Choosing ICHRAs vs. self-funded plans

Rising healthcare and insurance costs are forcing employers to explore alternatives to traditional insurance models. Many organizations have turned to self-funded health plans to gain greater budget control. Others are adopting an individual coverage health reimbursement arrangement (ICHRA) as a way to offer personalized employee benefits without assuming claims risk.

In this article, we’ll compare ICHRAs and self-funded health plans so you can determine which approach is right for your organization.

In this blog post, you'll learn:

• How an ICHRA compares to a traditional group health insurance plan.
• The differences between ICHRA and self-funded health plans.
• How to decide which health benefit is best for your organization.

What is an ICHRA?

An individual coverage HRA (ICHRA) is a defined contribution health benefit that allows employers to give employees tax-free dollars for individual health insurance premiums and potentially eligible out-of-pocket medical expenses.

Instead of offering a traditional group health plan, employers provide a fixed monthly allowance. Employees then choose and enroll in their own individual health insurance coverage. Traditionally, employees would then submit their premiums and eligible medical expenses for reimbursement up to that amount. But with Remodel Health, you can establish automated premium payments. We then pay their insurance carriers directly, eliminating the need for employees to front the cost of their premiums.

Because employees own their coverage, they can keep their individual health insurance policy even if they change jobs, move, or experience other life changes.

What is a self-funded health plan?

A self-funded health plan, or self-insured health plan, is an employer-sponsored arrangement where the employer pays employee medical claim expenses directly rather than paying fixed premiums to an insurance carrier. According to KFF¹, 67% of covered workers were in a self-funded health plan in 2025.

Most employers partner with third-party administrators (TPAs) or contract with a health insurance company to support claim management. They may also purchase stop-loss insurance to help protect against catastrophic claims.

A self-funded health insurance plan may appear to be a way to better control costs compared to a fully insured group health plan. While it can offer flexibility and potential savings for very large employers, it also shifts financial responsibility for employee healthcare claims to the employer, along with the associated cost variability and risk.

Key differences between ICHRAs and self-funded benefit plans

Let's review the primary differences between the two models.

Cost and budget predictability

Cost structure is often the primary driver behind choosing one model over the other.

With an ICHRA, employers set a defined monthly contribution for employees to use on individual health insurance. This makes annual budgeting predictable and straightforward, as you’ll never pay more than your annual contribution for each employee. ICHRA also offers tax benefits. Contributions are tax-advantaged for both employers and employees. Additionally, several states are starting to offer tax credits for small employers offering ICHRAs.

Self-insured health plans operate on a variable cost model. Employers pay claims as they occur, which can create savings in low-claim years but significant cost fluctuations when utilization rises. Even with stop-loss insurance, overall spending can be unpredictable.

For those who value stable budgeting, offering an ICHRA can feel less risky compared to self-funded insurance.

Risk exposure

Risk allocation is one of the most fundamental differences between the two approaches.

With an ICHRA, employers shift healthcare risk to the individual insurance market. Employees purchase their own coverage, and health insurance carriers assume claims risk. The employer’s exposure is limited to the defined allowance.

With a self-funded strategy, employers directly assume claims risk. Stop-loss insurance can reduce exposure to high-cost claims, but it does not eliminate overall volatility in healthcare spending.

"Self-funding transfers claims risk to the employer in exchange for potential savings, but that savings proposition disappears in a bad claims year,” Sarah Yi, Vice President of Sales, West at Remodel Health, said. “ICHRA reframes the equation entirely: the employer's liability ends at the defined contribution, and the individual market absorbs the rest. It's a fundamentally different risk posture."

Administrative complexity

Administrative burden can significantly affect both cost and internal workload.

Many employers use an ICHRA administrator, like Remodel Health, to manage onboarding, eligibility, payment processing, regulatory compliance, and employee support. This centralized model keeps ongoing administration relatively simple.

Self-insured health plans require coordination across multiple vendors, including TPAs or insurance companies, stop-loss carriers, and pharmacy benefit managers (PBMs). Employers also need to monitor claims data and manage ongoing regulatory requirements, which increases operational complexity.

Employee satisfaction and plan flexibility

Satisfaction with a health benefit often depends on how well it meets individual employee needs.

Self-funded plans typically offer a single employer-sponsored plan or a limited set of options. While plan design can be customized, employees have less ability to tailor coverage to their personal situation.

With an ICHRA, employees shop for their own health insurance plans in the individual market.

This allows them to choose plans based on:

• Provider networks
• Coverage levels
• Deductibles
• Premium rates

An analysis of Remodel Health customer data for our 2026 National ICHRA Report found that employees enrolled in 14 unique plans per employer on average, compared to one or two for traditional group coverage. This shows that employees with an ICHRA are choosing the plans that best fit their needs.

Flexibility for diverse teams

One of the biggest advantages of ICHRA is its flexibility across diverse workforces.

Employers can vary contribution limits and benefit eligibility with 11 types of employee classes, such as full-time, part-time, seasonal, or geographic location. This makes it especially effective for multi-state or remote organizations.

Because employees purchase health coverage locally, they're not constrained by a single national network and can find plans that better fit their regional healthcare options.

ICHRA vs. self-funded health insurance

Here's a quick look at how ICHRAs and self-insured health plans compare.

When an ICHRA makes more sense

An ICHRA is often a strong fit for employers that want predictable healthcare spending, reduced claims risk, and more employee choice.

This health benefit is especially effective for organizations with distributed teams or those frustrated by rising and unpredictable group health plan premiums. Employers seeking a scalable, defined contribution model often find it aligns well with long-term budgeting and workforce flexibility.

"ICHRA is an excellent risk mitigation strategy for clients experiencing high claims,” Yi said. “You move from one end of the risk spectrum to the other by moving risk to the individual market. Not only can it translate to cost savings, but it can also be a sustainable and predictable long-term strategy for businesses."

When a self-funded plan makes more sense

A self-funded group health plan may be better suited for larger organizations with strong financial reserves and a tolerance for claims variability.

These employers typically want maximum control over plan design and are willing to actively manage healthcare utilization in exchange for potential cost savings.

It’s often a better fit for organizations with experienced health benefits teams and relatively stable, predictable workforce demographics. But for most organizations, it’s worth looking into an ICHRA. Remodel Health can provide a customized quote and analysis that compares your options. If ICHRA isn’t the right fit for your group, we’ll let you know.

Conclusion

If you’re considering benefits alternatives, self-funded plans can offer greater control and potential savings but require employers to assume claims risk and manage added complexity. ICHRAs, on the other hand, provide predictable budgeting, reduced risk, and greater employee choice through a defined contribution model built for modern workforces.

Ready to offer a flexible, cost-controlled health benefit to your team? Contact Remodel Health today to get started with an ICHRA quote!

This article was originally published on November 5, 2024. It was last updated on June 8, 2026.

References

1. https://www.kff.org/health-costs/2025-employer-health-benefits-survey/