From cost center to strategic asset, ICHRAs help finance leaders achieve predictable health benefits budgets
For finance leaders, there’s nothing more valuable than predictability.
Predictable expenses and revenues allow CFOs and other finance executives to use their resources more effectively and make the right investments in their organization’s growth.
But for decades, employee benefits have been wildly unpredictable — serving as a barrier to effective financial planning. Benefits are a serious headache for finance leaders: according to a 2024 survey from Mercer, more than two-thirds of CFOs consider the cost of health benefits to be a significant or very significant concern when compared to other operating expenses.
Today’s CFOs are operating in a volatile market with everything from inflation to tariffs threatening to scramble their plans and projections. Unpredictable benefit costs can take a difficult situation and make it impossible to overcome.
Renewal roulette: Group health insurance
For decades, businesses have depended on group health insurance plans to provide benefits to their employees. The concept of group health insurance is simple: as more people enroll in the group plan, the risk pool increases and allows the provider to offer a more attractive rate. But if the risk pool decreases — or if the employees have high usage — the cost of coverage increases.
Group health insurance is up for renewal on an annual basis, and the quoted price can sometimes be shocking. If a company sees low levels of enrollment — shrinking the risk pool — or if they have an expensive claimant among their workforce, they could see their costs increase by 10–20%. In the case of a Utah-based delivery company, their group insurance provider quoted an increase of more than 80%.
Unpredictable renewal rates put CFOs in a difficult position. If one of your employees or a member of their family has a difficult diagnosis, you want to be able to support them. But that diagnosis could have a catastrophic effect on your overall benefit costs — and on the health coverage for your entire workforce.
In the worst case, these issues can compound and turn into a death spiral: when the cost of group health insurance increases, the company often has to pass on higher costs to the employees; some employees will choose not to enroll in the company health plan, leading to a smaller risk pool; when the time comes to renew the plan again, the cost increases due to low enrollment.
Understanding HRAs
In recent years, businesses gained another option when it comes to benefits: the health reimbursement arrangement (HRA).
HRAs differ fundamentally from group coverage because they put choice in the hands of each employee. Instead of the company choosing one plan (or a small selection of plans) to serve as the one-size-fits-all benefit package, HRAs allow employers to provide an allowance to employees to purchase coverage on the individual market. Once a year, employees choose their own insurance plan — tailored to their needs and their budget.
Businesses can use the individual coverage HRA (ICHRA) to provide health insurance to employees. ICHRA helps companies and their finance leaders overcome two of the biggest challenges with group plans:
Advantages of ICHRA
The fundamental advantages of ICHRA are stability for the employer and choice for the employee. However, there are additional benefits that are unique to HRAS:
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ICHRA offers tremendous flexibility to businesses with employees in multiple states. For some companies, a group health insurance provider could offer strong coverage in one state but fall short in a neighboring state. In an ideal world, employees would have access to a consistent quality of coverage regardless of whether they live in Ohio or Indiana; ICHRA makes that possible.
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A one-size-fits-all group plan can be a poor fit for some industries and workforces. For example, large hospitality chains may employ dozens of salaried executive staff, in addition to thousands of full-time, part-time and seasonal employees across different states and locations. With ICHRA, finance leaders can adjust the allowance they provide to each category of employee — for example, increasing the allowance for roles with highly competitive recruiting.
These adjustments can also ensure reliable coverage for employees in different regions. The company can increase allowances for employees in states with high healthcare costs, ensuring that everyone receives the coverage they need.
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As the individual market grows, and as more companies switch from group insurance to HRAs, ICHRA could serve as a valuable recruiting tool. Employees who move from one job to another can maintain their precise insurance plan, as long as both employers offer ICHRA. This stability allows employees to avoid one of the most stressful aspects of changing jobs, ensuring they maintain access to their preferred doctors and specialists.
But above all, the most important benefits of ICHRA are the stability and cost savings. Large enterprises stand to gain tremendously from HRAs, both in immediate savings and in long-term stability. A consistent health insurance line item provides finance leaders with the information they need to make more effective decisions in other areas of the business.
When group health insurance makes sense
Despite the risks of high renewal rates, group health insurance can still be the best choice for some businesses.
Companies with large workforces will be at less risk because of the size of their risk pool. If the majority of their employees are in similar employment categories, they may not have issues with a one-size-fits-all group plan. ICHRA is particularly useful for companies that have a range of employees — from white-collar office workers to hourly or seasonal staff
A company’s location can also have an impact on which health insurance plan makes more sense. Take Command’s ICHRA Heat Map shows on a county-by-county basis whether ICHRA plans are more or less expensive than traditional group coverage. In states like Ohio and Georgia, individual coverage is significantly less expensive than group coverage. In some counties in California and Nevada, group coverage is more affordable.
