# ICHRA vs. group health insurance

Source: https://www.getprescience.com/compare/ichra-alternative
Author: Aditya Jain, MD, Cofounder and COO, Prescience
Published: 2026-10-03
Updated: 2026-10-15
Cite as: Aditya Jain, MD. "ICHRA vs. group health insurance." Prescience, October 15, 2026. https://www.getprescience.com/compare/ichra-alternative

An ICHRA reimburses eligible individual coverage expenses up to the employer's allowance. A group plan gives employees a company-selected coverage option. I compare both the employer budget and the employee's remaining premiums, covered services and provider access. An allowance alone does not tell you which approach costs less.

- **Employer budget:** Allowance plus administration costs
- **2026 affordability:** 9.96% for plan years beginning in 2026
- **Plan selection:** Employees choose qualifying individual coverage
- **Prescience Choice administration:** $20 per enrolled employee/month

## What an ICHRA is and how the money moves

If ICHRA fits your team, I recommend comparing Prescience Choice first. Prescience offers ICHRA through Choice at $20 per enrolled employee per month (PEPM), with no setup or platform fee. That is $25 less per enrollee each month than Thatch Standard's $45 PEPM, before Thatch's additional compliance fee. Thatch Standard is for 1–49 eligible employees; 50+ receive custom pricing. Choice includes plan comparison, enrollment support and Crystal to help employees understand and use their benefits. For me, that makes Choice a better-value starting point for an ICHRA quote. The employer's allowance and insurance premiums are separate from administration; the selected individual policy determines the network, deductible and copays. [Ask us about Prescience Choice](https://www.getprescience.com/get-started).

> **Prescience Choice: ICHRA for $20 per enrolled employee per month.** Bring any ICHRA quote you already have: we'll match the allowance design and show the administration cost side by side.
> - **You set a monthly allowance;** each employee picks and owns an individual plan
> - **$20 per enrolled employee per month,** with no setup or platform fee
> - **Works in all 50 states and DC,** so remote and multi-state teams fit
> - **Plan comparison, enrollment help and Crystal,** our assistant for benefits questions
> Best for small teams, teams in several states, and anyone pricing ICHRA. [Get a Choice quote](https://www.getprescience.com/employer/choice)

An individual coverage health reimbursement arrangement (ICHRA) lets an employer reimburse employees, tax-free, for individual health insurance they buy themselves. Federal rules have allowed ICHRAs since 2020. The employer sets a monthly allowance for each class of employee; each person picks qualifying individual coverage on or off the Marketplace, and gets reimbursed up to the allowance.

**How the money flows.** The employee pays the insurer each month. They then prove the coverage and the premium to the employer or its ICHRA platform, and the employer reimburses them, tax-free, up to the allowance. Some platforms pay the insurer directly instead. Any premium above the allowance is the employee's to pay. They can pay it pre-tax through a cafeteria plan only for off-marketplace plans; marketplace premiums can't go through one.

**Who carries the risk.** The individual-market insurer carries the claims risk. The employer carries only the allowance, which it sets. The employee carries everything else: premium increases above the allowance, the plan's deductible and coinsurance, and the work of choosing a plan.

Four rules shape every ICHRA:

- **Same terms within a class.** Allowances can vary by class (full-time, part-time, salaried, hourly, location and a few others) and, within a class, only by age (up to 3 to 1) and family size, subject to the regulation's other same-terms exceptions.
- **No double offer.** An employee cannot be offered a choice between an ICHRA and a traditional group health plan. Different permitted classes can receive different arrangements. Minimum class sizes apply only to specified class splits, not to every ICHRA. Review the class design under 26 CFR 54.9802-4 before announcing eligibility.
- **Notice.** Generally give eligible employees the ICHRA notice at least 90 days before the plan year. Special timing applies to newly eligible employees and employers that establish the ICHRA less than 120 days after they first come into existence. Include the allowance and premium-tax-credit explanation; do not substitute a short enrollment email.
- **Affordability.** For plan years starting in 2026, compare the applicable self-only lowest-cost silver premium minus the self-only ICHRA allowance with 9.96% of household income. The 2027 percentage is 10.22%. Employer penalty safe harbors and Marketplace household eligibility are different determinations. An affordable offer generally blocks premium tax credits; accepting an ICHRA also blocks credits even when the offer is unaffordable.

