ICHRA in Michigan After the 2025 Marketplace Exodus: What Employers Need to Know

Three carriers just walked away from Michigan’s ACA individual marketplace. If you offer ICHRA — or you’ve been thinking about it — the math you ran last year no longer works.

HAP CareSource and Molina Healthcare pulled out of Michigan entirely for 2026. Meridian Health Plan cut back to metro Detroit. Roughly 200,000 people lost access to their carrier — 38% of the state’s total marketplace enrollment. According to CMS marketplace enrollment data, Michigan dropped from 10 marketplace issuers to 7, and the number of on-exchange plans fell from 162 to 116.

Premium changes vary by issuer, product, rating factors, and location. Use current employee-level premiums, and verify current federal premium-tax-credit law and ICHRA affordability rules rather than relying on a statewide average or prior subsidy assumptions.

For employers using ICHRA to give employees money toward individual coverage, this is not a sideshow. It changes the entire calculation.

What Is ICHRA?

If you’re new to ICHRA (Individual Coverage Health Reimbursement Arrangement): instead of buying a group health plan, the employer gives each employee a fixed monthly allowance — tax-free — to purchase their own individual health insurance. The employee picks their own plan on the marketplace or off-exchange, and the employer reimburses premiums up to the set amount.

ICHRA has grown rapidly since launching in 2020, with HRA Council data showing significant year-over-year adoption. The appeal is straightforward: predictable costs for the employer, plan choice for the employee, no minimum participation requirements.

But ICHRA only works when the individual market underneath it works. And in Michigan, that market just took a hit.

What Happened to Michigan’s Individual Market

Let’s look at the numbers.

Carrier exits: - HAP CareSource — withdrew entirely - Molina Healthcare — withdrew entirely - Meridian Health Plan — reduced to metro Detroit only

Rate increases for 2026: - Blue Cross Blue Shield of Michigan: 24% - Blue Care Network: 23% - Priority Health: 19.2% - Meridian: 16.9% - Oscar: 9.3% - Statewide average: 20.2%

The drivers behind these increases — documented in DIFS rate filings — are the same pressures hitting employers on the group side: GLP-1 drug costs (Priority Health reported pharmacy trend at 15.4%), hospital consolidation driving up negotiated rates, and the anticipated loss of the enhanced premium tax credits that had been inflating enrollment and subsidizing costs.

Priority Health remains the largest individual market carrier in Michigan with roughly 122,000 enrollees. And despite the increases, Michigan still holds the 7th-lowest benchmark rates in the country according to KFF. That matters — it means ICHRA in Michigan is still more viable than in many other states.

But “more viable than Alabama” is not the same as “good for your employees.”

The Subsidy Expiration Changes Everything

Here’s the piece that matters most, and it gets overlooked in the carrier exit headlines.

The enhanced ACA premium tax credits — the ones that eliminated the 400% FPL income cap and capped premiums at 8.5% of household income for everyone — expired December 31, 2025. Premium tax credit eligibility is now capped again at 400% of the federal poverty level. That’s about $62,600 for an individual, $128,600 for a family of four.

If your employees earn above those thresholds, they get zero premium tax credits on the marketplace. Nothing. They pay full sticker price.

KFF estimates that average net marketplace premiums more than doubled — from $888 per year to $1,904 per year — once the enhanced credits disappeared.

This is the single biggest factor in the 2026 ICHRA equation, and it cuts two ways.

Who ICHRA Works Better For Now

Employees above 400% FPL. Before the subsidy expiration, these employees were getting enhanced credits that made marketplace coverage relatively cheap. An ICHRA contribution of $400-500/month was often less than what the subsidies provided. Now, those same employees get nothing from the marketplace. Zero credits. For them, ICHRA is suddenly the only tax-advantaged help they’re getting.

If most of your workforce earns above $62,600 individually, ICHRA has actually become more attractive in 2026 than it was in 2025. Your contribution is the only financial help they’re getting.

Employers who’ve never offered coverage. The majority of ICHRA adopters who had no previous group plan are still in a strong position. Some coverage support is better than none, and ICHRA remains the lowest-barrier entry point for small employers wanting to offer benefits.

Who ICHRA Works Worse For Now

The ICHRA Gap: When Your Allowance Hurts Your Employees

Lower-income employees who qualify for restored subsidies. Here’s where it gets complicated. When an employer offers an ICHRA that the IRS considers “affordable” — meaning the employee’s share of the cheapest silver plan after subtracting the ICHRA contribution is less than 9.96% of household income — that employee loses eligibility for marketplace premium tax credits.

