The Individual Coverage Health Reimbursement Arrangement (ICHRA) has grown tremendously since its introduction in 2020 due to rising healthcare costs. Initially embraced by small businesses and early adopters, ICHRA has now gained traction among larger employers as well.

Hundreds of thousands of U.S. workers across all 50 states are now offered ICHRA or QSEHRA, with most employers adopting these plans for the first time. This shift has helped bring more individuals into the healthcare system, allowing businesses to offer flexible, tailored benefits.

Recent data from the 2024 HRA Council Data Report confirms this rise in popularity. ICHRA adoption rates have grown 29% overall with a staggering 84% growth among Applicable Large Employers (ALEs). As more organizations recognize the flexibility and cost-saving benefits of ICHRA, we’re seeing these top three trends that are shaping how employers design their benefits offerings.

1. Expanding Beyond Premiums: Additional Buckets for Out-of-Pocket Expenses

While early ICHRAs were initially designed to allow employers to contribute toward employee premiums, we are now seeing a growing trend among early adopters and larger employers to provide additional funds for out-of-pocket expenses. This development adds a new layer of flexibility for employees, enabling them to allocate employer-defined contributions toward expenses like copays, prescriptions, and other qualified medical costs while keeping the ICHRA’s premium allocation separate.

This dual contribution approach is becoming popular among employers, allowing them to offer a more comprehensive benefits package. For early adopters, this means they’re expanding their benefits offerings to attract and retain talent. Meanwhile, larger employers use this strategy to maintain a robust benefits portfolio that goes beyond the basics.

2. The Continued Role of the Premium Only Plan (POP)

The Premium Only Plan (POP) has been a fundamental part of ICHRA setups since 2020. Though not a new trend, its continued use demonstrates the importance of tax savings for both employers and employees. POP allows employees to pay for their health insurance premiums on a pre-tax basis, reducing taxable income and payroll taxes.

3. Cafeteria Plans: Expanding Employee Choice

One of the most significant trends we’ve observed is the integration of Cafeteria Plans with ICHRA. These plans allow employers to give employees the freedom to choose how to allocate employer contributions. In addition to traditional health benefits, employers are offering more flexible options like Flexible Spending Accounts (FSA), Health Savings Accounts (HSAs), and Dependent Care FSA (DCFSA):

  • FSAs allow employees to set aside pre-tax dollars for qualified healthcare or dependent care expenses, such as medical copays or childcare.
  • HSAs offer tax advantages for individuals enrolled in high-deductible health plans, enabling them to save for future medical expenses while earning interest.
  • DCFSAs pre-tax benefit account that allows employees to set aside money for dependent care expenses, including care for children under age 13, a disabled spouse, elderly parents, or other qualified dependents who cannot care for themselves.

These accounts can be bundled within a broader Cafeteria Plan or offered individually if an employer wants to provide a partial menu of options. This flexibility allows businesses of all sizes to tailor their benefits offerings to meet specific workforce needs.

In addition to health insurance, Cafeteria Plans can offer a range of ancillary products that further expand the menu of options available to employees. These include:

  • Dental, Vision, and Life Insurance: These are common additions to primary health insurance, allowing employees to cover routine care like dental cleanings and eye exams or secure life insurance (up to $50,000) for themselves and their families. These options can be paid for with tax-free dollars, allowing employees to maximize the value of their benefits.
  • Disability Insurance: Short-term and long-term disability insurance can be offered within the Cafeteria Plan, allowing employees to protect their income if they cannot work due to injury or illness. This coverage can be funded by employer contributions or paid for by employees using pre-tax dollars. Other options include Accidental Death & Dismemberment Insurance, Hearing Insurance, and Critical Illness & Accident Insurance, which can be added to further protect employees and their families.

Including these ancillary products within the Cafeteria Plan significantly expands employees’ choices when allocating employer contributions. They can use the funds to cover premiums for these additional benefits or buy them outright with pre-tax earnings, making the most of tax savings and offering greater flexibility to meet their personal and family needs.

Looking Ahead

The evolution of ICHRA signals a shift toward more flexible, employee-centric benefit models. As more large and small employers embrace this approach, we expect to see further innovations in how healthcare and other benefits are delivered. The trend of offering employees more control and expanding employer contributions for out-of-pocket expenses and ancillary benefits reflects a forward-thinking approach that caters to diverse workforces. Employers who adopt these trends save on costs and invest in a more satisfied, empowered workforce.

How Flyte HCM Can Help

At Flyte HCM, we specialize in creating flexible, compliant benefit solutions tailored to your company’s unique needs. Whether you’re looking to integrate ICHRA with a Cafeteria Plan or offer standalone FSAs, HSAs, LSAs, or ancillary benefits, we have the expertise and technology to make it easy. Our team is here to guide you through every step, ensuring your employees get the most value from their benefits. Contact us today to learn how we can help you expand your benefits offerings and stay ahead of the curve.