Americans are changing how they purchase health insurance.
As the cost of cover increases dramatically, recent data from KFF show 64% of U.S. adults are either "very worried" or "somewhat worried" about affording healthcare costs for their families. The increased cost of health insurance also puts pressure on employers, with the cost of a group plan often increasing by double digits, year after year. As a result, employers are looking for new ways to support their employees while keeping costs under control.
When an employer switches from group coverage to a CHOICE arrangement (formerly known as ICHRA), it provides its employees with an allowance to purchase coverage on the individual market. Recent data from the HRA Council shows that adoption of CHOICE arrangements is increasing across the board, but most quickly among large employers. From 2025 to 2026, the number of large employers (companies with 1,000 or more employees) offering an ICHRA plan to their employees grew by 178%.
I spent more than 15 years supporting both fully insured and self-funded insurance plans, and I now support companies as they adopt and scale CHOICE arrangements for their employees. Insurance companies are misreading the moment, and their misaligned incentives could lead to serious business losses.
Fragmented carriers and misaligned incentives
When an average American thinks about health insurance, they probably think about it as one big market: all of the people who need coverage and all the carriers that provide it.
In reality, the group market and individual market operate separately. For many insurance carriers, the group business and individual market business are completely different entities. This leads to unnecessary competition: when an insurance carrier loses someone from their group plan, they often don't connect that loss with an opportunity to recover them on the individual market. Cooperation between the group entity and the individual entity is frequently nonexistent.
That lack of cooperation can have real unintended consequences for a carrier. Think about the sequence of events that leads someone to switch from group coverage to the individual market:
- A customer, or group of customers, has high usage during the previous year. They're expensive to the carrier, which leads to a double-digit increase in the cost of coverage.
- The customer can't afford that increased rate, so they choose not to renew the group plan. They switch over to a CHOICE arrangement where they're able to better control their costs.
- If the original carrier isn't able to retain that customer on an individual plan, they lose them entirely. A customer relationship is about more than just the current year of insurance; it's about the entire future value of that relationship over years of support.
Carriers organize around products and markets, but employers and employees don't. An employer moving from group coverage to a CHOICE arrangement can move hundreds or thousands of people across a carrier's internal P&L boundary. If the group and individual businesses are optimizing independently, the carrier can treat that as group attrition when it could actually be an enterprise-level member-retention opportunity.
Given the state of the current market, insurance carriers should expect this trend to accelerate. Costs of coverage are going up, and Americans are at their breaking point with affordability and the cost of living. More U.S. employers are considering the viability of switching from group plans to CHOICE arrangements, and carriers need to find a way to continue serving those customers.
Breaking down barriers between group and individual coverage
As the insurance market continues to evolve, carriers should take steps to break down the walls between their group and individual businesses. When a carrier loses a customer on a group plan but reacquires them with a CHOICE arrangement, that should be viewed as retention rather than pure attrition. Particularly at the enterprise level, a carrier's priority should be retention regardless of the product.
At the same time, carriers should also look for opportunities to build individual market network capacity in areas of the country where CHOICE arrangements are growing. According to the HRA Council, Ohio, Minnesota and Texas have the largest number of employees eligible for a CHOICE arrangement through their employer; Georgia, Maryland, Colorado and Virginia all offer favorable conditions for CHOICE expansion. Investing in these areas now increases the odds that carriers can recover or acquire members whose employers are making the switch from group insurance to the individual market.
The status quo for the U.S. health insurance market can't survive much longer: costs are too high for Americans and their employers, and insurance carriers risk hemorrhaging customers with each double-digit renewal. Insurers that align their group and individual market efforts will be better positioned as employer-sponsored healthcare evolves.
