ICHRA vs. Group Health: Which Is Right for Your Company?
There is no single right way to offer health coverage in 2027. Traditional group plans, level-funded plans and ICHRAs each fit a different kind of employer, and the wrong fit costs money every month. Most guides on this topic come from companies that sell only one of these options. We are an independent firm and we set up all three, so this guide compares them honestly.
The three options side by side.
The biggest difference is who carries the risk and who picks the plan. Group plans give everyone the same menu. An ICHRA gives everyone a budget.
| Traditional group (fully insured) | Level-funded | ICHRA | |
|---|---|---|---|
| How it works | You buy one group policy from a carrier | You pay a fixed monthly amount; unused claim funds may come back | You give employees a tax-free monthly allowance; they buy their own individual plan |
| Who picks the plan | The employer, from one carrier’s menu | The employer | Each employee |
| Cost predictability | Set for the year, but renewals can jump | Set for the year, renewal tied to your own claims | You set the allowance, so your cost is fixed |
| Renewal risk | Carrier sets the increase | Depends on your group’s claims | No group renewal; employees face individual-market rates |
| Networks | One carrier’s network for everyone | One network for everyone | Whatever each employee chooses in their area |
| Best for | Groups that want one rich plan and simple administration | Healthy groups that want to share in savings | Varied workforces, multi-state teams, or employers who want a fixed budget |
| Main trade-off | Least control over cost increases | Some exposure if claims run high | Employees shop for their own plan, and individual-market choices vary by county |
An ICHRA gives every employee a budget.
An ICHRA (individual coverage health reimbursement arrangement) lets you reimburse employees tax-free for health insurance they buy on their own. The federal government now also calls it a “CHOICE Arrangement.” It is the same product under the same rules.
- You set a monthly allowance for each class of employee, for example $500 a month for full-time staff.
- Each employee buys an individual plan, on the Marketplace or directly from a carrier. Medicare also qualifies.
- Employees submit proof of premium, and the reimbursement is paid tax-free. Employees can also choose to opt out each year.
- Unused allowance stays with you. You pay only what employees actually use, up to the amount you set.
You can set different allowances for different groups, such as full-time vs. part-time, salaried vs. hourly, or by work location. Within a group, amounts can vary only by age (oldest up to 3 times the youngest) and family size. If you are weighing an ICHRA against a QSEHRA, see our ICHRA vs. QSEHRA guide.
Source: HealthCare.gov, CHOICE Arrangements.
When ICHRA fits, and when group coverage is the better call.
ICHRA works best when a fixed budget matters more than one shared plan. Group coverage works best when employees value a single rich plan and a familiar network.
| ICHRA is often the better fit when… | Group coverage is often the better fit when… |
|---|---|
| You have never offered coverage and want to start with a set budget | Most employees want the same doctors and one network |
| Your group renewal keeps jumping and you want to cap your cost | Your group is healthy and getting good renewals |
| Employees live in different counties or states | Most employees live near one office |
| You want different allowances for hourly, salaried or part-time staff | Recruiting depends on offering a rich, recognizable group plan |
| Many employees are older, on a spouse’s plan, or on Medicare | Employees would struggle to shop for and choose their own plan |
You can also mix the two. For example, you might keep a group plan for salaried staff and offer an ICHRA to hourly staff. Minimum class sizes apply when you do this, starting at 10 employees for companies under 100.
What Michigan employers should know for 2027.
Michigan has a competitive individual market, but 2027 individual rates are rising faster than small-group rates. That makes the allowance you set the most important decision in an ICHRA.
- Rates: approved 2027 rates average about 14% higher in Michigan’s individual market and about 10% higher in small group.
- Carriers: individual plans for 2027 are filed by insurers including Blue Cross Blue Shield of Michigan, Blue Care Network, Priority Health, HAP, McLaren, Meridian, Oscar, Alliance Health and Molina. Which plans are available depends on the county where each employee lives.
- Subsidies: the enhanced federal premium subsidies expired, so fewer employees can lean on tax credits. An employee offered an affordable ICHRA cannot claim a tax credit anyway, so your allowance does the heavy lifting.
- Teams outside Michigan: ICHRA lets each employee buy a plan where they live. That avoids forcing a Michigan network on staff in other states.
The 90-day notice catches most employers.
