ICHRA works well for Ohio but not yet for Michigan, here's why

Yes, HRA adoption increased by 18% last year. Yes, our neighbors in Ohio and Indiana are seeing speedy adoption in their small-and mid-sized markets.

But in Michigan, the math just doesn’t work the same way. Yet.

What’s an ICHRA?

Michigan agents aren’t missing the boat; they’re just working in a different market. So, let’s take a brief detour to help define ICHRAs.

Established by a 2019 federal rule, an ICHRA allows employers to reimburse employees tax-free for individual health insurance premiums. Unlike a traditional group plan, where the employer "buys the bus" and everyone rides on it, an ICHRA sees the employer providing the "gas money," allowing each employee to choose the individual plan that best fits their specific needs.

The basic requirements for offering an ICHRA include:

• Individual coverage enrollment: Every participant must be enrolled in a qualified individual plan or Medicare.
• No double dipping: Employees cannot receive both an ICHRA contribution and a premium tax credit (subsidy) for the same month.
• Classes of employees: Employers can vary contributions based on defined classes (e.g., full-time vs. part-time), but must treat members of each class fairly.

ICHRA offerings must be “affordable” in the IRS’s eyes

For an ICHRA to satisfy the ACA’s employer mandate, it must be considered "affordable." For the 2026 plan year, the IRS has set the threshold at 9.96% of an employee's household income. Small groups, of course, do not have to satisfy the mandate, but offering an “unaffordable” ICHRA harms the employee – the employee would have to opt out of the ICHRA to claim any premium tax credit. Enrolling in the ICHRA – even if it is unaffordable – would forfeit the tax credit.

To determine affordability, an agent must compare the employee’s monthly contribution toward the lowest-cost silver plan (LCSP) in the individual marketplace to 9.96% of their income. If the gap between the employer's contribution and that silver plan's premium exceeds this percentage, the offer is "unaffordable.” There’s a lot of red tape here, and a lot of administrative oversight – which can be a showstopper for small firms.

The Michigan vs. Ohio divide: The Power of the rate delta

There’s one figure that drives ICHRA adoption more than any other: the rate delta. That’s the price difference between a small group premium and an individual marketplace premium. And, each state’s market looks remarkably different.

In Ohio’s metropolitan areas like Franklin and Hamilton counties, the rate delta is massive. Data for the 2026 plan year shows that individual silver-level premiums can be 49% to 62% lower than comparable small group rates. When an employer can save more than half their premium spend by moving to a defined-contribution model, the ICHRA makes a ton of sense.

In Michigan, however, we are currently seeing the opposite trend. For 2026, Michigan’s individual marketplace rates rose an average of 20.2%, with some major carriers requesting hikes as high as 24%. Our small group market is seeing more moderate increases, averaging around 11.1%. When the individual market costs the same (or potentially more than) as the group market, the numbers that make ICHRAs compelling in Columbus don’t work in Detroit.

Size matters: Michigan has a greater percentage of smaller employers

In Michigan, about 2/3 of all businesses have fewer than five full-time employees. In Ohio, that figure is closer to 58%, but they do have a higher proportion of businesses with 10-19 (12% in OH to 9% in MI) employees and 20-49 employees (9% in OH to 7% in MI). For these smaller businesses, the per-member-per-month (PMPM) administrative fees of an ICHRA platform often represent a larger percentage of total spend than they would for a 20-person firm. And, the service burden on the agent—managing different carriers and logins for just three people—often makes a single group bill more attractive.

Demographics and the PPO expectation

Our history as a manufacturing powerhouse also plays a role. With a 13.0% union membership rate—14th in the nation— and nearly 20% of residents aged 65 or older, broad-network PPO coverage isn’t just a preference here. It’s an expectation shaped by decades of negotiated benefits. Individuals who’ve had a PPO option their entire working lives won’t see switching to the individual market’s narrower networks and leaner coverage as a win.

The bottom line, for now

Michigan is a group state right now – not by habit, but by math. Increases in the individual market are outpacing group renewals, so many employers making the switch just wouldn’t see a meaningful cost savings.

But that doesn’t mean you should ignore ICHRAs altogether.

For the right employer – one with a younger workforce, a meaningful rate delta, and the tolerance or funds to manage the complexity, an ICHRA can work. But for most of your Michigan book, traditional group plans aren’t a fallback. Right now, they’re still the right answer.

As the rate environment shifts, so too will that answer.