Case study: Allies for Health + Wellbeing
Allies for Health + Wellbeing is a nonprofit healthcare provider in Pittsburgh, Pennsylvania. They’re committed to offering its employees generous healthcare benefits. Not only does the nonprofit organization want to take care of its dedicated team, but it also needs to attract skilled employees who could likely earn higher salaries elsewhere.
“Our biggest expense by far is personnel costs, and a big piece of that is benefits,” explained Carrie Reighard, chief financial officer at Allies for Health + Wellbeing.
Challenge: A 47% renewal quote pushes Allies to breaking point
The Allies workforce, which includes individuals living with HIV and other staff members managing medical conditions, relies heavily on its health insurance. The nonprofit previously offered healthcare benefits through a single UPMC group plan, covering the entire monthly premium for each employee in addition to most children's costs.
Allies had a healthy relationship with its group plan provider — UPMC Health Plan sponsors the nonprofit and, for several years, shouldered losses on their behalf. However, with high usage driving up costs, this became unsustainable even for the insurance company. Allies was hit with a 30% premium increase two years in a row, forcing Reighard and the rest of the C-suite to make tough financial decisions.
“We wanted to keep the same plan; our employees were counting on it," said Reighard. "That meant we had to trim services and cut positions to maintain the benefit levels.”
Everything changed the following year when UPMC quoted Allies a 47% renewal increase. It was completely cost-prohibitive and, with few options remaining, the organization's future was left hanging in the balance. "We did not know what to do," shared Reighard.
“We could either drastically cut benefits that employees used heavily and didn’t have salaries to cover higher deductibles or out-of-pocket costs, or we could cut service lines or lay off staff.”
Solution: Switching to ICHRA "saved our company."
Allies was in crisis mode with the C-suite meeting every day in search of a solution. The breakthrough came when Henderson Brothers, a local insurance broker, introduced Allies to ICHRA. Allies would gain complete control over their healthcare spend — no unpredictable renewals or penalization for high usage.
It was a huge relief for Reighard and the team. Even with an extremely generous per-employee allowance, ICHRA promised significant savings. Allies moved quickly, switching off its group plan and setting up the HRA with Take Command — the nonprofit can now cover the full cost of individual premiums with even lower deductibles than their previous group health plan.
“In the first year of our switch to the ICHRA plan, we are on track to save $550,000," said Reighard. "Based on the quote we initially received from our employee-sponsored-plan health insurance provider, we will save about $950,000 during our second year — about $1.5 million in savings in two years.”
Results: Better benefits, reduced admin
Before ICHRA, everyone at Allies was on the same UPMC group plan despite differing healthcare requirements. Employees could either take it or leave it, with no room for personalization. Now, employees can choose different carriers that cover the providers and specialists they need to access in their local area. They can also balance deductibles, coinsurance, and copayments to meet their budget and healthcare usage.
Allies has enjoyed a smooth transition from group insurance to ICHRA. With support from Take Command, Allies' staff can navigate the individual insurance market with confidence and make informed decisions around healthcare. "There was a learning curve, but Take Command was there to offer individual calls with employees," said Reighard. "At the end of the day, employees are getting more money and more flexibility.”
Switching to ICHRA has eliminated the anxiety and stress that once surrounded healthcare benefits. Allies can continue to offer employees the quality benefits they deserve without risking the organization's financial stability.
"For me as CFO, I have control over changes and no renewals to worry about," said Reighard. "We're able to offer better plans while freeing up dollars and administrative time.
Key takeaways
Predictability is essential for financial leaders. The introduction of a new health benefits model gives CFOs the chance to turn one of their riskiest line items into a pillar of stability. While some organizations may find that they’re still satisfied with group insurance, ICHRA is worth considering for any business — including large enterprises.
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Group health insurance plans create an unacceptable budget risk: Unpredictable renewal rates can upend an organization’s carefully planned financial projections. High usage rates, low participation, and difficult diagnoses can cause benefits costs to skyrocket without warning.
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HRAs allow you to lock in your costs and solidify your financial plans: With ICHRA, employers set a monthly allowance for each employee to purchase coverage on the individual market. That allowance stays the same for as long as the employer chooses — completely independent of employee participation and usage rates. That stability makes it easier for CFOs to make long-term plans and weigh financial trade-offs.
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ICHRA offers valuable flexibility to employers: Group health insurance plans often prove to be a poor fit for most employees. Companies that prioritize costly, comprehensive coverage may see low participation from entry-level employees; those that prioritize affordability may not be giving employees the support they need.
Employees finally get a choice with their health insurance: There are few things more personal than our health, yet employees have gotten used to their insurance being chosen by their employer. ICHRA puts that choice back in the hands of the employee. Employers can support that choice by partnering with an ICHRA administrator — helping employees navigate the individual market and enroll in the best available plan.
Click to Learn More About Predictable, Affordable Health Benefits.