The landscape of employer-provided health benefits in the United States is undergoing a significant transformation, driven by the accelerating adoption of formal arrangements that empower employees to purchase their own health coverage. A recent report from the HRA Council reveals that as of January of this year, an estimated 20,000 U.S. employers were utilizing Individual Coverage Health Reimbursement Arrangements (ICHRAs) or Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) to provide cash allowances for health insurance. This figure marks a substantial increase from approximately 13,000 employers reported in January 2025, demonstrating a rapid expansion of these flexible benefit solutions.
These arrangements collectively provided coverage for approximately 500,000 employees and their dependents. The data, compiled from a survey of 17 HRA Council member organizations, underscores a growing trend towards a defined contribution model in employer health benefits. The HRA Council, while acknowledging the inherent challenges in precisely measuring the market, expressed confidence in their estimates, stating that the survey participants collectively serve about 75% of ICHRA and QSEHRA plan sponsors and participants. They emphasized a conservative approach to their calculations, suggesting the actual numbers for cash-for-coverage plans could be even higher.
Understanding the Mechanics: ICHRAs and QSEHRAs Explained
To fully grasp the significance of this growth, it’s essential to understand what ICHRAs and QSEHRAs are and how they differ from traditional employer-sponsored group health plans. Both are types of Health Reimbursement Arrangements (HRAs), which are employer-funded accounts used to reimburse employees for qualified medical expenses, including health insurance premiums.
Individual Coverage Health Reimbursement Arrangements (ICHRAs):
Introduced by the Departments of the Treasury, Labor, and Health and Human Services in 2019, with an effective date of January 1, 2020, ICHRAs represent a significant expansion of employer flexibility. Under an ICHRA, employers offer tax-free reimbursements for individual health insurance premiums and other qualified medical expenses. The defining characteristic of an ICHRA is that it allows employers of any size to offer a defined contribution to employees, who then use that money to purchase individual health insurance coverage, typically through the Affordable Care Act (ACA) marketplace or directly from an insurer. This arrangement offers immense flexibility, allowing employees to choose plans that best fit their individual or family needs, rather than being limited to a single group plan. For an employee to be eligible for an ICHRA, they must be enrolled in individual health insurance coverage, which cannot be a short-term, limited-duration insurance plan. Furthermore, employers can offer different ICHRA allowances to different classes of employees (e.g., full-time vs. part-time, employees in different geographic areas), provided certain rules are met to prevent discrimination.
Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs):
QSEHRAs predate ICHRAs, having been established by the 21st Century Cures Act in 2016 and effective January 1, 2017. These arrangements are specifically designed for small employers, defined as those with fewer than 50 full-time equivalent employees, who do not offer a traditional group health plan. Like ICHRAs, QSEHRAs allow small businesses to reimburse employees for individual health insurance premiums and other medical expenses on a tax-free basis. However, QSEHRAs come with statutory annual contribution limits, which are adjusted for inflation each year. While providing similar flexibility for employees to choose their own plans, QSEHRAs are more restricted in terms of employer size and contribution caps compared to ICHRAs.
Both ICHRA and QSEHRA plans operate on a defined contribution model, shifting the financial risk and administrative burden of managing a complex group health plan away from the employer. Instead of negotiating with insurers and managing plan administration, employers simply set a monthly allowance, and employees manage their own coverage selection and payment, submitting receipts for reimbursement. This model provides cost predictability for employers and greater choice for employees.
The Trajectory of Growth: A Rapid Ascent
The HRA Council’s findings illustrate a robust growth trajectory. The reported increase from 13,000 employers in January 2025 to 20,000 employers in January of the current year represents a remarkable 53% surge in just one year. This acceleration suggests that the initial cautious adoption of these arrangements has given way to broader market acceptance and implementation.
The breakdown of plan types further illuminates the landscape: roughly two-thirds of the sponsors included in the survey data offered ICHRA plans, while one-third offered QSEHRA plans. This distribution is logical, given that ICHRAs cater to employers of all sizes and offer greater flexibility in allowance design, whereas QSEHRAs are limited to smaller businesses and have stricter contribution caps. The higher prevalence of ICHRAs points to their broader applicability and appeal across the employer spectrum.
