How does ICHRA pricing work?

This week’s ICHRA Insider is here! One of the most attractive value propositions of ICHRA is that it can save businesses 20% to 30% on their healthcare spend. How is this possible? We dive into this question below.

ICHRA & the ACA Individual Market

The success of ICHRA is closely tied to the success of the ACA individual market.

Open Enrollment for 2025 marked another historic year for the ACA individual health insurance markets, with 24 million Americans enrolling in plans for 2025. To put this growth into perspective, only 11 million Americans were covered by an ACA individual health insurance plan in 2020.

As the ACA expands, it has led to more competition among insurers, improved coverage options, and more affordable premiums, creating a healthier, more stable market overall.

More Enrollees = Better Pricing

Enrollment growth also means the ACA health insurance market has a larger risk pool, which helps stabilize plan pricing. Everyone participating in an ACA individual health plan is pooled together into a statewide risk pool for pricing. A larger, more diverse pool helps spread the risk across a wider group, ultimately leading to more competitive pricing.

Additionally, ACA health insurance plans are community-rated, meaning rates are determined by age, location, and tobacco use, but not health status. ICHRA contributes to this dynamic by increasing the size and diversity of these risk pools, helping balance the proportion of healthy vs. high-risk individuals. ICHRA is credited with bringing more “healthy” individuals into the ACA market, which helps keep premiums more affordable.

An Era of Pricing Stability

The early years of the ACA were marked by significant price volatility and instability. Many insurers famously lost billions of dollars in the ACA market, causing some to withdraw. When people think of the individual market, they often remember this turbulent period.

However, record enrollment growth over the past five years has ushered in a new era of pricing stability. Annual premium increases are typically around 6%, with some states even seeing price decreases. In contrast, traditional employer-sponsored group insurance plans have seen 8% increases or more.

But how long will this stability last? In response to the COVID-19 pandemic, the U.S. government expanded eligibility for Advanced Premium Tax Credits (APTCs, also known as "Obamacare subsidies"). These subsidies lowered monthly health insurance premiums for millions of individuals and reduced barriers to signing up for coverage. This policy has incentivized healthy individuals who might otherwise have risked going uninsured to join the ACA market.

However, these subsidies will expire at the end of 2025. Will the expiration of these subsidies lead to higher health insurance rates? It’s very likely. But, how things unfold in the coming months will play a key role in shaping pricing for 2026.

What’s your prediction for what’s to come? We'd love to hear from you.