How the One Big Beautiful Bill Act Impacts Employer Health Benefits
The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, includes several changes to tax and healthcare policy. One of the key provisions in the final law reduces access to subsidies for health insurance purchased on the individual market.
These changes affect both individuals and employers—especially those offering or considering Individual Coverage Health Reimbursement Arrangements (ICHRAs).
This article breaks down what’s changed, how it may impact workers and employers, and what businesses can do to support their teams while staying compliant with Affordable Care Act (ACA) requirements.
What Changed: Key Healthcare Provisions in the One Big Beautiful Bill Act
While the OBBBA includes a range of fiscal policy updates, the healthcare-related provisions include the following:
● Reduction or elimination of ACA premium subsidies for many individuals earning around $60,000 or more annually, or households earning six figures.
● New repayment rules that may require individuals to pay back a greater share of any excess subsidies received during the year.
● Medicaid funding changes, which may result in fewer people qualifying for Medicaid coverage, depending on their state.
According to the Congressional Budget Office and other analysts, these changes could result in more than 11 million people losing coverage overall, including over 4 million who may no longer qualify for subsidized individual plans on the marketplace.
Why This Matters to Employers
Many employees earning between $60,000 and $100,000 annually previously qualified for premium tax credits through the ACA marketplace. These subsidies often helped them afford individual health insurance plans, even when their employer offered coverage.
With subsidy eligibility reduced or removed under OBBBA, these employees may no longer find individual marketplace plans affordable on their own. As a result, they may seek health coverage through their employer—even if they had previously declined it.
For employers, this means:
● Increased employee interest in employer-sponsored coverage, including traditional group health plans and ICHRAs.
● A need to review ACA affordability requirements, especially for employees who may now rely solely on the employer for coverage.
● Potential budget changes, if more employees enroll or if contribution levels need to increase to keep plans affordable.
Employers that already offer ICHRAs or are exploring the option should take particular note of how these changes could impact employee uptake and plan design.
What Is ICHRA?
An Individual Coverage Health Reimbursement Arrangement (ICHRA) is an alternative to traditional group health insurance. Instead of offering one employer-sponsored plan to all eligible employees, an ICHRA allows employers to reimburse workers tax-free for the cost of individual health insurance.
With an ICHRA, the employer sets a monthly allowance, and employees purchase their own health plans on the individual market. The reimbursement can be used for premiums and, in some cases, out-of-pocket medical expenses.
ICHRAs must meet specific ACA requirements, including:
● Offering reimbursements only to employees who are enrolled in individual health insurance (not through a spouse’s group plan or a short-term plan).
● Ensuring the allowance is high enough to meet ACA affordability standards, based on employee income and plan costs.
● Not offering a group health plan to the same class of employees receiving the ICHRA.
How the Law Affects ICHRAs
The One Big Beautiful Bill Act does not change how ICHRAs work.
Early versions of the bill included a section that would have written ICHRAs into federal law under a new name: CHOICE arrangements (Custom Health Option and Individual Care Expense arrangements).
This provision would have placed ICHRAs in statute rather than regulation, offering more long-term legal certainty.
However, that section was removed from the final legislation. As a result:
● ICHRAs continue to be governed by regulations issued in 2019 and remain valid and enforceable.
● Employers can continue offering ICHRAs as a compliant way to provide health benefits.
● Employees who receive an affordable ICHRA are still ineligible for ACA subsidies—which may no longer be relevant for many due to the changes in the law.
The main shift relates to the value of subsidies for employees who were previously eligible for both an ICHRA and a subsidized ACA plan. Now that subsidies are reduced or eliminated for many, those employees may be more likely to accept an ICHRA or request higher allowances to offset premium costs.
What Employers Should Know About ICHRA Affordability
One of the most important requirements for employers offering an ICHRA is meeting the ACA’s affordability standard.
If the ICHRA allowance is not considered affordable, and an employee declines it and qualifies for a premium subsidy, the employer may be subject to a penalty under the ACA’s employer mandate.
The affordability threshold is updated each year by the IRS. For 2025, the ICHRA is considered affordable if the employee’s required contribution to the lowest-cost silver plan (after the employer’s allowance) is less than 8.39% of their household income.
Employers can use safe harbor formulas based on W-2 wages, rate of pay, or the federal poverty line to estimate affordability.
Because subsidies are now being reduced for many, the chance of employees using a marketplace subsidy instead of an ICHRA is lower. However, affordability still matters for compliance and employee satisfaction. An unaffordable ICHRA may lead to employees going without coverage if they can’t afford a plan—even if there’s no penalty to the employer.
Employers should carefully model their contribution strategy to align with affordability guidelines and employee income levels.
What Employers Can Do Now
Employers offering ICHRAs—or considering them—can take a few practical steps to ensure their benefits strategy remains compliant and effective in the post-OBBBA landscape:
1. Assess Employee Income Levels
Review the average income levels of your full-time workforce, particularly those who previously declined employer coverage in favor of ACA marketplace plans. Employees earning around $60,000 or more may now lose access to subsidies and seek employer help.
2. Evaluate Your ICHRA Allowance
Check whether your current ICHRA contribution meets ACA affordability standards, especially for lower-income employees. You may need to increase allowances to maintain compliance and ensure employees can afford coverage.
3. Monitor Participation and Enrollment Trends
Be prepared for increased interest in your ICHRA or other health benefit options. This may affect your overall benefits budget, especially if previously uninsured or underinsured employees now seek employer-sponsored coverage.
4. Communicate Changes Clearly
Let employees know what the new law means for their coverage options. Many workers may not realize why their individual market premiums are increasing or why subsidies have changed. Providing side-by-side comparisons of ICHRA reimbursements vs. marketplace costs can help them make informed choices.
5. Stay Informed
While ICHRA rules remain unchanged, healthcare policy can shift quickly. Stay connected with your benefits advisor or legal counsel to monitor potential updates at the federal level.
Additional Considerations for Employers Exploring ICHRAs
If you haven’t yet adopted an ICHRA but are considering it as an alternative to group health insurance, this may still be a strategic time to explore it. ICHRAs allow for predictable budgeting, customizable plan design across employee classes, and ACA compliance when structured properly.
However, without subsidies, employees will rely more on the employer’s allowance to afford coverage. That means the structure and amount of your reimbursement matters more than ever.
Questions you should be asking before implementing an ICHRA include:
● What is the average cost of a silver-level plan in the individual market where my employees live?
● How much can we afford to reimburse each month while staying compliant?
● Do we have the systems and support to administer an ICHRA effectively?
● Will employees need help choosing and enrolling in their own health plan?
A licensed ICHRA administrator or broker can help you run these calculations and set up a compliant structure.
OBBBA and the Future of ICHRAs
The One Big Beautiful Bill Act reduces access to premium tax credits for many middle-income individuals, which may lead to increased reliance on employer-sponsored health coverage.
This change is especially relevant for employers offering ICHRAs or evaluating alternative health benefit strategies.
Key takeaways for employers:
● ICHRAs remain a valid, compliant way to offer benefits.
● Subsidy changes may increase employee interest in employer-sponsored coverage.
● Employers should review affordability, contribution strategy, and communication plans.
● There is no immediate legal risk to ICHRAs, but they remain governed by regulation, not statute.
By planning ahead and adjusting benefit strategies accordingly, employers can help their teams maintain access to coverage while staying compliant with federal rules.
Curious about implementing an ICHRA plan in light of these changes? Get in touch with us today.