Executive Overview
As healthcare costs continue to rise and employee expectations evolve, many large employers are reassessing their approach to health benefits. Traditional group plans can be considered rigid, costly, or even difficult to scale across diverse and distributed workforces. The market is seeing a shift toward innovation, with Individual Coverage Health Reimbursement Arrangements (ICHRAs) and alternative care delivery models such as Direct Primary Care (DPC) and group captives gaining traction as a way to offer a more sustainable and strategic approach to employee healthcare.
1. The Problem: Traditional Plans Are Being Tested Under Pressure
Large employers have long relied on group health plans to provide coverage, but this model has become increasingly strained. According to the Kaiser Family Foundation (2023), the average annual premium for employer-sponsored family coverage rose to $23,968—a 7% increase from the previous year. These rising costs put pressure on budgets without necessarily delivering better outcomes or employee satisfaction.
Further Challenges Include:
- Administrative burdens of ACA compliance for Applicable Large Employers (ALEs)
- Lack of care plan personalization to meet diverse workforce needs
- Difficulty dispersing care to geographically distributed teams
The structure of legacy group plans simply doesn’t support today’s employment realities. Employers face compliance headaches under the ACA, while employees struggle with narrow provider networks, high deductibles, and few plan choices. These limitations result in lower satisfaction and rising turnover, especially among younger and more mobile employees.
2. The Research: ICHRAs and DPCs Are Gaining Ground
To address these challenges, employers are increasingly turning to Individual Coverage Health Reimbursement Arrangements (ICHRAs). ICHRAs are a tax-advantaged and ACA-compliant alternative that enables businesses to offer defined contributions rather than defined benefits. Employees can then use those dollars to purchase their own individual health insurance, often with far more options than a single group plan can provide.
Additionally, complementary care models like Direct Primary Care (DPC) and group captive health insurance are gaining traction:
- DPC offers employees direct access to primary care providers for a fixed monthly fee, often improving access and satisfaction
- Captive insurance models allow groups of employers to pool risk, reducing volatility and offering long-term cost control
3. The Solution: Strategic Use of ICHRAs with Alternative Models
ICHRAs allow employers to reimburse employees, tax-free, for individual health insurance premiums. Employers maintain control over contribution amounts while employees gain the freedom to select coverage that fits their personal needs. Remodel Health found that employees in some ICHRA-enabled groups selected as many as nine different health insurance plans under the same ICHRA benefit. By contrast, 76% of employers offering health benefits provide only one plan option, according to KFF.
Key advantages of ICHRAs include:
- Budget predictability and affordability for employers: Analysis from Remodel Health found that groups that model a switch to ICHRA see an average projected savings of nearly 20% on health benefit costs, with many organizations realizing savings of over 30%, depending on workforce structure and legacy plan costs
- ACA compliance through properly structured affordability and coverage rules
- Class-based design flexibility to accommodate multiple workforce segments
- Greater alignment with remote or multi-site workforces. According to Remodel Health (2024), ALEs offering ICHRAs have employees in an average of 4.35 states
4. The Outcome: Cost Control, Engagement, and Sustainability
The HRA Council (2024) forecasts significant growth in ICHRA adoption, from 2.5 million covered individuals in 2024 to 15 million by 2032. As more employers explore these models, they are finding better alignment between financial goals and employee expectations.
Conclusion and Next Steps for Employers
Large employers have an opportunity to lead in modernizing healthcare benefits. While there are still many benefits to traditional group plans, ICHRAs, supported by innovative care models like DPC and group captives offer a way forward that balances strategic goals with the needs of today’s workforce. When evaluating this option for their organization, employers must consider not only the pros and cons of moving away from a traditional group plan, but also their long-term business goals, the demographic and socioeconomic needs of their unique workforce, and their organization’s overall benefits philosophy as a part of their talent attraction and retention approach. If aligned, a model like an ICHRA can provide flexibility, cost control, and improved employee satisfaction, creating a sustainable path for the future of benefits.
References
- HRA Council. (2024). HRA Council 2024 Benchmark Report. https://www.hracouncil.org
- Kaiser Family Foundation. (2023). 2023 Employer Health Benefits Survey. https://www.kff.org/health-costs/report/2023-employer-health-benefits-survey/
- McKinsey & Company. (2023). The Future of Healthcare: Personalized, Digital, and Value-Driven. https://www.mckinsey.com
- National Business Group on Health. (2024). Employer Health Care Cost Trends. https://www.businessgrouphealth.org Remodel Health. (2024). 2024 ICHRA Report. https://remodelhealth.com/ichra-report-2024/
Key Takeaways
In a landscape defined by complexity, the path forward is clear: adopt benefits that prioritize flexibility, affordability, and employee engagement. ICHRAs and Direct Primary Care aren’t just cost-saving tools—they’re the foundation of a more resilient and responsive health benefits strategy.
Reach out to your M3 Client Executive to learn how we can help you take control of your healthcare plan in a way that makes sense for you.
