Small businesses have historically struggled to offer affordable health insurance to their employees. High premiums, limited plan choices, and administrative burdens often leave many employers—especially those with fewer than 50 employees—unable to provide coverage at all.
The rise of Individual Coverage Health Reimbursement Arrangements (ICHRAs) presents a new opportunity for states to help small businesses close this gap. By promoting ICHRA adoption—whether through a state-based exchange (SBE) or the federally-facilitated marketplace (FFM)—states can support small group access to affordable, flexible health coverage.
What Is an ICHRA?
An ICHRA is an employer-funded, tax-advantaged benefit that reimburses employees for individual health insurance premiums and qualified medical expenses. Instead of purchasing a group plan, employers define a set contribution, and employees use those funds to buy individual coverage.
Learn more about how ICHRAs work from Healthcare.gov.
Why Small Businesses Struggle with Traditional Group Plans
For small businesses, offering traditional group health insurance comes with barriers like:
- High and unpredictable premiums
- Minimum participation requirements
- Limited plan selection, especially in rural areas
- Complex administration and compliance risks
According to KFF’s 2024 Employer Health Benefits Survey, only 53% of businesses with fewer than 50 employees offer health insurance — often leaving workers to seek coverage individually or go uninsured.
How ICHRAs Expand Small Business Coverage Options
Cost Predictability
ICHRAs give small businesses predictable, defined health benefits costs without the volatility of group premiums. Employers set the reimbursement amount based on budget, not market pricing.
Increased Choice for Employees
Employees shop for individual health plans that meet their needs—through the Marketplace or private carriers—bringing greater personalization than most group plans allow.
Lower Administrative Burden
ICHRAs shift the plan selection and enrollment process to employees while allowing businesses to avoid managing group policies, renewals, and compliance headaches.
The Role of States and Their Marketplaces
Whether a state runs its own State Based Exchange or uses the federal platform, it can still support ICHRA adoption. States can:
- Building tailored educational resources for small employers about ICHRA benefits
- Partnering with brokers and third-party administrators (TPAs) to assist with setup and administration
- Offering decision support tools that make it easy for employees to shop for plans with their ICHRA funds
- Optimizing plan offerings to ensure individual market plans meet small business employee needs
For an example of state-led innovation, Covered California already provides a small business marketplace that could integrate ICHRA strategies.
Policy Momentum: ICHRAs Gaining National Traction
The Department of Health and Human Services along with the Departments of Treasury and Labor continue to encourage ICHRA expansion, with updated regulations and resources aimed at increasing access. Organizations like the National Association of Benefits and Insurance Professionals (NABIP) also advocate for ICHRA as a scalable solution to small group health challenges.
Several states—such as Georgia, Texas, and Ohio—have proposed tax credits or other incentives to encourage small business ICHRA adoption, signaling growing momentum nationwide.
Why States Should Act Now
As small businesses continue to seek flexible, affordable benefit models, states that invest in ICHRA awareness and infrastructure can:
- Boost individual market enrollment by channeling small group dollars through ICHRA
- Strengthen risk pools by attracting younger and healthier enrollees through employer-sponsored access
- Fuel small business growth by reducing the administrative and cost barriers to offering health benefits
- Reduce uninsured rates by making it easier for employers to help fund coverage—even if they can’t afford a group plan
By creating tools, resources, and broker partnerships, states can position themselves as leaders in driving small business health coverage expansion.
Conclusion: ICHRAs + States = A Path to Expanded Small Business Coverage
ICHRAs represent a powerful shift in how small businesses can offer health benefits—giving employers more control and employees more choice. States, whether they run their own exchange or use the federal platform, have a pivotal role to play in enabling ICHRA adoption through education, policy support, and smart partnerships.
By acting now, states can expand small group coverage, improve marketplace stability, and empower small businesses to take care of their people in a more modern, sustainable way.
