Evaluating Benefits Through An Actuarial Lens Gives Employers A Path To Predictability

Employer healthcare costs are rising at a pace most benefits leaders haven't experienced in their careers. GLP-1 medications, cell and gene therapies, and evolving AI-driven medical billing practices are pushing pharmacy and medical trends upward simultaneously. Whether this is a temporary spike or a sustained shift remains an open question, but the pressure it creates is real and immediate. Employers are evaluating every available lever, and ICHRA has earned its place in that conversation as a model that can deliver meaningful value when applied to the right workforce profile.

Helping employers analyze models like ICHRA at a granular level is Mike Gaal, a Principal and Consulting Actuary at Milliman, one of the world's largest independent actuarial and consulting firms. Gaal has spent 25 years in employer healthcare, first as a benefits consultant to large employers at various firms and for the past twelve years at Milliman, where he advises on both employer-sponsored and individual market dynamics with deep expertise in the Affordable Care Act marketplace. That dual perspective gives him a grounded view of how ICHRA fits into the broader benefits toolkit and which employers stand to gain the most from it.

"There are definitively good use cases for ICHRA, such as employers that have really big cost pressures and need to find a way to mitigate annual increases through a defined contribution approach, and those that have a high concentration of high-cost or complex claims that are difficult to sustainably manage in a fully insured or self-funded group environment. Providing access to the individual market is a way to optimize and adjust for that risk." Particularly for smaller employers without the scale to absorb cost volatility, ICHRA's defined contribution structure can provide the budget predictability that traditional group plans often can't. Instead of facing unpredictable renewal increases driven by a handful of high-cost claimants, employers can set a fixed allowance and let employees select coverage that fits their individual needs.

Where ICHRA Creates Value

Gaal sees growing interest from employers who recognize that different workforce segments have fundamentally different healthcare needs. "There's a lot of conversation in the industry right now about looking at your population and understanding that different cohorts have varied needs. How do I craft a benefit program that meets everyone where they are? ICHRA gives employers a way to do that by letting employees choose coverage tailored to their own situation, while employers do that today by offering multiple benefit plans such as a traditional PPO, high-deductible health plan, and an HMO."

ICHRA's core value proposition revolves around giving employees a set allowance and letting them choose their own coverage. Gaal explains that the math doesn't always hold the same appeal for large self-funded employers. "Most large employers have the ability to offer a defined contribution approach within their existing structure," he says. "You can lower your stop-loss deductible, create a pseudo-predictable expense, and increase it by whatever percentage you want each year. As a self-funded plan, you incur less cost than a fully insured plan. For example, self-funded plans have no profit or risk margin and no broker commissions."

The Power of Choice

One of ICHRA's strongest selling points is employee choice. Rather than selecting from a small menu of employer-offered plans, workers can shop the individual market for coverage that matches their health profile, provider preferences, and budget. For younger, healthier employees or those with minimal care needs, the ability to buy a leaner plan and keep more of their allowance can be genuinely attractive. The key, Gaal emphasizes, is making sure employees have the tools and guidance to navigate that choice effectively. "Are you giving employees enough information to make an educated decision? Does the ICHRA vendor have the tools and resources necessary to support that? That's the challenge on the front-end, ensuring that employees have a positive experience with plan selection."

He also notes that individual market plans often use narrower provider networks than traditional group PPOs, which means employees need clear visibility into which carriers partner with which health systems in their area. "The employee needs to know which carriers are partnered with which providers and hospitals. Communicating that clearly is one of the most important parts of a successful implementation." Strong navigation support, whether through the ICHRA vendor, a broker, or dedicated enrollment resources, can bridge this gap and turn what could be overwhelming into a genuinely empowering experience for employees.

The Actuary's Lens

For larger self-funded employers, ICHRA may not be the immediate fit it is for smaller organizations, but Gaal encourages them to evaluate it as part of their ongoing benefits strategy rather than dismiss it outright. "Employers should always explore everything in the market. They should be looking at these models to understand whether they're a fit. A key question with any potential solution is whether it reduces total healthcare costs, or only the employer’s costs. Many employers do not view cost shifting as a sustainable strategy."

The evaluation, he advises, should be grounded in data. What does the claims experience look like across different employee segments? Where are costs concentrated? Are there populations where individual market coverage could deliver comparable or better value? Gaal believes the answers will vary significantly by employer "I'm an actuary, so I always say look at the data. Understand your costs. Communicate with employees. Run focus groups. Keep your finger on the pulse of the market, especially around prescription drugs. That space is evolving daily."

Regardless of whether ICHRA is the right model today, Gaal sees it as part of a broader imperative for employers to continuously evaluate their benefits strategy against a market that isn't slowing down. ICHRA belongs in that evaluation alongside point solutions, ancillary benefit adjustments, pharmacy strategies, and workforce segmentation. The employers who get benefits right in this environment won't be the ones chasing a single solution, but those using data to match the right model to the right population, with the flexibility to evolve as the market does. "Employers are trying to weather the storm right now," Gaal says. "This is among the highest trend environments I've experienced in 25 years. But by and large, employers have done a very good job at looking at various levers to manage their costs. I'd encourage them to continuously evaluate their data and the solutions that exist for them."