How 2026 Health Insurance Subsidy Changes Will Impact ICHRA Participants
Understanding ICHRA and Its Role in Employee Benefits
Individual Coverage Health Reimbursement Arrangements (ICHRAs) have quickly become a go-to solution for businesses looking to provide flexible, personalized health benefits.
Unlike traditional group health plans, ICHRAs allow employers to set monthly allowances for employees, so each person can purchase the individual health insurance plan that fits their budget and needs. This approach is especially popular among small businesses, staffing agencies, home care providers, and organizations with part-time or seasonal staff. Discover how ICHRA works for both employers and employees.
How ICHRA and Health Insurance Subsidies Interact
A fundamental question for ICHRA participants involves their eligibility for health insurance subsidies, known as premium tax credits. These federal subsidies, created by the Affordable Care Act (ACA), lower the cost of Marketplace health plans for qualifying households.
When an employer offers an ICHRA, employees usually must choose between accepting the ICHRA allowance or seeking premium tax credits through the Marketplace.
If an employee’s ICHRA coverage is considered “affordable”—meaning their out-of-pocket premium after the employer’s contribution doesn’t exceed a set share of their household income—they are generally not eligible for premium tax credits. Learn more about ICHRA affordability rules here.
If the ICHRA is unaffordable, employees may opt out and seek a Marketplace plan with subsidies. This interaction is a key decision point for workers comparing their options each year.
What’s Changing With Health Insurance Subsidies in 2026?
Between 2021 and 2025, enhanced ACA subsidies made individual health insurance more affordable than ever for millions of Americans. These policy changes eliminated the “subsidy cliff,” boosted eligibility, and resulted in a record 22.8 million people enrolling in ACA plans during 2025’s Open Enrollment.
However, unless Congress acts, these enhanced subsidies are scheduled to expire at the end of 2025. For 2026, Marketplace premium costs are expected to rise sharply. According to insurance industry analysis, ACA Marketplace premiums may increase 10–27%, with a median proposed rise of 18%.
Out-of-pocket maximums are also set to increase by more than 15%, reflecting higher healthcare costs nationwide.
Without enhanced subsidies, net premiums for many Marketplace enrollees could rise by over 75% on average, with some groups—such as those just above subsidy income thresholds—facing even steeper increases.
Impact of Subsidy Changes on ICHRA Participants
For employees participating in an ICHRA, the impact of subsidy reductions hinges on whether their allowance makes their health coverage “affordable.”
If the ICHRA is affordable, employees won’t qualify for premium tax credits. Losing access to enhanced subsidies may not directly affect their monthly premium cost, as their employer reimbursement covers a set portion.
However, rising premium prices could challenge the value of an ICHRA allowance that hasn’t been adjusted to match market conditions.
If the ICHRA is unaffordable and an employee opts out, they may seek a Marketplace plan with subsidies. In 2026, those subsidies will be less generous or unavailable for some, making Marketplace coverage more expensive. This dynamic can make the employer-provided ICHRA allowance look more appealing—even if budgets are strained by rising rates.
Employers are thus encouraged to review their ICHRA budget each year. If allowances don’t keep pace with market trends, coverage may become less accessible or meaningful, especially for part-time or lower-paid staff. Read more about practical ICHRA plan design from PeopleKeep.
Employer Strategies for 2026
Employers can take several steps to adapt their ICHRA strategy to 2026’s changing health insurance market:
Evaluate whether current ICHRA allowances are keeping pace with expected premium increases.
Communicate subsidy changes and new cost scenarios to employees well before open enrollment to support informed decision-making.
Start the open enrollment process early, as the period may be shorter in 2026. The federal deadline is expected to be December 15, with fewer states granting extensions.
Consider promoting off-exchange ACA-compliant plans, which may offer smaller rate increases than Marketplace options—but be aware these do not allow the use of subsidies.
Read more about trends in ACA and off-exchange plans for employers and advisors at StretchDollar.
What Should Employees Do Now?
If you have an ICHRA or expect to be offered one soon:
Learn how your allowance stacks up against expected premium increases for 2026. Estimate your monthly costs now, using available open enrollment materials and premium calculators.
Be aware that Marketplace premium tax credit eligibility changes if you accept or waive an ICHRA. If your employer’s plan is affordable, you won’t get subsidies. If it’s unaffordable, you may—though subsidy amounts will likely be smaller in 2026.
Stay engaged as open enrollment approaches. Gather documentation early and monitor deadlines to avoid coverage gaps.
Don’t hesitate to ask for help. Benefits experts and advisors can help you compare options, calculate costs, and make confident choices for your health and financial wellbeing.
How Small Businesses and High-Turnover Employers Can Prepare
Industries with many hourly, part-time, seasonal, or high-turnover employees are particularly affected by health insurance subsidy changes. Offering a flexible, well-funded ICHRA can be a differentiator for recruiting and retaining staff. As Marketplace plans become less affordable, employers who bridge the gap with meaningful allowances can help employees maintain access to crucial coverage, while managing costs and compliance.
Get A Personalized Plan for Your Team Today
As we enter a new era of health insurance policy, staying informed is key. Employers and employees both face important choices in adapting to changing premium rates, subsidy limits, and plan designs. A well-designed ICHRA can offer flexibility and control—if it’s structured to match changing market realities.
Want expert support in reviewing your benefits strategy, modeling costs, or communicating open enrollment changes to your team? Book a meeting with our team today. We’re ready to help you prepare for 2026 and beyond.