For a January 1, 2027 start, notices were due by October 3, 2026. An ICHRA can start on the first of any month, so a February 1 or March 1 start is still open.
| Requirement | What it means |
|---|---|
| 90-day employee notice | Written notice to eligible employees at least 90 days before the plan year starts; new hires get it when they become eligible |
| Individual coverage required | Employees must have a qualifying individual plan or Medicare to be reimbursed; short-term plans do not count |
| Same terms within a class | Everyone in a class gets the same offer; amounts may vary only by age (up to 3:1) and family size |
| No double offer | You cannot offer both a group plan and an ICHRA to the same class |
| Affordability (50+ employees) | To satisfy the employer mandate, the employee’s cost for the lowest-cost silver plan, after the allowance, must stay under 9.96% of income for 2026 and 10.22% for 2027 |
| Plan documents and reporting | An ICHRA is an ERISA plan: plan document, SPD, ACA reporting for larger employers, COBRA, HIPAA and PCORI all apply |
Sources: HealthCare.gov; PeopleKeep on CHOICE Arrangement status. Proposed laws to codify CHOICE Arrangements and shorten the notice to 60 days have not passed, so the 2019 rules still apply.
Five questions to answer first.
If you can answer these five, you are ready to compare real numbers.
- What can we spend per employee per month, and do we want that number fixed?
- Where do our employees live? One county, several, or several states?
- Who are we covering? Ages, families, part-time staff, anyone on Medicare or a spouse’s plan.
- How important is one shared network, and would employees be comfortable choosing their own plan with help?
- When does our current plan renew, and do we have 90 days to give notice before an ICHRA would start?
We compare all three, then run the one that wins.
We do not earn more by steering you to one model. Bring your renewal and a census, and we will show you all three options.
An honest comparison
We price your group plan, level-funded options and an ICHRA allowance against your actual census, so you see real numbers.
Setup done for you
Plan documents, the SPD and the 90-day employee notices are prepared for you.
Premiums paid straight to the carrier
Reimbursements can go directly to each employee’s insurer, with protection against coverage lapses.
Help for employees
Your employees can call us to choose the individual plan that fits them best.
Compliance after launch
We help keep you ERISA compliant and can help with ACA reporting, COBRA and other filings.
A team, not one broker
For proper coverage of an account we work in teams of 5: an account executive, account manager, plan analyst, customer service and IT.
See how we set up and run an ICHRA on our ICHRA strategy and support page, or download this guide as a PDF.
ICHRA and Group Health Questions Answered
Plain answers to what employers ask us most when they compare an ICHRA with a group plan.
Can an employee turn down an ICHRA?
Yes. Employees can waive the offer. If they do, they give up the tax-free reimbursement. An employee who waives an ICHRA that the IRS treats as affordable generally cannot also claim a premium tax credit for marketplace coverage, so the choice has real consequences and should be explained in writing.
Do employees have to buy their plan on the Marketplace?
No. Employees can buy an individual plan on or off the Marketplace, as long as it is individual coverage that qualifies. Many employers let employees shop with a broker so they can compare every carrier in their county.
Can an ICHRA reimburse spouses and children?
Yes, if you choose to offer it. You set whether the allowance covers the employee only or also dependents. The amount for family members is set by class and can vary only by family size and age under the rules in this guide.
How do employees get paid back each month?
The employee pays the premium, then submits proof of coverage and payment. You reimburse the approved amount, usually through payroll. Most employers use an administration platform to collect proof and track each allowance.
Is the reimbursement taxable to the employee?
Qualified reimbursements are generally tax-free to the employee and deductible to the employer. That is why an ICHRA usually beats simply giving a taxable stipend of the same size.
What happens to unused allowance money?
It stays with the employer. Unlike a salary increase, an allowance is only paid out when an employee has a qualifying premium to be reimbursed for, so your cost is capped at the amount you set.
Can we offer an ICHRA if we have fewer than 50 employees?
Yes. Employers of any size can offer one. The affordability test applies to employers with 50 or more full-time equivalent employees, but smaller employers still need the notice, plan document and class rules.
Can we switch from a group plan to an ICHRA in the middle of the year?
Usually only at a clean break. You can start an ICHRA on the first of any month, but ending a group plan mid-year may mean waiting for a renewal date or paying a carrier penalty. We check your contract before recommending a date.
Does an ICHRA work for employees who are on Medicare?
Yes. Employees with Medicare Parts A and B can use an ICHRA to be reimbursed for Medicare premiums, including Medigap and Part D, if the arrangement is set up to allow it. Many employers set a separate class for them.
How do we compare the true cost of each option?
Look past the premium. Add the employer share, administration fees, the cost of employees leaving, and the risk of a mid-year renewal jump. Send us your renewal and we will model all three options side by side.
Not sure which option fits? Talk to an independent advisor who sets up all three.
General information, not legal or tax advice. Confirm your situation with your attorney or tax advisor.
Send us your renewal.
We’ll tell you whether it looks competitive, where we see opportunity, and the five questions we’d put to your carrier. No cost, and no obligation to move anything.
The renewal letter
Your current plan summary
Contribution split by tier
Enrolled counts by tier
Four documents — two more if your group is 50 or more. Nothing else; every extra one is a reason to postpone.
An independent employee benefits consulting firm. We look at the entire benefits program — cost, plan performance, risk and administration.
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