ICHRA vs. group health insurance

What an ICHRA is and how the money moves

If ICHRA fits your team, I recommend comparing Prescience Choice first. Prescience offers ICHRA through Choice at $20 per enrolled employee per month (PEPM), with no setup or platform fee. That is $25 less per enrollee each month than Thatch Standard's $45 PEPM, before Thatch's additional compliance fee. Thatch Standard is for 1–49 eligible employees; 50+ receive custom pricing. Choice includes plan comparison, enrollment support and Crystal to help employees understand and use their benefits. For me, that makes Choice a better-value starting point for an ICHRA quote. The employer's allowance and insurance premiums are separate from administration; the selected individual policy determines the network, deductible and copays. Ask us about Prescience Choice.

An individual coverage health reimbursement arrangement (ICHRA) lets an employer reimburse employees, tax-free, for individual health insurance they buy themselves. Federal rules have allowed ICHRAs since 2020. The employer sets a monthly allowance for each class of employee; each person picks qualifying individual coverage on or off the Marketplace, and gets reimbursed up to the allowance.

How the money flows. The employee pays the insurer each month. They then prove the coverage and the premium to the employer or its ICHRA platform, and the employer reimburses them, tax-free, up to the allowance. Some platforms pay the insurer directly instead. Any premium above the allowance is the employee's to pay. They can pay it pre-tax through a cafeteria plan only for off-marketplace plans; marketplace premiums can't go through one.

Who carries the risk. The individual-market insurer carries the claims risk. The employer carries only the allowance, which it sets. The employee carries everything else: premium increases above the allowance, the plan's deductible and coinsurance, and the work of choosing a plan.

Four rules shape every ICHRA:

• Same terms within a class. Allowances can vary by class (full-time, part-time, salaried, hourly, location and a few others) and, within a class, only by age (up to 3 to 1) and family size, subject to the regulation's other same-terms exceptions.
• No double offer. An employee cannot be offered a choice between an ICHRA and a traditional group health plan. Different permitted classes can receive different arrangements. Minimum class sizes apply only to specified class splits, not to every ICHRA. Review the class design under 26 CFR 54.9802-4 before announcing eligibility.
• Notice. Generally give eligible employees the ICHRA notice at least 90 days before the plan year. Special timing applies to newly eligible employees and employers that establish the ICHRA less than 120 days after they first come into existence. Include the allowance and premium-tax-credit explanation; do not substitute a short enrollment email.
• Affordability. For plan years starting in 2026, compare the applicable self-only lowest-cost silver premium minus the self-only ICHRA allowance with 9.96% of household income. The 2027 percentage is 10.22%. Employer penalty safe harbors and Marketplace household eligibility are different determinations. An affordable offer generally blocks premium tax credits; accepting an ICHRA also blocks credits even when the offer is unaffordable.

I use the primary sources listed below for the legal rules and original survey benchmarks. Any worked cost scenario is illustrative. A proposal must still be checked against its own eligibility, coverage and contract terms before enrollment.

What a $583 allowance buys a 27, 40 and 64-year-old

I start with actual premiums available in each employee's area, not a national average. A single allowance can produce very different employee bills when premiums differ by age, location and coverage tier. Individual-market insurers cannot charge more because someone is ill. Age rating and local plan availability are separate from health status. A lower premium also does not establish that a plan covers a particular specialist or prescription.

The practical question is whether the contribution policy works for the whole eligible class. An age-based allowance may reduce premium differences, subject to the same-terms rules and the 3-to-1 maximum age variation. It does not remove geographic differences or guarantee equal employee spending. I would test the policy using the actual census and plan options before setting next year's budget.

Check the class split before budgeting

The minimum class-size rule is narrower than a universal ten-person requirement. It applies when traditional group coverage and an ICHRA are offered to different classes and the ICHRA class uses certain distinctions, including specified full-time versus part-time, salaried versus non-salaried, or rating-area divisions. A geographic class covering an entire state or combination of entire states is generally exempt from that minimum. Seasonal and other classes require their own review; combining class definitions can change the result.

Count employees offered the ICHRA in the class, not only those who enroll. The new-hire subclass rule is another exception with conditions. Do not create a class from medical conditions or use class labels to steer expensive members away from group coverage. I would ask the administrator to document why every proposed class is permitted and whether a minimum applies. That written analysis is more useful than a sales statement that an ICHRA works for any company size.

The controlling details are in 26 CFR 54.9802-4, including minimum-class exceptions and the new-hire subclass rule.