The HRA Council’s confidence in their numbers, despite the acknowledged difficulty in tracking, stems from their survey methodology. The 17 participating member organizations are believed to represent a significant majority (about 75%) of the market for ICHRA and QSEHRA plan sponsors and participants. This extensive reach allows for a comprehensive snapshot of the market, even as the council adopts a conservative stance in its final estimates, implying that the true scale of adoption could be even greater.
Financial Dynamics: Allowances, Premiums, and Employee Contributions
A critical aspect of these arrangements is the financial interplay between employer allowances and employee premiums. The HRA Council’s survey provided valuable insights into these dynamics. The median employer allowance per covered life was reported at $459 per month. In contrast, the median premium that an eligible employee paid for their individual or family health coverage was $567 per covered life. This difference highlights that, for many employees, the employer allowance does not fully cover the cost of their chosen health plan.
Consequently, the typical employee paid an average of $105 per month per covered life out of pocket to cover the difference between the employer’s allowance and the total premium cost. While this gap necessitates a personal contribution from employees, the arrangement still provides substantial financial relief compared to bearing the full cost of individual insurance. Notably, the survey found that for 19% of participating employees, the employer allowance fully covered the cost of their premiums, indicating that for a significant minority, these plans offered complete premium reimbursement.
This financial model underscores a fundamental shift: while employers provide a substantial contribution, employees take on more direct responsibility for managing their health insurance choices and potential out-of-pocket costs. This dynamic fosters greater consumerism in healthcare, encouraging employees to be more discerning about their plan selections and understand the value proposition of different coverage options available in the individual market.
A Favorable Open Enrollment for 2026 Amidst Market Dynamics
Despite the inherent uncertainties and evolving nature of the U.S. health insurance market, the HRA Council’s survey results indicated a positive open enrollment period for 2026 for its members. This positive outlook suggests that the mechanisms supporting ICHRA and QSEHRA adoption are maturing and proving resilient.
The council observed a "rapid expansion of the ecosystem in 2026," characterized by the launch of new technology platforms, and an increasing number of brokerages and consultancies establishing specialized ICHRA-focused teams and centers of knowledge and excellence. This growth in supporting infrastructure is crucial for facilitating broader adoption, as employers often rely on expert guidance and robust technological solutions to navigate the complexities of these benefit structures. The flourishing ecosystem points to a sustainable and growing market for these defined contribution health benefits.
A Brief History and Regulatory Landscape
The journey towards ICHRAs and QSEHRAs is rooted in a desire for greater flexibility in employer-sponsored health benefits, especially in the context of the Affordable Care Act (ACA). Prior to the ACA, some employers attempted to offer employees cash to buy individual policies, but this practice was largely curtailed by ACA market reforms that prohibited employers from directly reimbursing employees for individual market premiums if the employer was subject to the "pay or play" mandate. This created a dilemma for employers seeking alternatives to traditional group plans.
The 21st Century Cures Act of 2016 provided the first significant legislative relief by establishing QSEHRAs, effective January 1, 2017. This allowed small employers (those not subject to the ACA employer mandate) to offer tax-free reimbursements for individual health insurance. This was a crucial first step, but its limited scope meant a larger solution was still needed.
The major breakthrough came with the final rules for ICHRAs, issued in June 2019 by the Departments of the Treasury, Labor, and Health and Human Services, becoming effective January 1, 2020. These rules explicitly allowed employers of any size to offer ICHRAs, providing a much broader avenue for employers to move to a defined contribution model while remaining compliant with ACA regulations. The key was the integration with the individual market: employees offered an ICHRA generally lose eligibility for premium tax credits if the ICHRA offer is deemed "affordable" by IRS standards. This careful regulatory design ensured ICHRAs complemented, rather than undermined, the ACA marketplace.
Since their introduction, various regulatory bodies, including the IRS, Department of Labor (DOL), and Department of Health and Human Services (HHS), have issued guidance to clarify the implementation, compliance requirements, and tax implications of these arrangements, ensuring a stable and well-defined operating environment.
Challenges in Measurement and Divergent Estimates
While the HRA Council presents compelling data, it also acknowledges the inherent difficulty in precisely measuring the adoption of ICHRA and QSEHRA plans. This challenge is evident when comparing their latest figures with other estimates circulating in the benefits industry.
