The health reimbursement arrangement for personal coverage (commonly known as Ichras) has entered the spirit of the times. Ichras allows employers to provide employees with a fixed amount of pre-tax funds to purchase personal health insurance and pay for health expenses. Recent articles have summoned a VC interest in the field, with some healthcare participants even comparing fish to bitcoin at the level of buzz. As snacks provided by U.S. employees continue to grow, Buzz earns good income. However, headwinds including competition, individual coverage market uncertainty and complexity may hinder Ichra's opportunities.
ICHRA Overview
Prior to Ichras, the Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) established in the Obama administration allowed employers with less than 50 full-time employees to provide pre-tax funds for health care expenses to employees. The first Trump administration provided the public with the creation of ICHRA in 2020. ICHRA is a definition of donation or fixed payment to employees, limiting the increase in medical expenses for employers. Employers face rising costs as the Kaiser Family Foundation notes that the average premium for single and family insurance has increased by 22% since 2018.
It is estimated that approximately 500,000 employees participated in the ICHRA by the end of 2024. From 2023 to 2024, employers adopted nearly 30% of ICHRA, with the largest growth rate being employers with more than 50 full-time employees. Overall, the number of U.S. employers offering ICHRA/QSEHRA has almost tripled since 2020. The Oscar Health Project believes that the total size of the SMB segment is 75 million, meaning that today only provides 0.66% of the SMB population for ICHRA. Therefore, ICHRA has the potential to expand to large populations.
Interestingly, the growth of ICHRA is different from the growth of another identified employer contribution: 401(k). By the end of 1982, nearly half of U.S. employers offered 401(k). 401(k) Expand from large employers to small employers. In contrast, ICHRA is a small business growth story trying to drive the market. Most employers participating in ICHRA are small employers with fewer than 50 employees. If ICHRA adoption will continue to expand to employers with more than 50 employees, but between 2023 and 2024, adoption of these employers does increase by 84%, which is a public issue.
ICHRA Market Participants
The growth of the ICHRA market is driven and capitalized by ICHRA administrators. These companies like orders, thatch, etc. Support employers to design ICHRA programs, recruit employees, and ongoing management of ICHRA. ICHRA administrators earn income through platform fees and insurance company commissions. Administrator platform fees are charged to employers on a per-employee (PEPM) basis, usually within the PEPM range of $20 to $40. Additionally, some managers have internal insurance agencies that can generate commissions from the insurer when Ichra employees choose insurance through their platform.
ICHRA Administrator Establishment Year
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In addition to ICHRA administrators, healthcare fintech companies and payers also enter the ICHRA space. Fintech companies like Echo and Lynx have built financial infrastructure for ICHRA administrators to deliver premium and medical expense payments on behalf of employees. Payers like Ambetter Health (Centene) and Oscar have both seen Ichra as a driver of growth recently. Ambetter Health hired the president to oversee its ICHRA operations, and Ambetter Health established a channel partnership with Ichra administrators (here, here). Oscar called on their attention to ICHRA in a recent investor speech, which took part in the ICHRA administrator fundraising campaign directly (see StretchDollar’s seed fundraising).
Ichra's Challenge
Ichras depends on the stability of the health insurance market in individual coverage. Currently, the individual coverage market is stable, but the subsidy for ACA premiums is expected to expire at the end of 2025. If the subsidy expires, causing the individual who receives them to leave the ACA market, then it is possible to increase the ACA program, which will increase the ACA program, making the ICHRA (the Gateway for ACA program for ACA program) attractive.
In addition to the ACA market dynamics, the ICHRA administrator market has been competitive with many new entrants in recent years. Administrators can distinguish between their listing strategies, the service level and financial technology capabilities they provide. However, ICHRA administrators perform similar functions for similar companies. Every administrator is trying to capture as many employer clients as possible on land that creates fierce competition among players.
In addition, ICHRA administrators face competition from PEO and brokers. Like JustWorks, PEO deals with welfare management for small businesses, and PEOs can often directly connect small businesses to group plans. Brokers compete with ICHRA administrators who sell small business health insurance. Brokers may face lower commissions that allow clients to participate in ICHRA rather than collectively planning to hinder ICHRA growth through broker channels. Interestingly, brokers can only reach ICHRA if the account is to be “scrolled” or leave it to the client. Despite these challenges, some ICHRA administrators work closely with PEOs and brokers to act as a sales channel for employers who may be interested in pursuing Ichra.
Where Ichra goes
The rising group plan premiums, a stable individual market, and a desire for personal choices suggest that Ichras will continue to be an attractive option for employers. However, participants in the ICHRA market may vary. We can predict that given the limited amount of differences among administrators, a large number of ICHRA administrators crashed a few large dominant ones. This will follow a trend similar to the PEO market where 5 of the 500 PEOs account for about 40% of the employees involved in the PEO market. We predict that smaller ICHRA administrators are in their channel partnerships (e.g., broker, PEO relationship), features (e.g., care navigation), payer relationships and employer specialization (e.g., focusing on one/several employer types).
In addition to ICHRA Administrator Mergers, we assume that there may be a merge between ICHRA Administrators and PEOs. In this case, ICHRA administrators can access a group of existing customers to reduce acquisition costs and potentially expand their impact. Although payers are active in the ICHRA field, we do not think that ICHRA administrators would welcome acquisitions as it would limit the number of insurance carriers that ICHRA administrators can provide to employers. However, companies like Ambetter Health or Oscar may be more advantageous to use the acquisition of ICHRA administrators as a means to expand the risk pool and get along with young workers, as 34 of the 35% of ICHRA employees are under the age of 34.
Overall, we expect the number of employees providing ICHRA to continue to grow. However, given the strong competitive momentum of ICHRA administrators and the potential market risks of ACA subsidies due, we act with caution when looking at the company. New players with existing competitors need to have strong competitive differentiation to be seen as potential investment candidates.
Photo: Rudall30, Getty Images
The authors thank OCA Ventures Medical Team members Michelle Cao, Bob Saunders and Sarah Manasevit for their guidance and support in this article.
Ohn Symej is currently an MBA intern at OCA Ventures, a medical team. OCA Ventures is a Chicago-based venture capitalist engaged in seed and Series A technology and healthcare company. The OCA Healthcare team invests in companies in diagnostic, digital health and healthcare. Prior to OCA, John co-founded and led a VC-backed digital health company in oncology called Primum. He is currently studying for an MBA at Northwest Kellogg School of Management and is located in Evanston, Illinois.
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