INDUSTRY INSIGHTS
Why ICHRA? The Case for Defined-Contribution Health Benefits in Private Equity Portfolios
THE PROBLEM: FULLY INSURED IS A BLIND BET
Employer health benefit costs are expected to exceed $18,500 per employee in 2026—the fourth consecutive year of accelerating trend. Underlying medical costs are rising ~9% before any plan design changes. For a 150-person portco, that’s nearly $2.8M in annual health spend with zero budget visibility beyond the current plan year.
Fully insured and level-funded plans leave employers entirely at the mercy of carrier pricing. No visibility into what’s driving cost, no leverage beyond threatening to move, and no ability to budget with confidence. Self-funding offers real control and transparency for groups with the right risk profile—but it’s not the only path forward.
An Individual Coverage Health Reimbursement Arrangement (ICHRA) lets the employer set a tax-free dollar contribution per employee class. Employees use that contribution to purchase their own ACA-compliant individual coverage—choosing from dozens of plans, carriers, and networks in their local market.
Costs still increase—employers typically adjust contributions annually to keep pace with trend—but what drives those increases is fundamentally different. Instead of being at the mercy of your own small-group claims experience, you’re renewing alongside the entire individual market. The risk is spread across millions, not dozens, which means a single catastrophic claimant doesn’t blow up your renewal. That’s why the individual market has consistently trended below the group medical market.
This is not a carrier swap. It’s a shift from defined benefit to defined contribution—similar to the 401(k) transition that replaced pensions a generation ago. Self-funding moved employers partway down this path. ICHRA completes the shift.
HOW THE THREE MODELS COMPARE
| Fully Insured / Level Funded | Self-Funded | ICHRA | |
|---|---|---|---|
| Budget Certainty | None. Carrier dictates renewal. | Good. Claims visible; stop-loss caps risk. | Strong. Trend driven by broad market, not your claims. |
| Renewal Exposure | Unlimited—carrier re-prices annually | Managed via stop-loss; still variable | Minimal. Individual market trend, not group experience. |
| Employee Choice | 2–4 plans, one carrier | 2–4 plans, more flexibility on design | 30–100+ plans, all carriers |
| Multi-State | Separate plans per state; admin burden | Doable, but network adequacy varies | One contribution; employees shop locally |
| Claims Volatility | Hidden in opaque premium | Visible; employer retains some risk | Transferred to carriers via individual market |
| M&A Integration | New group plan or costly carve-out | Plan merge possible; takes time | Same model—set contribution, done |
THE PE CASE: NOT IF, BUT WHERE
ICHRA should be part of every benefits review across the portfolio. It won’t be the right fit for every company—but it will be the right fit for some, and the only way to find out is to run the analysis. The question isn’t whether ICHRA belongs in the portfolio conversation. It’s where.
- Predictable budgeting. Contributions move with broad market trend—not your own claims experience. The individual market’s risk pool is orders of magnitude larger than any single employer group, producing more stable, sustainable increases year over year.
- Claims risk transferred. Under ICHRA, your employees’ claims are absorbed into a pool of millions. A $500K cancer claim doesn’t touch the employer’s P&L—it’s spread across the individual market, which is why ICHRA trend consistently beats group medical.
- M&A simplified. Different carrier, plan design, contribution structure at the target? Under group coverage, that’s a 6–12 month integration. Under ICHRA, it’s a contribution decision—set the amount, and employees shop locally regardless of state.
- Exponentially more choice. A typical group plan offers 2–4 options from one carrier. ICHRA gives employees access to every ACA-compliant plan in their market—30 to 100+ options across carriers, metal tiers, and networks.
THE DATA: NO LONGER EXPERIMENTAL
ICHRA adoption has grown over 1,000% since 2020. Large employer adoption rose 34% year-over-year in 2025, with the 100–199 employee segment up 49%. An estimated 500,000 to 1 million lives are now covered. And 92% of employers who adopted ICHRA continued the following year—far exceeding group market retention, where nearly two-thirds of employers are considering switching carriers within four years.
Meanwhile, the fully insured market keeps deteriorating. Mercer projects employer health costs will rise 6.5–6.7% in 2026—the highest since 2010—even after planned cost reductions. Self-funding remains a strong alternative for the right profile. But across a portfolio with varying company sizes and geographies, ICHRA will be the better fit in places you might not expect—and the only way to know is to model both side by side.
IMPLEMENTATION MATTERS
When ICHRA rollouts go wrong, it’s because the implementation was treated like a routine renewal instead of a change-management project. Common failure points: workforce segmentation that doesn’t align to eligibility classes, contribution strategies that create affordability gaps, employee communication that turns “you’re getting choice” into “they’re taking away insurance,” and billing reconciliation that breaks in multi-entity environments.
An experienced broker runs ICHRA like a mini-integration: feasibility analysis, compliance design, vendor coordination, and an employee experience plan with decision support and live help. For PE sponsors, treat it as a portfolio operating initiative: one playbook, phased rollout, and leading indicators tracked the same way you’d monitor any systems conversion.
ICHRA and self-funding are the two strategies that give employers real control over healthcare spend—and both should be part of every portfolio company’s benefits analysis. The sponsors who build ICHRA into their standard diligence will find opportunities that those still cycling through fully insured renewals are leaving on the table. The question isn’t whether ICHRA belongs in your portfolio. It’s finding out where.
MATT ROSSNER
Vice President, Portfolio Solutions
mrossner@thehausergroup.com
(603) 481-0227
5905 E. Galbraith Rd., Suite 9000
Cincinnati, Ohio 45236