Executive Summary: ACA Marketplace Quality by State: Why It Determines Whether ICHRA Is a Real Alternative

LFP-07.05 — The Geography of Level Funded

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ICHRA is a funding mechanism, not a coverage product. The employer sets a monthly reimbursement amount. The employee purchases a Qualified Health Plan in the individual market. What the employee receives depends entirely on local market conditions: how many insurers compete, what their networks include, and what the benchmark premium costs relative to the employer’s reimbursement. In markets where individual market quality is high, ICHRA provides a genuine alternative to level funded. In markets where it is low, the same reimbursement buys materially less coverage, and the employer who recommends ICHRA is substituting administrative convenience for member welfare.

The geographic variation is substantial and documented. The Urban Institute found that in 34 states, average benchmark premiums in rural areas exceed those in urban areas; in 18 states, the gap exceeds 10%; in 12, it exceeds 20%. Urban Institute analysis of 2022 to 2023 marketplace data found that benchmark premiums in markets with only one participating insurer ran approximately $128 per month higher than in markets with five or more. Rural markets typically support two to three insurers. The same employer reimbursement amount produces a materially different coverage outcome depending solely on the employee’s rating area. CMS 2025 ICHRA look-up table data confirms the spread: a 45-year-old employee’s lowest-cost silver plan premium varies by hundreds of dollars monthly across states and counties.

The adequacy threshold is answerable only at the local level. In Columbus, Ohio — a market with multiple competing carriers, including Medicaid-sponsored insurers driving benchmark premiums below $400 per month for working-age employees — an employer setting a $450 monthly reimbursement can likely fund a benchmark silver plan entirely. ICHRA is a defensible recommendation for that employer profile. In rural Tennessee counties outside Nashville and Knoxville, benchmark premiums exceed the urban state average, available plans are narrow-network HMOs with deductibles near the ACA out-of-pocket maximum, and a $500 monthly reimbursement leaves material employee shortfall. A level funded plan structured around the same employer contribution delivers stop loss protection, claims transparency, and potential year-end surplus that the rural Tennessee ICHRA employee does not have.

The enhanced premium tax credits enacted by the American Rescue Plan Act and extended through 2025 by the Inflation Reduction Act have improved ICHRA’s effective adequacy in many markets. The Urban Institute projects that if Congress does not extend the enhanced credits, 24.2 million marketplace enrollees face an average out-of-pocket premium increase of $624 per year, with rural enrollees facing increases 25% higher than urban ones. An ICHRA designed as adequate under the enhanced credit regime may become inadequate in 2026 through no change in employer contribution, purely through credit expiration and risk pool deterioration.

The product recommendation must follow from the geography. TPAs offering both level funded and ICHRA without a county-level adequacy map are providing undifferentiated recommendations where differentiation is the entire point.