ICHRA vs. Group Health Insurance: How to Decide What Your Team Needs
Group coverage gives your whole team one shared plan. An ICHRA gives each person a monthly allowance to pick their own. Here is how the two compare, so you can choose the one that fits how your business runs.
The Quick Answer
Choosing between an ICHRA and group health insurance comes down to one question: who picks the plan? With group coverage, you choose the plan or plans, and your team enrolls in what you offer. With an ICHRA, you choose a monthly amount, and each employee picks the individual plan that fits their own life and budget.
Neither option is better for every business. Group coverage tends to suit owners who want everyone on the same plan with the same doctors. An ICHRA tends to suit owners who want a predictable monthly cost and have a team whose needs vary widely. The sections below put the two side by side so you can see where your business lands. If you are weighing a group plan with extra help for out-of-pocket costs, our guide to what a MERP is explains that third option.
The core difference
Group coverage is a plan you choose for your team. An ICHRA is an allowance your team uses to choose for themselves.
Side by Side: Where the Two Differ
These are the questions small business owners ask most when they weigh one option against the other.
Who chooses the plan
You choose the plan or plans, and your team enrolls in what you offer.
Each employee chooses an individual plan that fits their own doctors, family, and budget.
How your monthly cost is set
The plan sets the premium, and you decide what share to pay. Premiums are typically reset each year at renewal.
You set the allowance. Federal rules set no minimum or maximum, and amounts can differ by class of employee, such as full-time and part-time.
Rules about who has to join
Carriers can require a minimum share of eligible employees to enroll and a minimum employer contribution, as state law allows.
The allowance is offered on the same terms to everyone in a class, and each employee can opt out.
When coverage can start
Small groups can generally buy at any time. A carrier can limit a group to November 15 through December 15 only if the group misses participation or contribution rules.
Employees who newly gain access get a special enrollment period to join an individual plan.
Premium tax credits for employees
An employee offered affordable group coverage that meets minimum value generally cannot claim the credit.
The same rule applies to an affordable ICHRA, measured against the lowest cost silver plan where the employee lives. If it falls short, the employee can decline it and may claim the credit instead.
The federal employer mandate
Employers with fewer than 50 full-time employees, counting full-time equivalents, are not subject to the ACA employer mandate. For a business that size, the employer-level ICHRA affordability test does not apply, whichever route you choose.
You can use both. An employer can offer group coverage to one class of employees and an ICHRA to another, such as full-time staff on the group plan and part-time staff on an ICHRA. The same class cannot be given a choice between the two. Under 100 employees, certain splits, like full-time versus part-time, need at least 10 people in the class offered the ICHRA.
State rules add their own details, and the sections further down cover what changes in Pennsylvania, New Jersey, and Delaware.
What Each One Looks Like in Practice
Here is the path from decision to coverage, step by step, so you can picture how much of the work lands on you and how much lands on your team.
Group health insurance
1
You choose the plan
Pick the plan or plans to offer and the share of the premium you will pay.
2
Your team enrolls
Eligible employees sign up, and enough must join to meet the carrier's participation rules.
3
The group is billed
One monthly premium covers the whole group, and you pay the share you chose.
4
The plan renews each year
Premiums are typically reset each year, so you review the plan and cost annually.
ICHRA
1
You set the allowance
Choose a monthly amount for each class of employee. Federal rules set no minimum or maximum.
2
Employees pick a plan
Each person chooses an individual plan, with a special enrollment period when they first become eligible.
3
Employees confirm coverage
Each employee shows they are enrolled in an individual plan before reimbursement begins.
4
You reimburse
Pay employees back under the plan terms you set up, up to the allowance.
How taxes work. Employer contributions to employee health coverage, whether group premiums or ICHRA reimbursements, are generally left out of the employee's taxable wages. The business can generally deduct the cost as well. Owners of some business structures, such as S corporations, follow different rules, so a tax advisor can confirm how this applies to your situation.
Which Way Does Your Business Lean?
There is no single right answer. These everyday situations tend to point one way or the other, and the marker shows which way.
You want everyone on the same plan
One group plan keeps the coverage, the network, and the benefits identical across your whole team.
You would rather manage one plan
Group coverage means one plan and one yearly renewal. An ICHRA means collecting proof of coverage and reimbursing each employee separately.
