The ICHRA moment: Why Oscar is betting on the future of individual health coverage | hioscar Blog | Oscar
The ICHRA moment: Why Oscar is betting on the future of individual health coverage
With the emergence and adoption of ICHRA, the health insurance space is on the verge of another big transformation.
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Next month marks the 15-year anniversary of the Affordable Care Act, a transformational moment for the American healthcare system. Over the past decade, the legislation’s impact has been impossible to ignore. Today 24 million people are covered by ACA plans, which offer a range of benefits including essential health services, preventive care, and protections for pre-existing conditions.
The health insurance space is on the verge of another big transformation: the continued growth and adoption of Individual Coverage Health Reimbursement Arrangements (ICHRA). Launched in 2020, ICHRA allows employers to set a pre-tax defined contribution amount (opens in new tab) for their employees to use in the individual market. It is quickly becoming a powerful way for more employers to offer coverage, while giving employees greater control over their healthcare journeys.
The emergence of ICHRA comes at a pivotal moment for the American healthcare system. Just as the retirement industry moved from pension plans to the 401(k), ICHRA is part of the health insurance industry’s shift from defined benefits to defined contributions.
At Oscar, we’re excited by ICHRA because we believe it will be instrumental to creating a health insurance marketplace that is oriented around the needs of individuals and families, not CFOs and HR departments. Here are three reasons why we’re on the verge of the ICHRA moment.
As of writing, there are ~24 million lives in the individual market, making it one of the fastest-growing and most stable risk pools in the country. For the broader healthcare system, risk management matters, since larger risk pools spread out the financial impact of high-cost health events.
The market is maturing in other ways as well. Over the past decade the combination of increased consumer protections and cost-sharing structures have made individual market plans a dependable option for people who once had limited coverage choices. What makes ICHRA so exciting is that it allows employers to tap into this established pool, giving them and their employees access to a broader range of plan options than what’s typically available via group plans.
2. Employers are hungry for alternatives to today’s group plans
For many employers—especially smaller ones— the cost of traditional group health plans has posed a growing challenge. Recent data from AON illustrates this trend (opens in new tab): about one in nine small employers expect ~20% increases in their healthcare costs. These mounting costs often force companies to make tough choices: some shift more of the cost burden to employees, while others simply decide to cut back on coverage.
ICHRA offers a path forward by giving employers a way to budget more effectively. With ICHRA, they can set a defined contribution amount and reimburse employees for ACA-compliant coverage without the cost variability that traditional plans often bring. ICHRA’s structure makes healthcare spending more predictable and manageable, which is crucial for businesses who are counting every dollar.
3. The workforce is evolving
For better or for worse, the era of employees staying at a single company for decades is largely over. These days, the average worker can expect to change jobs a dozen times over the course of their career. And with every new job comes not just risk of interruptions in health coverage, but also the hassle of finding new doctors or learning the ins-and-outs of a new plan.
Meanwhile, thanks to the rise of remote and hybrid work, the need for centralized offices has diminished for many employers. Companies that operate across multiple states are grappling with the reality of administering group health plans under different state-by-state insurance regulations, which can be both costly and time-consuming.
These trends have reinforced the need for insurance plans that are both highly individual and highly portable. With ICHRA, when employees leave their employers for new opportunities, their insurance comes with them, ensuring continuity of care. That means no new PCP, no new network, and no learning the ins-and-outs of another insurance company every time you change your job
4. Consumerization transforms industries (for the better)
Here’s the reality: today’s insurance system solves for the needs of employers, not those of employees. HR teams want to select healthcare plans that focus on the average employee need, not the individual one. The result is bloated, often expensive group plans that do not reflect the true needs of individual employees.
ICHRA turns this dynamic on its head, empowering employees to shop on the individual market where they have multiple choices and the freedom to choose plans that fit their unique needs. Employee A may choose a plan because it keeps their doctor in-network, while Employee B may choose a plan that’s tailored to a chronic condition. For example, imagine an employee with Type 1 diabetes who is paying $100 each month for her insulin prescription. Through her employer she has access to just three plans; but through the ACA marketplace she has access to over a hundred individual market plans, including diabetes-focused options that lower out-of-pocket costs to just $130 per year.
This reorientation around the needs of individuals is incredibly powerful. We know from experience that, when consumers are in control, companies are forced to compete, either on cost, experience – or both. Health insurance is overdue for that kind of transformation.
Embracing the ICHRA moment
ICHRA represents a significant, exciting shift in the delivery of employer-sponsored healthcare. By giving employees more choice, enabling true portability, and plugging them into a mature individual insurance market, it addresses many of the shortcomings of traditional group plans.
The shifts noted above all lead to the same conclusion: the future of employer-sponsored coverage is rapidly evolving, and ICHRA is poised to become a pivotal part of that landscape. Oscar is excited to be part of that change.
