unaware of their financial responsibilities or struggle to afford these costs.
As ICHRA implementation continues to grow, its impact on provider operations, revenue cycle management, and employee experience will remain an area to watch.
[1] Health Reimbursement Arrangements and Other Account-Based Group Health Plans, 84 Fed. Reg. 28,946 (June 20, 2019)
[2] Id.
[3] HRA Council, 2024 Growth Trends for ICHRA & QSEHRA Report, https://www.hracouncil.org/report
[4] Cassie Bonner, The Health Insurance You Haven’t Heard Of, Managed Healthcare Executive (July 6, 2022), https://www.managedhealthcareexecutive.com/view/the-health-insurance-you-haven-t-heard-of.
[5] Avalere Health, Impact of Individual Coverage Health Reimbursement Arrangements on Employees with Group Health Coverage (Feb. 2022)
[6] Benjamin D. Sommers, The Role of Individual Coverage Health Reimbursement Arrangements—The Liger of Health Insurance?,JAMA Health Forum, July 25, 2024.
