Can employers offer both ICHRA and group health insurance?

Health insurance industry trends are ever-evolving. Many employers still prefer the stability of a traditional group health plan, while others appreciate the flexibility and savings of an individual coverage health reimbursement arrangement (ICHRA). But when it comes to employee health benefits, one size rarely fits all. If you’re considering the ICHRA but still want to offer a group health plan, you may wonder if having the best of both worlds is possible.

Employers can offer both ICHRA and group health insurance at the same time. However, you must follow certain rules and regulations to ensure employees don’t “double-dip” and take advantage of both benefits simultaneously.

This article will show you how to structure and coordinate your ICHRA and group coverage health benefits to avoid compliance pitfalls.

In this blog post, you’ll learn:

• The key differences and advantages of an ICHRA and a traditional group health plan.
• How to compliantly offer the ICHRA and group health insurance by structuring benefits through defined employee classes and following nondiscrimination rules.
• The minimum class size requirements and other regulations you must meet to implement this dual-benefit strategy successfully.

What is the ICHRA?

An ICHRA is an employer-funded health benefit for companies of all sizes, industries, and budgets. Instead of offering a traditional group plan, you set a tax-free monthly allowance that employees can use to buy their own individual health coverage.

Here are some advantages of the ICHRA:

1. There are no annual contribution limits on how much you can offer with an ICHRA. This gives you greater cost control over your budget while covering your employees’ varying healthcare costs.
2. You can tailor ICHRA contribution amounts and eligibility rules based on employee classes, age, or family status. These customization options can improve retention and employee satisfaction.
3. Employees can compare and buy qualifying individual health plans that meet minimum essential coverage (MEC) through public or private exchanges to participate in the ICHRA. Remodel Health’s administrative solution lets employees shop for off-exchange plans directly through our innovative platform.
4. Applicable large employers (ALEs) can design their ICHRA to meet the Affordable Care Act’s employer mandate instead of switching to a costly group health plan.
5. The ICHRA provides many tax advantages. Contributions are exempt from employers’ payroll taxes and are income-tax-free for participating employees.

In short, compared to more traditional models, the ICHRA gives your participating employees the freedom to choose their own health coverage, while giving you more predictable control over your benefits spending.

What is fully-insured group health insurance?

Group health insurance has long been the standard way employers provide comprehensive medical coverage. You choose which group health policies you want to offer your staff members. They can decide if they want to enroll in your employer-sponsored plan. Then, you pay monthly health insurance premiums to an insurer, typically at a reduced rate. In turn, the insurer covers your employees’ eligible medical claims and helps you manage the policy.

Here are some advantages of group health plans:

1. You can split the health insurance premiums with your enrolled employees, reducing the overall financial impact for both parties.
2. If your benefits budget allows, business owners can include employees’ eligible spouses and dependents in the group plan’s coverage.
3. Employers can buy a group plan through an insurance carrier, licensed agent, or broker. Small businesses that qualify for coverage can buy a group plan through the Small Business Health Options Program (SHOP) Marketplace.
4. Employers may opt to self-fund their group health plan, paying for medical claims directly instead of paying premiums to an insurer. This method can lower costs and allow for more customized plan design. However, it also means that the employer assumes all of the risk of insuring their employees.
5. Traditional employer-sponsored health insurance is one of the most common health benefit options. Because it’s so widely recognized, it can be a strong recruitment and retention tool for qualified workers.

Group health insurance can be an attractive benefit, but it’s not without potential downfalls. Employers must meet minimum participation requirements, manage potential double-digit premium rate increases due to utilization, and choose from limited plan options. In addition, working alongside insurers can come with time-consuming administrative complexity, especially during renewal periods.

Can employers offer the ICHRA and group health insurance at the same time?

You can provide both an ICHRA and a traditional group plan to create a more competitive benefits package. But you can do so only under specific conditions. Let’s go over those in the sections below.

Employee class requirements

The key to offering ICHRA and group health insurance is creating separate employee classes. Employers must ensure that the employees within a specific class can only access one type of benefit — the ICHRA or the group insurance plan. You can’t give your staff within the same class a choice between the two. 

For example:

• You can offer the ICHRA to your part-time workers to increase retention and group health insurance to your full-time employees who prefer a more traditional benefit.
• You can give your out-of-state remote workforces access to the ICHRA so they can choose a health plan in their specific location. In contrast, in-state workers can stay on your group plan and receive care from their favorite local carriers.

When creating classes, you must comply with nondiscrimination regulations. This means you can’t set rules regarding benefit eligibility using employees’ health statuses or other prohibited factors.

Minimum class size rules

If you decide to add both benefits to your compensation package, certain employee classifications must meet minimum size requirements to stay compliant. These rules help keep the benefit fair by preventing only high-risk employees from moving to the individual market.

Minimum class size requirements only apply to the following employee groups:

1. Salaried employees
2. Hourly employees
3. Full-time workers
4. Part-time employees
5. Workers within the geographic location, if the boundary is smaller than the state level (i.e., a rating area)

Suppose you make a custom combination class that includes one of the above groups, such as offering the ICHRA to salaried workers and group coverage to seasonal workers. In that case, you must still follow the minimum class size requirements.

The minimum class size rules by company size are as follows:

1. Businesses with fewer than 100 eligible workers must have at least ten employees in a class.
2. Employers with between 100 and 200 eligible employees must have at least 10% of the total number of employees in a class.
3. Companies with more than 200 eligible workers must have at least 20 employees in a class.

Class size minimum rules don’t apply if you only offer the ICHRA benefit or when setting your employer contribution amounts. You must also give your eligible employees the option to opt out of the ICHRA at least once a year.

Conclusion

Offering the ICHRA and group health insurance is a flexible and personalized way to provide employee healthcare benefits. But it’s crucial that you coordinate the two properly. By using employee classes, following nondiscrimination rules, and meeting minimum class size requirements, you can create a more compelling benefits strategy.

Working with a qualified ICHRA benefits administrator, like Remodel Health, can ensure you design a compliant benefit that guarantees cost predictability and boosts employee satisfaction. Contact us to learn more about our premier ICHRA+® administration solution for your business.

This article was originally published on April 13, 2023. It was last updated on August 19, 2025.

Important Notice:  Remodel Health does not intend to provide specific insurance, legal, or tax advice. Remodel Health always recommends consulting with your own professional representation to properly evaluate the information presented and its appropriate application to your particular situation.