ICHRA vs. Group Plans: What’s best for your business?

Choosing the right health benefits is a critical decision for employers and benefits managers. While traditional group health insurance has long been the standard, rising costs, administrative complexity, and participation requirements are prompting businesses to seek more flexible alternatives.

With nearly 70% of small business owners citing rising premiums and deductibles as their top healthcare concern, according to health insurance industry trends, many employers are looking for a more sustainable benefits strategy. 

An Individual Coverage Health Reimbursement Arrangements (ICHRA) offer a cost-effective solution by allowing businesses to set their own budgets and reimburse employees for individual health insurance plans.

This guide breaks down the key differences between an ICHRA and group health insurance, explores important considerations for employers, and explains why more businesses are making the switch.

What is an ICHRA?

An ICHRA is an employer-funded benefit that reimburses employees for individual health insurance premiums and qualified medical expenses. Instead of offering a one-size-fits-all group plan, businesses set their own budgets and provide tax-free reimbursements, giving employees the flexibility to choose the coverage that works best for them.

With an ICHRA, employers maintain control over their healthcare spending while avoiding the administrative complexities of traditional group plans. This approach offers a structured yet flexible way to provide health benefits, making it an attractive option for businesses of all sizes.

What is a group plan?

A group health insurance plan is a traditional form of employer-sponsored healthcare coverage where an employer purchases a health insurance policy for employees, often covering their dependents as well. The employer and employees typically share the cost of premiums, and the coverage may vary depending on the plan type (HMO, PPO, or EPO). 

Group plans are more common among larger employers and often come with administrative and compliance responsibilities.

ICHRA vs. group health insurance: Key differences for employers

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When considering health insurance options, employers must choose between traditional group health plans and an ICHRA. Below, we explore key differences that can impact cost control, flexibility, compliance, and employee retention.

Cost and affordability

Group health plan premiums are rising, limiting employers' ability to predict future costs. In contrast, an ICHRA offers predictable budgeting with customizable contributions, allowing employers to set a defined budget for employee healthcare benefits.

Flexibility and customization 

Group plans typically follow a one-size-fits-all approach, offering the same coverage to all employees. With an ICHRA, employers can provide different contribution levels based on employee classes, such as full-time versus part-time workers, or location-based adjustments.

Compliance and regulations

Group health insurance plans come with requirements for meeting participation rates and carrier restrictions, creating a significant administrative workload. An ICHRA, however, reduces administrative efforts while maintaining Affordable Care Act (ACA) compliance, making it easier for employers to manage.

Employee choice and satisfaction

Offering a group health insurance plan can be restrictive, especially for small businesses or those with fluctuating employee numbers. An ICHRA allows employers to offer competitive benefits that are flexible enough to meet employees' diverse needs, improving recruitment and retention.

Why more employers are switching to ICHRA

(and why you should, too)

More employers are turning to an ICHRA for greater control over healthcare costs and coverage flexibility. Unlike traditional group health plans, an ICHRA eliminates the risk of annual premium rate hikes, offering employers a fixed, predictable budget for employee healthcare benefits.

Additionally, an ICHRA has no minimum participation requirements, making it ideal for businesses with variable workforces or multiple locations. The flexibility of an ICHRA allows employees to select individual plans that suit their needs, leading to improved employee satisfaction and retention. 

Group plans vs. ICHRA: The pros and cons

To help you evaluate if an ICHRA is right for your business, we’ve identified  ICHRA benefits and disadvantages and compared them to traditional group plans in the chart below.

Is ICHRA right for your business? Here's a quick checklist

Consider the following questions to determine if an ICHRA is a good fit for your company’s needs:

• Do you want more control over your healthcare budget?

An ICHRA allows for fixed, predictable contributions, helping you avoid the unpredictability of group plan premiums.

• Are you looking for a flexible solution for employees in different locations or with varying needs?

An ICHRA’s ability to offer different contribution levels for different employee classes makes it ideal for businesses with diverse teams.

• Do you want to avoid annual premium increases and the unpredictability of group plans?

You set a fixed budget with an ICHRA, avoiding the risk of fluctuating premiums each year.

• Would you like to offer personalized benefits without the administrative burden of traditional group plans?

An ICHRA simplifies administration by eliminating participation minimums and carrier restrictions, reducing your workload.

By answering these questions, you can assess whether switching to an ICHRA will better meet the needs of both your business and your employees.

How to transition from group insurance to ICHRA

Making the switch to an ICHRA can be a smooth and effective process if done carefully. 

Here’s a step-by-step guide to help employers transition to ICHRA with ease:

Step 1. Evaluate your needs and budget

Start by assessing your business’s healthcare needs and budget. Determine how much you can contribute per employee, and identify the employee classes (e.g., full-time, part-time, remote) that will benefit from an ICHRA. 

Step 2. Choose a plan administrator

Selecting the right plan administrator is critical to the success of your ICHRA transition. A reliable administrator will help ensure compliance, simplify contributions, and manage enrollment. 

Thatch’s team of experts can assist you in selecting and implementing the best solutions for ICHRA administration so you don’t have to worry about the complexity of managing it yourself.

Step 3. Set employee contributions

With an ICHRA, you have the flexibility to adjust employee contributions based on their classification. Whether it’s for full-time employees, part-time staff, or remote workers, you can customize the contribution amounts to suit different needs. 

Work with your ICHRA administrator to identify and set appropriate contribution levels, ensuring they align with your budget and employee benefits goals.

Step 4. Communicate the change to employees

Effectively communicating the transition to an ICHRA is essential for a successful implementation. Give employees plenty of time to understand how an ICHRA works and how it offers them the flexibility to choose their own health insurance plans. 

Thatch’s administrators can help you create clear communication strategies, including informative emails, presentations, and FAQs to explain the shift in benefits. By providing employees with helpful resources and ongoing support, you can ensure they feel confident navigating their new healthcare options and making choices that best suit their needs.

Step 5. Monitor and adjust

Once an ICHRA is in place, it’s important to continuously monitor how well it’s working for both your business and employees. Track how employees are selecting their plans, and assess if any adjustments to contributions are necessary to ensure your program remains cost-effective and meets employee needs. 

Thatch’s team will be there to support you, helping you make any adjustments and ensuring your ICHRA program stays compliant and on track.