Insurers bet on new type of job-based health benefits

Health insurance companies hungry for a piece of the large and lucrative employer health plan market see a recently created exchanges-based product as their way in.

Although only a small — albeit growing — share of businesses offer individual coverage health reimbursement arrangements, or ICHRAs, to their workers, insurers such as Oscar Health, Centene and Highmark are gambling they are the wave of the future as employers strive to contain healthcare spending. Through ICHRAs, companies provide vouchers that employees use to purchase health insurance instead of enrolling in employer-sponsored group health plans.

“ICHRA's time has come,” Oscar Health CEO Mark Bertolini said at the company's annual investor day earlier this month, referring to the health benefits model where employers give employees funds to buy an individual plan on a tax-preferred basis.

Oscar Health has perhaps been the most vocal about its interest in disrupting the employer insurance landscape with these products. But others, including Highmark and Centene, also see opportunities, particularly among small and mid-sized employers.

Insurance companies and benefits administrators recognize a widespread shift from traditional employee health benefits won’t come quickly, but seem willing to play the long game.

Related: Oscar Health eyes big growth in the individual market

“It is something that I think is going to — over a longer period of time — definitely make up a bigger portion of the market,” Highmark Health Plan President Tom Doran said. “It is really evolving, and it's actually happening faster than I would have expected.”

The Health and Human Services, Labor and the Treasury departments authorized ICHRAs in a 2019 final rule that took effect the following year. The upside for employers is clear.

Under traditional health benefits, as regulated by the Employee Retirement Income Security Act of 1974, businesses either choose insurers to cover their employees or self-fund plans and hire insurance companies to administer them. This leaves employers on the hook for whatever expenses their workers accumulate, either in the form of higher future premiums or, for self-insured employers, directly. The employer and employee shares of the premiums are untaxed.

ICHRAs enable businesses to cap health benefit costs by granting employees flat, tax-preferred contributions they can use to purchase policies from a public health insurance exchange such as HealthCare.gov, a private exchange or an individual insurance company. If a plan costs more than the employer contribution, the worker pay the difference. In most cases, employees are not eligible for public exchange tax credits on top of their employers' contributions.

These arrangements can give employees access to a wider array of health plans than employers typically offer. But that can be a disadvantage when workers must sort through a large number of options, said Tracy Watts, senior partner and national leader for health policy at Mercer.

“Employees really value that employers curate some plans for them, and they feel pretty safe in picking one of those plans,” Watts said. “That's not going to still be the case when you go out on the open market.”

More U.S. residents get health coverage from jobs than from any other source. More than 150 million workers and dependents are enrolled in employer health plans, according to a survey KFF commissioned last year. But costs are always rising. In 2023, the average premium for an employer-sponsored family health insurance policy was $23,968 and the average employer contribution was $17,393, KFF reported. The total premium was 7% higher than in 2022.

Despite the financial advantages of predictable employee health benefit spending, ICHRAs remain relatively rare.

Just 8% of employers that provide group health plans, and 12% that don't, gave money to employees for individual health insurance policies, including through ICHRAs, KFF found. More are considering it: 13% of employers that don't use ICHRAs or similar arrangements reported they were “very likely” or “somewhat likely” to introduce them in 2025, according to the survey.

SureCo, an ICHRA vendor that contracts with large employers, is getting a lot of inquiries, said Chief Operating Officer and Chief Financial Officer Erik Wissig. SureCo's customer base has increased more than five times over the last 18 months, he said.

The number of employers using ICHRAs increased 29% from 2023 to 2024, according to the HRA Council, an industry group that represents insurers such as Oscar Health and Centene's Ambetter Health, benefits administrators, brokerages, the Association for Community Affiliated Plans and the National Federation of Independent Business. More than 80% of companies that introduced ICHRAs this year did not previously have any health benefits, and 17% of participants replaced group plans with ICHRAs, the HRA Council survey found.

If cost-savings were the only objective, employers could stop providing health insurance altogether. But businesses have health benefits for competitive reasons. As part of the overall compensation package, health insurance is a tool to recruit and retain employees. Offering less comprehensive coverage is a risky proposition because the best workers may flock to rivals with superior benefits.

Employers look to their peers and historically have been loath to cut back on fringe benefits their competitors offer. That's why it might take a very large company taking the plunge and deploying ICHRAs for this market to reach its potential, Ambetter Health Chief Sales Officer Nathanael Watters said at the AHIP 2024 conference June 11.

Oscar Health, which plans to roll out its ICHRA plans next year, estimates the market could be as large as 96 million people if all small and mid-sized employers offered them. The insurer is partnering with three vendors on pilot programs to assess product design, marketing strategies and technology integration.

Ambetter Health launched an ICHRA product in conjunction with Take Command in Indiana this year as it prepares a broader push. “We want to be active in the market, helping to drive growth of the market, but also be ready for when it does grow more rapidly,” Watters said.

Highmark perceives greater interest in ICHRAs but remains unsure if it’s enough to significantly shake up the employer market, Doran said. “We're seeing people actually take steps to move towards ICHRAs more and more frequently,” he said. “I don't know if it's the next big thing, but I think it's gaining more momentum than I would have expected.”