If your ICHRA allowance is generous enough to truly cover most of the premium, that’s fine. But if the allowance falls short and the employee would have qualified for subsidies on their own, you’ve created what the industry calls the “ICHRA gap.” The employee is worse off with your ICHRA than without it.

A real example: Say you offer $400/month. The cheapest silver plan in your employee’s county costs $700/month after the 20% rate increase. The employee covers the $300 gap out of pocket. But if that employee earns $45,000, they would have qualified for subsidies that brought their marketplace premium down to $200/month. Your ICHRA just cost your employee an extra $100/month.

Employees in counties that lost carriers. Fewer carriers means fewer plan options, and in some Michigan counties, the exits hit hard. Employees in those areas may face a choice between one or two carriers with networks that don’t include their doctors. The carrier exits didn’t affect every county equally — metro Detroit, mid-Michigan, and parts of the Upper Peninsula saw the biggest reductions in choice.

Bronze Plans + HSA: A New ICHRA Strategy for 2026

One development working in ICHRA’s favor: the One Big Beautiful Bill Act made bronze and catastrophic marketplace plans HSA-compatible starting January 1, 2026. This creates a new planning strategy.

An employee can enroll in a lower-cost bronze plan through the marketplace, have their ICHRA reimburse the premium, and simultaneously contribute to an HSA (up to $4,400 individual or $8,750 family in 2026). The ICHRA must reimburse premiums only — not other medical expenses — for this to work. But for healthy employees who want to minimize premiums and build tax-advantaged savings, it’s a combination that didn’t exist before this year.

This is worth a second look for employers whose ICHRA contributions might not fully cover silver or gold plans but could comfortably cover a bronze plan with money left over for HSA contributions.

What Employers Should Do Now

Already Offering ICHRA? Recalculate for 2026

Run the numbers with 2026 rates and the restored subsidy rules. Check which carriers are available in the counties where your employees live. If your allowance was set based on 2024 or 2025 premiums, it may no longer cover enough of the premium increase — especially in areas that lost carriers. Consider increasing allowances to prevent the ICHRA gap, particularly for lower-earning employees.

Considering ICHRA for the First Time?

Don’t rely on national averages or vendor projections. The $524/month national average allowance may not cut it in Michigan counties where premiums jumped 20-24%. Run employee-by-employee scenarios using actual 2026 marketplace rates for your county. Factor in each employee’s likely income bracket and subsidy eligibility. ICHRA can still be a strong fit — but it’s not universally a win anymore, and anyone who tells you otherwise isn’t looking at the Michigan-specific data.

Before committing to any single path, run a detailed cost analysis that compares ICHRA against group coverage — and against a stipend approach. Many employees qualify for federal subsidies that make individual coverage cheaper than what a group plan would cost, and offering employer-sponsored coverage can actually disqualify them from those subsidies. For employers with a mix of salaried and hourly workers, a hybrid strategy — classing out salaried employees for a group plan while using a stipend for hourly staff — can outperform either option alone. The difference is in the details, and that’s exactly why working with an independent advisor who can model all three scenarios matters.

Get an Independent Analysis

ICHRA vendors have a financial interest in selling you ICHRA. Carriers have a financial interest in keeping you on group plans. An independent advisor — particularly one who knows the West Michigan market — can run both scenarios side by side and tell you which one actually serves your employees better, county by county and income bracket by income bracket.

The Bottom Line

ICHRA was gaining momentum before the carrier exits. It’s still growing — the reasons employers like it haven’t changed — predictable costs, no participation headaches. But the Michigan marketplace underneath it has gotten smaller, more expensive, and less competitive in some regions.

The question isn’t whether ICHRA is good or bad. It’s whether it’s good or bad for your specific employees, in your specific counties, at your specific contribution level, in 2026.

That’s a conversation worth having. And it’s one that requires someone who knows the Michigan market, not just the ICHRA sales pitch.

Nexus Benefit Solutions is an independent employee benefits advisory firm based in Grand Rapids, Michigan. We’re not tied to any carrier, ICHRA vendor, or administration platform. Our advisors will take the time to discuss your situation in detail. Schedule a call — no pitch, just clarity.

Current sources: Verify local premiums and products through Michigan DIFS and premium-tax-credit treatment through the IRS Premium Tax Credit Q&A.