For instance, Brad O’Neill, co-owner of the ICHRA Shop Insurance Agency, provided a significantly higher estimate in January 2025, suggesting that employers could be offering ICHRAs or other cash-for-coverage plans to as many as 5 million workers and dependents. This figure, while encompassing a broader definition of "cash-for-coverage," highlights the perceived potential of these models.
Similarly, Paul Fronstin, an analyst at the Employee Benefit Research Institute (EBRI), offered a more conservative range in August 2025, estimating that 300,000 to 700,000 workers and dependents could be using formal cash-for-coverage arrangements. This range aligns more closely with the HRA Council’s latest figures.
Further complexity arises from EBRI’s own survey results published in July (year not specified, but likely 2025), which implied that 3.5% of employers with health plans, or as many as 100,000 employers, might be offering cash-for-coverage plans. This estimate for the number of employers is substantially higher than the HRA Council’s 20,000.
These divergent estimates underscore the challenges of definition and methodology. The HRA Council’s survey focuses specifically on ICHRA and QSEHRA plans, leveraging data from key administrators in the space. Other estimates might include a wider array of employer-provided cash allowances for health, or utilize different survey populations and projection methods. Regardless of the exact figures, the consistent message across all analyses is one of significant and growing interest in, and adoption of, these flexible health benefit solutions.
Broader Implications for the Healthcare Ecosystem
The sustained growth of ICHRAs and QSEHRAs carries profound implications for various stakeholders across the U.S. healthcare ecosystem.
For Employers:
The shift to HRAs offers predictable costs, enabling employers to budget more effectively for health benefits. It reduces the administrative burden associated with managing complex group health plans, including renewals, compliance, and employee enrollment. Furthermore, by offering greater choice and potentially more tailored plans, employers can enhance their recruitment and retention efforts, particularly for a diverse workforce with varying healthcare needs. However, employers must still navigate compliance complexities, ensuring their ICHRA/QSEHRA offerings meet regulatory requirements and are communicated clearly to employees.
For Employees:
Employees gain unprecedented choice and control over their health coverage. They can select individual plans that align with their specific health needs, preferred doctors, and financial situation, rather than being confined to a "one-size-fits-all" group plan. This also offers portability, as their individual plan can often move with them if they change jobs. The downside, as evidenced by the median out-of-pocket costs, is that employees often bear some responsibility for the premium difference, requiring them to be more engaged consumers in the health insurance marketplace.
For the ACA Marketplace:
The growth of ICHRAs is a net positive for the ACA marketplace. By directing more individuals from employer-sponsored arrangements to the individual market, ICHRAs increase enrollment in these plans. Crucially, many of these individuals, coming from employer coverage, are likely to be younger and healthier than the existing marketplace population, thereby diversifying and potentially improving the overall risk pool. A healthier risk pool can lead to greater market stability and potentially lower premium increases over time. This synergy strengthens the ACA’s foundational goal of expanding access to affordable health insurance.
For Brokers, Insurers, and Technology Platforms:
The rise of ICHRAs and QSEHRAs has created a new and dynamic market for benefits professionals. Brokers and consultants are increasingly specializing in these arrangements, guiding employers through implementation and helping employees navigate the individual marketplace. Insurers are responding by developing individual market products designed to appeal to this new segment of consumers. Technology platforms are also critical, providing the administrative backbone for managing allowances, reimbursements, and compliance, making the process seamless for both employers and employees.
The Future of Employer-Sponsored Health Benefits
The strong growth in ICHRAs and QSEHRAs signals a fundamental shift in the philosophy of employer-sponsored health benefits. The traditional defined benefit model, where employers dictate the health plan, is slowly but surely giving way to a defined contribution approach, empowering employees with greater autonomy. This trend is likely to continue, driven by employers seeking cost predictability and administrative relief, and employees demanding more personalized and flexible benefits.
As these arrangements become more mainstream, further innovation in health technology, benefits administration, and individual insurance product design is anticipated. Policymakers will also continue to monitor the impact of ICHRAs and QSEHRAs on the broader healthcare system, potentially making regulatory adjustments to ensure equitable access and affordability. The HRA Council’s latest report is not just a snapshot of current trends; it’s a strong indicator of the future direction of employer-provided health coverage in the United States.