Your team is spread across states
Individual plans are chosen where each employee lives, so people in different states can each find coverage that fits where they are.
You want a budget you set yourself
With an ICHRA, the monthly allowance is your number, with no federal minimum or maximum. Group premiums are typically reset each year at renewal.
You want different benefits for different groups
Classes such as full-time and part-time can each be offered something different, and group coverage and an ICHRA can be used side by side.
No single row settles the question. Most decisions come down to weighing a few of these against each other, and a licensed advisor can walk through the numbers for your team.
What Changes at the State Line
Federal rules are the same everywhere. A handful of details shift between Pennsylvania, New Jersey, and Delaware, and these are the ones that matter most when you compare group coverage with an ICHRA.
Pennsylvania
New Jersey
Delaware
Where ICHRA employees shop
Pennie, Pennsylvania's official health insurance marketplace.
GetCoveredNJ, New Jersey's official health insurance marketplace.
HealthCare.gov, through the Delaware Health Insurance Marketplace.
What counts as a small employer for group plans
50 or fewer full-time employees.
An average of 50 or fewer employees during the prior calendar year.
No more than 50 eligible employees, most of them working in Delaware.
Group plan participation and contribution rules
Set by each carrier and plan.
State regulation has carriers generally require 75% of full-time employees to enroll, and bars them from requiring an employer contribution above 10%.
Carriers set the minimums and apply them the same way to every employer of the same size. Employees with other qualifying coverage are not counted.
The same in all three states. The ICHRA rules come from federal law. You set the allowance with no minimum or maximum, offer it on the same terms within each class of employees, and employees confirm they are enrolled in an individual plan. Individual plan open enrollment starts each November and runs into January, and each marketplace posts its exact dates. Employees who newly gain access to an ICHRA also get a special enrollment period outside the usual window.
State rules can change over time, so an advisor can confirm what applies to your group.
Talk It Through With an Advisor
Choosing between group coverage and an ICHRA gets easier with someone who can run the numbers for your team. Our advisors will walk through your options and answer your questions.
Common Questions About Choosing Between the Two
Can I offer group coverage to some employees and an ICHRA to others?
Yes, as long as you divide your team by class. For example, full-time employees could keep a group plan while part-time employees receive an ICHRA allowance. The same class cannot be offered a choice between the two, and for employers with fewer than 100 employees, some splits require at least 10 people in the class offered the ICHRA.
Is there a limit on how much I can put toward an ICHRA?
Federal rules set no minimum or maximum for the allowance, so the amount is yours to decide. You can set different amounts for different classes of employees, as long as everyone in the same class is generally offered the same terms.
When can a small business start a group plan?
Small groups can generally buy group coverage at any point in the year. If a group cannot meet a carrier's participation or contribution rules, as state law allows, the carrier may limit it to an annual enrollment period that runs from November 15 through December 15.
What happens if too few employees enroll in a group plan?
Carriers can require that a minimum share of eligible employees enroll, and the exact minimum depends on your state and the carrier. In New Jersey and Delaware, employees who already have other qualifying coverage, such as through a spouse, are not counted against that requirement. A group that misses the minimum generally cannot be turned away during the November 15 through December 15 enrollment period.
Is tax treatment different for group premiums and ICHRA reimbursements?
For employees, the IRS treats them alike. Employer contributions to accident and health coverage, whether premiums or reimbursements, are generally left out of taxable wages, and the business can generally deduct the cost either way. Some owners, such as S corporation owners with more than 2% of the stock, follow different rules, so it helps to confirm the details with a tax advisor.
This content is provided for informational purposes only and does not constitute legal or tax advice. Please consult your legal or tax advisor to determine how regulations apply to your situation.
Still Weighing Your Options?
Share your team size and your budget, and an advisor will show you how group coverage and an ICHRA would each work for your business.
Disclosures
We are compensated by the insurance carriers for policies you choose through us. There is no direct cost to you. Compensation may vary by carrier and product. Information on this page is for educational purposes and does not constitute legal, tax, or accounting advice. Please consult your professional advisors about your specific situation. Tax treatment of ICHRA reimbursements can vary by employer and employee. We are licensed to advise clients in Pennsylvania, New Jersey, and Delaware. Contact us to confirm availability in other states.
