Can ICHRAs Bridge the Healthcare Political Divide?

Republicans in Congress and the White House have regularly attempted, and just as frequently failed, to repeal the 2010 Patient Protection and Affordable Care Act (ACA).

While overturning the Obama-era law was a central theme of Donald Trump’s 2016 presidential campaign, once elected his administration pivoted to regulation over elimination.

Some of its moves were directly intended to weaken the program, such as reining in marketing and educational outreach, reducing funding for ACA navigators, and ending cost-sharing reduction payments. However, the Trump administration prioritized reforms to the individual and group markets, largely through new flexibilities in plan design and consumer-driven options for coverage such as association health plans (AHPs), short-term, limited duration insurance (STLDI) plans, and health reimbursement arrangements (HRAs).

Expect a similar posture during Trump’s second term as president. Indeed, in his 2024 campaign, Trump largely abandoned ACA repeal rhetoric, positioning himself instead as the law’s champion, with running mate JD Vance claiming that the president “saved” the ACA as it was collapsing under the weight of regulations and cost.

One area both parties appear to support amid the heated political battle over the ACA is individual coverage health reimbursement arrangements (ICHRAs), a Trump-era reform that grew in popularity during the Biden administration and that appears sure to stay on that trajectory going forward.

In this piece, we look back at the steps President Trump took to undo the ACA during his first term, and the motivation behind prioritizing other coverage options, to inform how his administration might approach healthcare policy in 2025 and beyond. Specifically, we will focus on the policies that may impact the group benefits market.

Cost-Sharing Reduction Subsidies

In 2017, the Trump administration dissolved the ACA’s cost-sharing reduction subsidies (CSRs), in which insurance companies agreed to charge less than the cost of coverage in exchange for the federal government making them whole. The administration acted while the Republican-led House of Representatives simultaneously sued the U.S. Department of Health and Human Services (HHS), challenging the agency’s authority to reimburse insurers without explicit congressional appropriation. A judge in the U.S. District Court for the District of Columbia ruled in favor of the plaintiffs.

At the time of this decision, more than half of the 12 million people who bought individual insurance through the ACA marketplace qualified for CSR subsidies, according to the Kaiser Family Foundation (KFF). In response, most states directed insurance carriers to adjust their rates to compensate for losing CSR payments, which cost the federal government about $7 billion in 2017 during the last year the payments were operational.

The Congressional Budget Office estimated that ACA benchmark Silver Plan premiums increased by 10% in 2018 to offset those adjustments. Premiums have fluctuated since 2018 but are now relatively stable, due in part to enhanced subsidies put into place by the American Rescue Plan Act of 2021 and the Inflation Reduction Act the following year, encouraging people to enroll for individual market coverage. From 2020 to 2024, the number of enrollees receiving subsidies increased from 5.6 million to 10.6 million, or 91% of enrollees, according to KFF.

The individual markets also eventually stabilized when measured by choice and insurer participation. For example, 78% of enrollees as of 2021 had a choice of three or more insurers, up from 67% in 2020 and 58% in 2019, according to KFF. Only 10% of counties had a single insurer participating in the individual market, down from 52% of counties in 2018.

Association Health Plans

The Trump administration also significantly expanded the ability to operate an association health plan.

AHPs have been around for years and have been subject to various cycles of restriction and expansion. At their core, AHPs provide a vehicle for individuals and small employer groups to pool resources and purchase health coverage on more favorable terms than they could secure on their own. They are particularly popular among trade associations and other membership organizations. The ACA increased oversight of AHPs, making them subject to the law’s new individual and small group regulatory regime.

For example, an AHP covering small groups would be required to offer essential health benefits. Congress, though, left a small opening for AHPs to instead be treated as large group plans subject to the Employee Retirement Income Security Act of 1974 (ERISA), if certain conditions were met.

In enacting Trump’s 2017 executive order to “promote healthcare choice and competition,” the Department of Labor (DOL) issued a 2018 final rule expanding the conditions under which AHPs could be treated as large groups. The rule created a new standard for AHPs to qualify as a single large employer and redefined the term “employer” to allow sole proprietors to be classified as a group for purposes of joining an association health plan. Ultimately, however, an unfavorable federal court decision prevented full implementation of the Trump administration’s AHP policy. In April 2024, the Biden DOL officially withdrew the Trump AHP policy and reinstated the ACA’s more restrictive approach.

The new Trump administration will likely seek to reinstate AHP flexibilities on a more permanent basis. Legislation already circulating the House would overturn the Biden DOL’s final rule. To the extent healthcare is addressed this year, we may see renewed attempts in a Republican-controlled Congress to adopt legislation codifying the 2018 Final Rule.

Short-Term, Limited-Duration Health Plans

Short-term, limited-duration insurance plans are designed to fill coverage gaps for individuals transitioning between insurance options and are notably exempt from most of the ACA market rules, such as the pre-existing condition protections and essential benefits requirements. One of the prevailing policy questions surrounding these plans is the definitions of “short” and “limited.” The Trump administration issued a tri-agency final rule that expanded the STLDI contract term from three months to a maximum duration of 36 months, including extensions. The three agencies (HHS, Labor, and Treasury) noted that the additional time would result in increased coverage options for Americans and promote a more competitive marketplace.

Unlike the AHP final rule, the Trump administration’s expansion of STLDI plans was upheld in federal court. Nonetheless, under Biden, the agencies issued a new final rule in March 2024 that reduced the STLDI coverage period to four months, including renewals and extensions, citing financial and health risks to consumers who may choose these policies as a substitute for comprehensive coverage.