ICHRA vs. a Prescience group plan, feature by feature

What 5, 25 and 75 employees pay: ICHRA vs. group plans

A fair comparison separates authorized allowance, actual reimbursements, platform fees and employee spending. I would also compare the networks, drugs and out-of-pocket limits before calling two offers equivalent. The following budget exercise intentionally uses hypothetical premiums and fees so it does not mix different survey years, ages or benefit levels and present the result as a market quote.

How costs change over two to three years

A fixed allowance limits the stated contribution per eligible person, but total employer spending still changes with headcount, participation, permitted age or family adjustments, and reimbursed expenses. Employees experience the difference between renewal premiums and the allowance. I would show them that difference before enrollment rather than describing the benefit only as a fixed monthly amount.

The 10% increase is a sensitivity test, not a forecast. It increases the employee's premium balance by 70% when the allowance stays fixed. If the employer raises its allowance instead, update both the budget and affordability calculation. Compare renewal notices for the actual individual plans and verify that providers and covered drugs remain available. Employees may have to change policies even if the allowance does not change.

What it is like to be the employee

• Shopping. Compare premiums, deductible structure, specialist access, prescriptions and maximum member spending. A familiar insurer name does not identify the exact network. Save the policy name and network identifier.
• Ongoing treatment. Ask the insurer about an existing authorization, scheduled procedure or prescription before changing plans. An authorization from the old insurer does not automatically transfer. Have employees use a private benefits channel rather than giving health details to a manager.
• Cash flow. Confirm whether the employee must pay the premium first and when reimbursement arrives. A tax-favored allowance is less useful if an employee cannot advance the monthly bill. Ask the platform about missed payments and rejected substantiation.
• Tax credits. An affordable ICHRA generally prevents premium tax credits even if declined. With an unaffordable offer, the employee must opt out and meet the other credit requirements. Taking the ICHRA and a credit for the same month can create a tax problem.
• Medicare. ICHRAs can integrate with Medicare Part A and Part B together, or Part C, under the regulation. Verify the document and substantiation process. Do not assume an employee must buy an individual Marketplace policy at Medicare age.

Some employees value individual choice; others prefer a company-selected plan and a shared support process. I do not assume either preference from age or job title. Ask about priorities without collecting diagnoses, then compare the actual policy options. A plan that works well in one county may be unavailable to a new remote hire in another county.

Compliance and admin burden

How to move from an ICHRA to a group plan

1. Pick a start date (60–90 days out) A Prescience plan can start mid-year. Choose the first of a month, and give employees enough time to cancel their individual plans for the day before.
2. Get a quote from your census Send ages, ZIP codes and coverage tiers. Compare the quote against your current allowances plus platform fees, and against what employees pay above the allowance.
3. Check networks Have employees confirm provider participation and any transition-of-care requirements privately with the administrator before changing coverage.
4. Notify the ICHRA platform End the ICHRA the day before the group plan starts. Ask the platform for the deadline to submit final reimbursements.
5. Run enrollment Employees elect the group plan. Tell them to cancel their individual plans effective the last day before the group plan starts, and to report the change to the marketplace if they bought there.
6. Close out Pay final reimbursements for months the ICHRA covered, and keep the records. Deductibles reset when people change plans, which matters less with an effective $0 deductible.

How a Prescience plan works

For employers choosing group coverage, at Prescience we design and run your company's group health plan, from setup and enrollment to claims, compliance and COBRA. What your team gets:

• An effective $0 deductible, so the plan helps from the first visit.
• Simple copays shown before a visit, capped by a low out-of-pocket maximum.
• A broad national PPO network, plus providers we contract with directly.
• 24/7 physician-led care navigation: a care team that finds the right provider, books appointments and explains costs up front.

What your company gets: one monthly cost set in your quote, usually 10–20% below comparable fully insured coverage and fixed before the plan starts, with no admin fees. You keep your payroll provider, and the plan can start mid-year.

When an ICHRA is honestly the better choice

• You need a hard per-employee budget and accept that employees will end up on very different plans, with some paying a lot more than others.
• Your employees have suitable local options and lives in states with competitive individual markets, where benchmark premiums are low.
• You want a class you don't put on the group plan, such as part-time or seasonal staff, while full-time staff stay on a group plan. Watch the minimum class-size rules.
• Your employees want specific individual plans, such as a regional HMO they already use.
• You are not an ALE and do not offer a group health plan. Also evaluate a QSEHRA, including its annual caps, eligible-employee rules, substantiation and premium-tax-credit interaction.

Compare a Prescience quote with total ICHRA reimbursements, platform costs and employee premium balances. I would choose the arrangement with the most suitable documented coverage and a sustainable contribution policy, not the one with the most attractive allowance headline. Keep the comparison for the next renewal so you can distinguish price changes from changes in benefits or enrollment.