Can ICHRAs Fill Small Businesses’ Health Coverage Gaps?

Small to mid-size employers are facing a crisis of health care coverage, according to a recent survey by the insurance company eHealth Inc. A large majority (89%) of these employers said they were worried they will not be able to offer their employees’ health benefits in three years, due to rising costs and administrative burdens. Almost all (93%) respondents wanted a new health benefits solution because they felt sponsoring a group health plan was no longer feasible.  

Most respondents (75%) expressed interest in offering individual coverage health reimbursement arrangements, where employers contribute a fixed amount of pre-tax dollars to employees, who in turn use those funds to purchase Affordable Care Act-compliant coverage in the individual market.  

The survey also found that 66% of employers who were currently not offering group health benefits said, if given the option, they would contribute toward the cost of employee-purchased health insurance premiums. 

While respondents showed strong interest in the concept of ICHRAs, there seemed to be a lack of awareness about the actual program, as 54% said they were unfamiliar with ICHRAs.  

A total of 503 owners and managers of small to mid-sized businesses, with 500 employees or less, were surveyed in July.  

Small Employers Drive Growth, Large Employers Remain Hesitant  

The adoption of ICHRAs as an alternative to traditional group health coverage has been far slower than initially projected. Analysis from the Employee Benefit Research Institute found that while ICHRAs are filling gaps in medical coverage—particularly among small businesses—the model has yet to deliver the sweeping changes some policymakers envisioned when the rules were introduced in 2020. 

According to EBRI, about 13,000 employers had adopted ICHRAs as of early 2025, with total enrollment ranging between 350,000 and 700,000 workers and their dependents. These numbers are well below the 11 million participants that the Trump administration in 2020 once predicted would be covered by 2025.  

EBRI found that ICHRAs are resonating most with small employers, many of whom had previously struggled with the administrative burden of running a group health plan. The report notes that 83% of firms adopting ICHRAs had not provided health benefits before. One reason larger employers have been hesitant to offer ICHRAs, according to EBRI, is the complexity of ACA affordability compliance. Premium levels vary widely across regions, making it difficult for employers to set uniform contributions that satisfy federal standards. 

Lastly, choice overload is a concern.  EBRI found that when faced with too many plan options, employees may struggle to make effective choices, undermining one of the intended advantages of ICHRAs. 

Niche Solution or Market Disruptor? 

While current adoption of ICHRAs remains modest, EBRI said economic pressures could accelerate their popularity.  If employers face a downturn or increasing costs in traditional group coverage, ICHRAs may be seen as a way to control expenses. 

ICHRAs also benefit from an evolving policy environment. In 2025, the U.S. House of Representatives passed legislation that would have expanded ICHRA flexibilities and created additional tax incentives. Though those provisions were later stripped in the Senate, analysts expect the debate over ICHRAs to continue. A future Congress could revisit the rules, potentially making them more appealing to a broader swath of employers. 

There are also parallels to the evolution of retirement benefits. EBRI said that just as the 401(k) gradually supplanted defined benefit plans, ICHRAs could eventually erode the dominance of employer-sponsored group health plans. But the transition would take years and depend heavily on political will and market stability. In the meantime, ICHRAs remain a tool primarily leveraged by smaller firms—providing flexibility, cost certainty and expanded employee choice, but stopping short of a full-scale transformation.