ICHRA vs. group health plans

Employer-sponsored insurance covers 154 million people¹ younger than age 65. But many organizations are reconsidering traditional group health insurance due to premium rate hikes, a more distributed workforce, and increasing employee demand for flexibility.

The alternative gaining traction in its place is the individual coverage health reimbursement arrangement (ICHRA). ICHRA takes advantage of the individual health insurance market, which often provides more affordability.

In this article, we'll explain how an ICHRA compares to a traditional group plan, and which option is right for your organization.

In this blog post, you'll learn:

• How you avoid annual premium increases with ICHRA.
• The tax benefits ICHRA offers employers and employees.
• How ICHRA can improve employee satisfaction.

What is an ICHRA?

An ICHRA is an employer-funded benefit that allows organizations to help employees with their healthcare spending. Instead of purchasing a group health insurance plan, employers set a monthly contribution, often called an allowance. Employees then choose and enroll in individual health insurance coverage that meets their needs.

Here's how it works:

• Employers set contributions. You can vary allowances² based on employee class, age, and family size. There's no limit on employer contributions; instead, employers choose their maximum monthly contribution. According to Remodel Health's 2024 ICHRA Report, the average allowance offered by applicable large employers (ALEs) was $448.
• Employees purchase individual health insurance plans. They can get these plans through an insurance company or use the Affordable Care Act's (ACA) Health Insurance Marketplace. With Remodel Health, employees can enroll in off-exchange plans directly from our platform.
• Employees submit proof of their health insurance coverage. The employer, third-party administrator (TPA), or ICHRA administrator verifies it.

What is a group health insurance plan?

A group plan is a traditional employer-sponsored insurance policy that covers a group of employees, usually including their dependents. Employers typically pay a larger portion of the premium, with employees contributing the remainder through payroll deductions.

Group health plans generally fall into two categories: fully-insured and self-funded.

Fully insured group health plans

With a fully insured plan, an employer pays a fixed monthly premium to an insurance carrier, which assumes the risk of employees’ medical claims.

These plans are widely used because they’re familiar and relatively simple to manage. However, premiums are based on projected risk, not actual claims experience, which can result in annual increases regardless of how much care employees use.

Self-funded group health plans

In a self-funded plan, the employer pays employees’ healthcare claims as they occur, typically with stop-loss insurance to limit financial exposure.

Self-funded plans offer more flexibility and potential cost control, but they also come with greater risk. A small number of high-cost claims can significantly affect overall plan costs.

How ICHRAs and group health insurance plans compare

ICHRAs are growing in popularity. According to the HRA Council, ICHRA adoption grew 34% among large employers from 2024 to 2025. Here's why:

Cost control

With fully-insured group plans, insurance carriers set premiums. Employers have little control over costs and must absorb annual rate increases, regardless of actual claims experience.

With self-funded plans, employers pay claims as they occur. While this can create savings in low-claims years, costs can fluctuate significantly, making long-term budgeting difficult.

With an ICHRA, employers set a fixed monthly allowance. This defined contribution approach offers predictable costs and allows organizations to scale benefits more sustainably.

Flexibility and employee choice

Both fully-insured and self-funded group plans are employer-selected and usually offer limited plan options. Employees with different health needs fall under the same umbrella, regardless of their situation. Does a single, healthy, 25-year-old employee have the same healthcare needs as a married, 45-year-old employee with a chronic condition? Probably not.

ICHRA treats your employees as individuals. It allows them to choose from a wide range of individual plans available in their local healthcare marketplace. This flexibility helps employees choose healthcare coverage that aligns with their doctors, prescriptions, and financial preferences.

Portability

Group health coverage usually ends when employment ends. When this happens, employees scramble to get new coverage or lean on the Consolidated Omnibus Budget Reconciliation Act (COBRA) for support.

With an ICHRA, employees own their individual health insurance policies. If they leave the organization, they keep their coverage, providing continuity of care. However, they can’t keep their ICHRA. They’ll be responsible for paying their full individual health insurance premiums. Still, this prevents a coverage gap and can be much cheaper than paying COBRA.

Administrative considerations

Fully-insured plans require annual renewals, carrier negotiations, and enrollment management. Self-funded plans add additional administrative complexity, including claims oversight and vendor coordination.

ICHRAs shift much of the plan management to insurance carriers and employees. Employers focus on setting allowances, verifying coverage, and handling compliance. Marketplaces handle individual plan enrollment, and employees pay for their plans upfront. But these considerations can be challenging for teams that decide to administer an ICHRA on their own.

There's significantly less administrative burden when employers receive support from the right administration platform, like Remodel Health. From handling enrollments and education to automatically paying employee premiums and providing compliance guidance, Remodel Health is with you every step of the way.

Tax advantages

Both group health plans and ICHRAs offer tax advantages. With group plans, employer contributions are generally tax-deductible, and employee contributions are pre-tax.

ICHRA contributions are also tax-deductible for employers. They're tax-free for employees and don't count toward their taxable income.

Compliance

Under the ACA's employer mandate, ALEs must offer health insurance coverage to their employees. Both fully insured and self-funded group plans satisfy this requirement.

Offering an affordable ICHRA that meets minimum essential coverage (MEC) and minimum value standards also satisfies the mandate.

ICHRA vs. group health insurance

The chart below shows a side-by-side comparison between ICHRAs and group plans.

Choose Remodel Health as your ICHRA plan administrator

Offering an ICHRA shouldn’t feel risky. With Remodel Health as your ICHRA plan administrator, employers get a proven, full-service solution backed by the largest team and deepest experience in the market. We handle the tedious administrative and compliance tasks for you, so you can focus on other areas of your growing business.

With our ICHRA+ solution, you get:

• Complete compliance management. We help ensure your benefit is compliant, including providing data for Forms 1095-C and 1094-C, pre-filled Form 720s for PCORI fees, and templates for Medicare compliance.
• Accurate, reliable premium payments at scale. Our AutoPay system delivers employee premiums from FDIC-insured accounts with more than 99% accuracy, delivering timely payments directly to carriers each month. Our team actively monitors the process to resolve issues before they become problems.
• Customized benefit design. We guide you through every step of setup, from selecting your effective date and contribution strategy to defining employee classes.
• A better employee experience. We offer virtual and in-person education sessions, easy-to-follow ICHRA guides, and one-on-one support from licensed health benefits advisors. You and your employees will experience white-glove service at every step of the process.

Plus, we make shopping for individual health insurance simple. Your employees don’t have to navigate the health insurance marketplaces on their own. They can use our digital tools and personalized plan recommendations to help with their decision, or work with one of our licensed health benefits advisors. They can also purchase dental and vision coverage, all in one place.

Conclusion

Employee healthcare benefits continue to play a critical role in attracting and retaining talent. While traditional group plans remain a viable option for employer-sponsored health insurance, ICHRAs offer a modern alternative that prioritizes flexibility, cost control, and employee choice.

References

1. KFF
2. IRS

This article was originally published on July 15, 2020. It was last updated on January 29, 2026.