The hidden costs of traditional group health insurance that ICHRA eliminates

By Holly Bengfort on Nov 25, 2025 9:00:00 AM

Traditional group health insurance has long been the default option for employers, but it’s far from perfect.

If rising premiums, low employee satisfaction, or poor plan utilization have you or your client rethinking your approach, an individual coverage health reimbursement arrangement (ICHRA) offers a clearer, more flexible alternative. ICHRA adoption grew 34% among large employers from 2024 to 2025, thanks to its predictable budgeting and adaptability.

In this article, we’ll explain the hidden costs of traditional group health insurance that ICHRA eliminates.

In this blog post, you’ll learn:

How ICHRA works.
The five overlooked expenses of traditional group health coverage and how ICHRA solves them.
How you can easily offer ICHRA with the help of Remodel Health.

Interested in ICHRA? Here are the terms you need to know.

What is ICHRA?

ICHRA offers cost protection. With ICHRA, employers help employees pay for their individual health insurance plans instead of purchasing a one-size-fits-all plan for the entire team.

Unlike a health savings account (HSA), there are no employee contributions with ICHRA. The employer completely funds it. Employees only contribute to the cost of their healthcare if they choose coverage that costs more than what you offer as an allowance. According to Remodel Health’s 2024 ICHRA Report, the average allowance that applicable large employers (ALEs) offer is $448 per month.

There’s no limit on employer contributions with ICHRA. You can offer your employees as much as you want. With ICHRA, you set a budget and stick to it for the year.

Here’s how it works:

You set a monthly allowance for your employees to use on individual health insurance plans.
They compare affordable options on the individual insurance market and pick policies that suit their individual needs and budget.
Employees pay for their premiums with their tax-free ICHRA contributions.
If employees choose individual health plans that exceed their allowances, they pay the difference. Not you.

Now, let’s review the five overlooked expenses of traditional group health coverage and how ICHRA solves them.

1. Participation requirements that limit your options

Group plans don’t just cost employers money. They also limit your control over your benefit. Many insurance carriers require strict participation thresholds, anywhere from 70% to 75%, to keep a plan active.

If too many employees waive coverage, you may face:

Unaffordable premium costs.
Fewer policy options.
The risk of losing group coverage altogether.

These rules force employers into a narrow lane, even when their workforce is part-time, seasonal, remote, or simply prefers individual plans.

How ICHRA solves this

ICHRA eliminates participation requirements. You can vary allowances and eligibility using 11 employee classes, which is ideal for a diverse workforce. You can also differ allowances by employee age and family size. If employees opt out of the ICHRA, it doesn’t impact your ability to offer the benefit to the rest of your team.

2. Annual rate hikes and unpredictable renewals

Traditional group insurance is notorious for its annual rate hikes. PwC¹ expects medical costs in the U.S. to rise 8.5% for group plans in 2026, the same rate as in 2025. But, this is for employers without high utilization. If your employees utilize a significant amount of healthcare, you may face rates of 20% or more. Employers often brace for these increases, and switching carriers from year to year rarely provides lasting relief.

Hidden inside this cycle are:

Renewal increases tied to group demographics.
Rising claims costs that penalize the small-group market.
Negotiations that give employers little leverage.

How ICHRA solves this

ICHRA offers you financial protection. It turns unpredictable renewals into predictable budgeting. Employers set a defined, tax-free allowance that doesn’t fluctuate based on claims or shifting employee demographics. Moving to the individual market can also help employees. Whereas group plans are experience-rated, individual plans are community-rated. Your employees’ utilization doesn’t have an impact on their premiums. Instead, costs for the general population do. This makes rates much more stable.

3. Limited networks and low employee utilization

Even when employers spend heavily on a group plan, it often misses the mark for employees.

Many workers struggle with:

Narrow provider networks.
Prescriptions that don’t match their needs.
Plan designs that favor the majority rather than individual needs.

The result is low utilization and frequent dissatisfaction.

How ICHRA solves this

ICHRA gives every employee the freedom to choose a plan that aligns with their doctors, prescriptions, and priorities. For instance, some employees might opt for marketplace plans with higher annual deductibles and lower premiums to save monthly, while others might prefer marketplace plans with lower annual deductibles to accommodate more frequent medical visits. They can also choose a plan that works with their existing providers or their preferred providers.

4. Hidden administrative burdens

Managing group plans involves meeting enrollment deadlines, conducting eligibility audits, understanding compliance obligations, and coordinating with carriers. These tasks drain time from HR teams and business owners.

How ICHRA solves this

An ICHRA administrator, like Remodel Health, manages most of the tedious tasks to reduce your administrative costs.

Through Remodel Health’s ICHRA+ solution, our experts handle:

Onboarding and support
Plan design
Legal plan documents
Autopay for employee individual health insurance premiums
Required ICHRA plan notices
Providing necessary data and instructions for compliance filings

Our platform integrates with more than 200 payroll and HRIS systems to further simplify administrative tasks, providing a seamless experience for your team. Employees can also shop for health plans directly from their Remodel Health account.

5. Wasted spend on employees who don’t need the coverage

Group plans require employers to offer coverage broadly, even if some employees already have insurance elsewhere, such as through their spouse’s or parent’s plan. Employers end up paying for a benefit that goes unused.

How ICHRA solves this

ICHRA directs contributions only toward employees enrolled in individual health insurance plans, thereby eliminating unnecessary spending.

Traditional group insurance vs. ICHRA

Below is a comparison table that highlights the key differences employers care about most.

Feature	Traditional group health insurance	ICHRA
Eligibility requirements	Any employee can participate.	W-2 employees are eligible to participate, provided the employer offers the benefit to them in their plan design. Employees need qualifying individual health insurance coverage to participate.
Annual rate hikes	Common and unpredictable.	Controlled by employer-defined allowances.
Plan flexibility for employees	One-size-fits-all.	Employees choose their own comprehensive coverage options.
Provider network options	Limited networks, depending on the carrier.	Any network available on individual plans, which can vary from broad to narrow networks.
Impact of employee claims	High claims can raise premiums.	Claims don’t affect the employer’s or employee’s cost.
Administrative burden	High administrative burden with ongoing compliance and carrier coordination.	Streamlined administration through an ICHRA administrator.
Cost waste on unused coverage	Employers pay even if employees waive coverage.	Only employees enrolled in individual insurance coverage receive allowances.
Budget predictability	Low.	High.

Conclusion

Traditional group health insurance carries multiple financial burdens that ICHRA effectively eliminates. For employers feeling the weight of rising annual premiums, limited plan choices, and the exhausting renewal cycle, ICHRA offers long-awaited relief. If you’re ready to rethink how you invest in your team’s health coverage, ICHRA provides a clear, sustainable path forward.

Learn why Remodel Health is the best option for hands-on, white-glove ICHRA administration.