Expanded STLDI plan contract limits are likely to return in the second Trump term. As with the AHP approach, Republican lawmakers can be expected to try to take advantage of their majority and codify these changes in law. For both AHPs and STLDIs, the Supreme Court’s 2024 decision in Loper Bright Enterprises v. Raimondo may encourage congressional action to negate potential interference by the courts in these policies. The ruling overturned the so-called Chevron doctrine, which gave federal agencies broad latitude to interpret and apply statutes when congressional intent was ambiguous. The Supreme Court made clear that this authority by law lies with the judiciary. This creates opportunities for Congress to challenge regulations that lawmakers believe may be inconsistent with congressional intent—in this case, by enacting rules pertaining to these plans that skirt ERISA and the ACA.

Individual Coverage Health Reimbursement Arrangements

Arguably the most popular Trump-era market reform was the creation of a new avenue for employers to contribute to their employees’ health coverage: individual coverage health reimbursement arrangements. ICHRAs have been recognized for decades in various iterations but with a direct purpose: reimbursing workers for qualifying medical costs and, at times, insurance premiums through an employer-funded plan.

Under the 21st Century Cures Act, the Obama administration established an option intended for employers with fewer than 50 employees. Qualified small employer health reimbursement arrangements (QSEHRAs) enable employers to reimburse coverage (subject to annual limits) on a pretax basis for employees enrolled in an individual health plan.

The Trump administration built on this concept in its 2019 final rule expanding the HRA option to all employers. Through ICHRAs, employers of any size can fund a health reimbursement arrangement with even greater flexibility than QSEHRAs. Unlike QSEHRAs, ICHRAs have no contribution limits and employers can create classes of employees with different benefit levels.

ICHRAs by the Numbers

Ultimately, the arrangements offer an alternative for employers that find group health insurance plans too expensive and/or want to minimize financial risk while providing employees with tax-preferred healthcare.

Employer interest in these arrangements is increasing. According to the HRA Council, which surveyed members representing 11,000 employers that together had over 200,000 workers, ICHRA use overall grew 29% between 2023 and 2024, including 84% among large employers (those with more than 50 employees). Despite that growth, small employers (under 50 employees) still represent the bulk of ICHRA and QSEHRA adoption. Notably, the vast majority of employers using ICHRAs or QSEHRAs are offering benefits for the first time. Eighty-three percent couldn’t offer health insurance until they adopted this type of plan. The other 17% of new adopters switched from group coverage.

Since the inception of ICHRAs, adoption has grown over 350% even amid the tight labor market and COVID-19 pandemic. The Department of Labor projects that use of ICHRAs will grow an additional 255% by 2025. The Trump administration may take further action by codifying ICHRAs into law or explore allowing non-ACA compliant plans to offer them.

State Legislative Action

Some states have sought to further promote these new instruments, with Indiana recently passing legislation to encourage employers to move from the small group benefits market to the individual insurance market by adopting an ICHRA model.

The law offers up to $400 in tax credits per employee to small businesses that make the switch.

Other states such as Texas are considering similar ICHRA legislation. Virginia, Georgia, and Colorado are supporting educational efforts to teach small employers how ICHRAs work.

What Does It All Mean?

The growth of ICHRAs indicates that employers embrace these instruments as a way to offer benefits to their employees for the first time. The format enables businesses to forgo traditional group benefits coverage for at least some employees while still providing a benefit option. In fact, ICHRAs and QSEHRAs may be their only viable option to do so.

The state or states where employers do business and the health of those individual markets may also be driving ICHRA adoption in specific geographic areas. For example: individual plan premiums in Georgia range from 12% to 57% less expensive than small group plans, according to Ideon, which maps state-by-state cost differences between small group and individual plans. In Indiana, individual plan premiums range from 14% to 40% less than small group plans.

How this ultimately impacts employees is still up in the air. A large component of U.S. workers now have access to previously unavailable benefit options. That does not mean they are satisfied with those options.

In an October 2024 survey, Equitable found that 53% of employee respondents regretted their choices during open enrollment. Top reasons included failing to select benefits that match lifestyle changes, forgetting to make selections by the open enrollment deadline, and not understanding the benefits selected.

While not an issue exclusive to ICHRAs, it’s notable that some employees already don’t always understand their coverage choices or how to select benefits. It’s worth considering whether further removing the employer from that equation and asking employees to navigate the individual insurance market would result in an appropriate plan selection.

Meanwhile, ICHRAs could provide an opportunity for brokers and consultants, many of whom are already guiding employees in selecting these types of arrangements. Beyond implementing communication and engagement strategies to ensure employees understand how to navigate the individual markets, there are opportunities to assist with the administration of the plans, to advise on the design of the financial benefit (e.g., using allowances to pay premiums and out-of-pocket expenses), and to provide compliance support.

Perhaps the most interesting development in all this is that among all the consumer-driven reforms made by the Trump administration, ICHRAs are the only policy the Biden administration has not touched. They seem to intersect at a unique point politically where Democrats favor the coverage expansion and participation in the individual market, while Republicans value the increased choice they provide users. States appear to favor them due to their positive impact in bolstering the individual market. All sides have fundamentally different views about how to lower healthcare costs and improve the system, but this sliver of common ground suggests that ICHRAs may be a mainstay of the health plan ecosystem going forward.

Given this likelihood, the future of the debate around the ACA may shift to ensuring the stability of the individual market. Rather than fighting over the insurance instrument itself, fissures may emerge over the level of federal support (i.e., premium tax credits or CSRs) and other interventions needed to maximize the health of the individual market and, by extension, the long-term viability of ICHRAs.

What will this mean for the group markets? Will we see a sizable increase in employers switching away from traditional coverage for these more flexible options? Will the Trump administration further expand flexibilities around ICHRAs? What will the courts allow? We will have to wait and see.