Just a few decades ago, most Americans relied on pensions to fund their retirement. Employers carried the risk of a guaranteed payout, and employees had little control over how or where their money was invested.

 

Then came the 401(k). Introduced in 1978, it flipped the model: Employers capped their liability, while employees gained control and portability. The shift redefined financial ownership and trust in the employer-employee relationship — and, ultimately, became the dominant retirement savings vehicle by the mid-1990s.

 

Today, we’re on the brink of a similar revolution in health benefits: the rise of the individual coverage health reimbursement arrangement. And just like the 401(k), this change is about more than cost — it’s about decentralizing risk, empowering individuals and aligning priorities in a system that desperately needs it.

Dissecting a system built for a different era

 

Introduced in the 1940s as a World War II-era wage-cap workaround, group health insurance was designed for a different workforce: a monolithic, centralized, one-size-fits-all labor force where employees often stayed with one employer for decades. Benefits were standardized and employers absorbed the rising costs as a simple matter of doing business.

 

But today’s workforce is dynamic, diverse and demands personalization. Employees switch jobs every few years and expect benefits that reflect their unique needs. Yet, more 80% of small firms offer just a single plan, leaving many — especially remote workers — underinsured and eyeing better benefits elsewhere.

 

Meanwhile, costs are skyrocketing. The average annual premium for employer-sponsored family coverage hit $25,572 in 2024, up 7% from the previous year and 24% over the last five years. Employers are absorbing costs and risks they’re not equipped to manage, while brokers and carriers are forced to operate in systems that resist flexibility, scale, and personalization.

ICHRA as the modern framework

 

Like 401(k)s redefined retirement, ICHRAs shift responsibility while expanding choice. Employers define a tax-free, fixed monthly contribution for each employee. Employees then use those funds to shop for coverage tailored to their local market and specific health needs, typically using an ICHRA platform integrated with the Affordable Care Act marketplace or private exchanges.

 

The number of available individual health plans varies by state and county, influenced by factors such as insurer participation. But enabling individuals to choose from locally available plans often ensures easier access to quality care from providers in their area.