ICHRA Growth Could Reshape Marketplace Risk Pools and Widen Access Disparities: Matthew McGough

Individual coverage health reimbursement arrangements (ICHRAs) have been slowly increasing in utilization, with more employers potentially offering them to a subset of employees to offset internal risk onto the individual market.

Health care plan premiums are expected to increase if the enhanced Affordable Care Act (ACA) subsidies expire. Many Americans will be unable to afford their ACA marketplace insurance. ICHRAs, on the other hand, have become popular due to increased awareness and higher group plan premiums for employers.¹

While there are trade-offs to ICHRAs compared with traditional group health plans, more employers may find moving employees with high-cost claims onto ICHRAs may help mitigate internal risk, said Matthew McGough, a policy analyst at KFF for the Program on the ACA and the Peterson-KFF Health System Tracker, in an interview with The American Journal of Managed Care^®.

“There are certain trade-offs that employees may feel,” McGough said. “They may believe that it is inherently inferior coverage, even though the differences are more nuanced, but they often realize that they are paying less for their coverage, at least in the short term.”

This transcript has been lightly edited. Captions are auto-generated.

Transcript

How might broader ICHRA adoption affect the marketplace risk pool, particularly if healthier or higher-income workers are more likely to move into individual care?

It could cut both ways, and it's—at least at this moment, where ICHRA adoption is still very limited—not well understood what the impact on the marketplace risk pool will be if ICHRAs draw relatively healthier and higher-income workers into the individual market. This could potentially improve the marketplace risk mix, but if adoption is concentrated among workers who have chronic conditions and who are going to lose access to these more comprehensive group plans, this could be more of a neutral or even a destabilizing effect on the marketplaces.
This really depends on if employers want to adopt ICHRAs for their entire employee base, or if they want to select different classes of workers who may be more likely to have chronic conditions and have higher health care needs, or if they know that there are employees who have high claims costs that are driving their renewals every year. If that's the case, and employers are moving those people over to ICHRAs, it could really have a destabilizing effect on the individual market.

It is important to note that there are risk adjustment mechanisms in the individual market to stabilize premiums, but nevertheless, there could be some detrimental effect to the risk pool if employers decide to move just a portion of employees who tend to be sicker over into the individual market.

How have structural barriers and recent growth trends shaped adoption, and how might the expiration of the enhanced ACA subsidies alter this pattern?

At this moment, ICHRA adoption is still very limited. By all accounts it's under a million people, but there's a wide variation in this number because of incomplete data reporting. But it's mainly slow because of complexity and uncertainty. Employers are cautious when switching their financing structure for health benefits, especially in the ICHRA space, where there are complex compliance rules. Employees may feel a very specific way, maybe not positively, about switching from their health plan that they've had for years to the individual market. Some workers may be worried that the individual market is not meeting their coverage needs.

But on the other side, what is potentially causing this growth is large increases in group premiums. Additionally, with the introduction of improved administrator platforms or ICHRA vendors and greater familiarity among brokers and agents who may be connecting employers with these different options, we've seen ICHRAs grow and at least be more talked about. As these arrangements become easier to administer, it's a more realistic option for employers.

Do you see ICHRA growth potentially widening disparities in access to care for populations less likely to benefit when compared with traditional group plans?
ICHRAs tend to work best for these higher-income, healthier workers who value choice and are less dependent on marketplace subsidies. Workers with chronic conditions who are at lower incomes or have limited experience navigating the individual insurance market may be left worse off, particularly because many of the provider networks in the individual market are narrower than employer offerings. Without strong consumer protections and support, there would be a real risk that ICHRA could widen disparities in access and affordability, specifically among these different classes of workers that the IRS lets employers potentially partition off into ICHRAs vs staying on a fully insured program or self-insured health insurance program.

This is something, again, that remains to be seen as ICHRAs continue to grow and become a more well-known option for employers to seek out. I think the biggest potential area of discrimination would be among consumers who have these high-cost claims that employers strategically would move over into the individual market, just so they could offload that risk into the community risk pool, and no longer have that being calculated into their renewals every year for their employer-sponsored insurance.

References
1. Lo J, Levitt L, Ortaliza J, Cox C. ACA marketplace premium payments would more than double on average next year if enhanced premium tax credits expire. KFF. September 30, 2025. Accessed January 14, 2026. https://www.kff.org/affordable-care-act/aca-marketplace-premium-payments-would-more-than-double-on-average-next-year-if-enhanced-premium-tax-credits-expire/