Executive Summary: The Convergence: ICHRA, Level Funded, and the Contributory Platform That Replaces Both
TOS.08 — The Other Side#
ICHRA and level funded are not two points in a stable equilibrium. They are two evolutionary paths converging toward the same endpoint: an employer-funded contributory platform where the employer sets a defined contribution, the employee assembles coverage from a menu, and software manages eligibility, substantiation, and compliance. What emerges from that convergence will render the TPA, the group carrier, and the broker as currently configured structurally redundant for a meaningful portion of the 1-to-50 market.
The growth signals point the same direction from opposite sides. ICHRA has grown more than 1,000 percent since its 2020 introduction. The HRA Council’s 2025 data report estimates between 500,000 and one million covered lives in ICHRA or QSEHRA arrangements, with adoption growing 52 percent among small employers and 34 percent among applicable large employers from 2024 to 2025. Critically, 83 percent of employers offering ICHRA for the first time had not previously offered any coverage at all. On the other side, 44 percent of covered workers in small firms with 10 to 49 employees were enrolled in a self-funded or level funded plan as of 2025. Fully insured small group enrollment declined 7 percent in 2024, with UnitedHealth reporting an 11.1 percent drop in small group membership in the same year.
What ICHRA does well is contribution control: the employer defines a dollar amount, the employee shops the individual market, and the employer is out of the plan design business. What level funded does well is cost transparency: the employer sees actual claims data, retains surplus when the year ends favorably, and has stop loss protection for catastrophic exposure. The convergence thesis is that employers do not need to choose between these two structural advantages. A contributory platform combining ICHRA’s defined contribution flexibility with level funded’s cost transparency, plus a catastrophic protection layer at the back end, gives the employer both while removing the bundled group carrier from the structure.
The components for this platform already exist. ICHRA administration platforms, including Thatch, Remodel Health, PeopleKeep, and Zorro, handle the defined contribution, HRA compliance documentation, employee notification requirements, and premium substantiation. Zorro reports 75 percent of employees selecting coverage independently using its in-platform guidance. High-attachment catastrophic stop loss coverage, activating above $50,000 per member annually, is price-efficient for small groups because the carrier is pricing genuinely catastrophic risk rather than expected claims experience. What does not exist as a single integrated product is the combination of these three layers on a unified platform.
Three regulatory constraints explain the integration gap: the ACA employer shared responsibility affordability test under IRC Section 4980H creates complexity for hybrid structures; ERISA’s written plan document requirement for self-funded plans does not apply to ICHRA, creating two simultaneous regulatory tracks for hybrid arrangements; and state small group regulations create barriers where level funded is reclassified as fully insured. None of these constraints is permanent. They are artifacts of regulatory frameworks written for the bundled group insurance model. Level funded survives for employers with 20 or more lives who value group plan structure. The contributory platform captures the previously uninsured segment and the employers exiting fully insured without enough employees to make level funded economics work.