For most of the last decade, offering health benefits meant one thing: buying a group plan, absorbing the renewal increase every year, and hoping enough staff enrolled to keep it in force. Since 2020 there has been a genuine alternative, and a growing number of employers are switching to it.
The Individual Coverage HRA, or ICHRA, flips the model. Instead of buying a plan for your team, you give your team a defined, tax-free allowance and they buy their own. Whether that is an improvement depends entirely on your workforce.
The core difference in one line
A group plan is a defined benefit: you choose the coverage and carry the cost risk. An ICHRA is a defined contribution: you choose the budget and your employees carry the choice.
That single shift explains almost every practical difference between the two.
Side by side
| Group health plan | ICHRA | |
|---|---|---|
| Who picks the plan | The employer, for everyone | Each employee, from the individual market |
| Cost predictability | Renewal increases each year, often into double digits | You set the allowance and it does not move unless you move it |
| Participation rules | Carriers typically require a minimum take-up and employer contribution | No participation minimums |
| Portability | Coverage ends when employment ends | The policy belongs to the employee and travels with them |
| Multi-state teams | Awkward and often expensive | Handles naturally, since each employee buys locally |
| Admin burden | Carried largely by the carrier and broker | Requires substantiation that each employee holds qualifying coverage |
| Tax treatment | Tax-free to the employee | Tax-free to the employee |
Where an ICHRA genuinely wins
- Your team is spread across states. One group network rarely serves everyone well. Individual plans are bought locally, so coverage fits where people actually live.
- You want the budget to stop moving. You decide the monthly allowance. There is no renewal negotiation attached to it.
- You could never hit participation minimums. If a chunk of your staff is covered through a spouse, a group plan may not be viable at all. An ICHRA has no such threshold.
- Your workforce is genuinely varied. A 26-year-old and a 58-year-old want very different plans. One group plan cannot be right for both.
- You want to differentiate by role. The rules allow you to set different allowances for defined employee classes, such as full-time against part-time, or by location.
Where a group plan still wins
- Your team values simplicity above all. With a group plan, nobody has to shop. For some workforces that is worth a great deal.
- Your local individual market is thin. An allowance is only as good as the plans it can buy. In some counties the individual market offers few carriers and narrow networks.
- You have a concentrated, similar workforce. If everyone lives in one metro area and wants the same network, group pricing can be very competitive.
- Recruiting against large employers. Candidates often read a named group plan as a stronger signal than an allowance, fairly or not.
The rules you cannot ignore
ICHRA is flexible, but it is not informal. A few requirements catch employers out:
- No double-dipping by class. You cannot offer the same class of employees both an ICHRA and a traditional group plan. You can offer different classes different arrangements.
- Employees must actually be enrolled in qualifying individual coverage or Medicare for every month reimbursed, and you must be able to substantiate it.
- Written notice is required ahead of the plan year, and employees must be able to opt out annually.
- Affordability interacts with subsidies. If your allowance makes coverage affordable under the IRS test, employees cannot also claim a premium tax credit on the marketplace. If it does not, they may opt out and claim the credit instead. Getting this calculation wrong is the most common ICHRA planning error.
- Larger employers still face the mandate. If you have 50 or more full-time equivalents, an ICHRA can satisfy your obligations, but only if the allowance clears the affordability bar.
How to decide
Work through these in order:
- Map your people. How many states, how many age bands, how many are already covered elsewhere?
- Check the local individual markets. How many carriers serve the counties your staff live in, and are the networks usable?
- Model both at the same total spend. Compare what your current group premium buys against what the same money buys as an allowance.
- Run the affordability test for your lowest-paid employees before committing.
- Be honest about admin. Substantiation and onboarding are real work. It is manageable, but it is not zero.
Common questions
Is an ICHRA cheaper than a group plan?
Not automatically. It is more predictable, because you set the number. Whether it is cheaper depends on your current renewal and on individual market pricing where your staff live.
Can employees use the allowance on any plan?
It must be qualifying individual coverage or Medicare. Short-term and non-compliant products do not count for ICHRA purposes.
What if we have fewer than 50 employees?
You have more options, including a QSEHRA, which is simpler but comes with annual contribution caps that an ICHRA does not have.
Do employees lose coverage if they leave?
No. The policy is theirs. Your reimbursement stops, but the plan does not terminate the way group coverage does.
Getting to a real answer
The honest answer is that neither model wins on paper. It comes down to where your people live, how varied they are, and how much budget volatility you can tolerate.
All Solution Plus models both side by side using your actual census, so you can compare like for like before committing to a plan year. If you would like that comparison run for your business, talk to us.
This article is general information, not tax or legal advice. Confirm affordability calculations and compliance obligations for your specific circumstances.