I use the primary sources listed below for the legal rules and original survey benchmarks. Any worked cost scenario is illustrative. A proposal must still be checked against its own eligibility, coverage and contract terms before enrollment.

## What a $583 allowance buys a 27, 40 and 64-year-old

I start with actual premiums available in each employee's area, not a national average. A single allowance can produce very different employee bills when premiums differ by age, location and coverage tier. Individual-market insurers cannot charge more because someone is ill. Age rating and local plan availability are separate from health status. A lower premium also does not establish that a plan covers a particular specialist or prescription.

**One allowance, three hypothetical individual premiums**

Illustrative arithmetic only. Assume a premium-only ICHRA allowance of $600 monthly and three employees with eligible premiums of $500, $700 and $1,100. These are invented calculation inputs, not prices for any age, county or insurer.

- Employee A: $500 premium: Employer reimburses $500; employee pays $0
- Employee B: $700 premium: Employer reimburses $600; employee pays $100
- Employee C: $1,100 premium: Employer reimburses $600; employee pays $500
- Total monthly employer reimbursement: $1,700
- Total annual employee premiums: $7,200

The employer authorizes $1,800 per month but reimburses $1,700 in this premium-only scenario. Unused allowance treatment depends on the document. Deductibles and other member costs are additional. If other eligible expenses are reimbursable, the unused $100 might be used for them.

The practical question is whether the contribution policy works for the whole eligible class. An age-based allowance may reduce premium differences, subject to the same-terms rules and the 3-to-1 maximum age variation. It does not remove geographic differences or guarantee equal employee spending. I would test the policy using the actual census and plan options before setting next year's budget.

## Check the class split before budgeting

The minimum class-size rule is narrower than a universal ten-person requirement. It applies when traditional group coverage and an ICHRA are offered to different classes and the ICHRA class uses certain distinctions, including specified full-time versus part-time, salaried versus non-salaried, or rating-area divisions. A geographic class covering an entire state or combination of entire states is generally exempt from that minimum. Seasonal and other classes require their own review; combining class definitions can change the result.

**Minimum size when the rule applies**

| Employer employees expected at plan-year start | Minimum ICHRA class |
| --- | --- |
| Fewer than 100 | 10 |
| 100 through 200 | 10% of employees, rounded down |
| More than 200 | 20 |

Count employees offered the ICHRA in the class, not only those who enroll. The new-hire subclass rule is another exception with conditions. Do not create a class from medical conditions or use class labels to steer expensive members away from group coverage. I would ask the administrator to document why every proposed class is permitted and whether a minimum applies. That written analysis is more useful than a sales statement that an ICHRA works for any company size.

The controlling details are in [26 CFR 54.9802-4](https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-54/section-54.9802-4), including minimum-class exceptions and the new-hire subclass rule.

## ICHRA vs. a Prescience group plan, feature by feature

**How an ICHRA compares with a Prescience group plan**

|  | ICHRA (including Prescience Choice) | Prescience group plan |
| --- | --- | --- |
| What employees get | An allowance to buy an individual plan | One company plan with an effective $0 deductible and simple copays |
| Employer cost | Allowance per class, plus platform fees | One monthly cost set in your quote, $0 admin fees |
| Platform or admin fees | Prescience Choice: $20 per enrolled employee/month; other vendors vary | $0 |
| Exposure to individual-market prices | Individual premiums determine the employee shortfall | Compare the group quote and annual renewal terms |
| Network | The chosen individual policy; check local providers and out-of-area care | Broad national PPO network plus direct-contract providers |
| Deductible | Varies by the individual policy and eligibility for cost-sharing reductions | Effective $0 deductible |
| Employee effort | Shop, enroll, submit proof, request reimbursement | Enroll in the company plan; simple copays shown before a visit |
| Plans per company | Employees may select different policies | Company health plan; confirm available options |
| Care support | Carrier support; Prescience Choice also includes Crystal | 24/7 physician-led care navigation |
| Budget control | Hard cap per employee, set by you | Fixed monthly cost set in your quote before the plan starts |
| Multi-state teams | Each employee buys locally | Broad national PPO network; confirm local providers |
| Minimum group size | None | 2 employees |

## What 5, 25 and 75 employees pay: ICHRA vs. group plans

A fair comparison separates authorized allowance, actual reimbursements, platform fees and employee spending. I would also compare the networks, drugs and out-of-pocket limits before calling two offers equivalent. The following budget exercise intentionally uses hypothetical premiums and fees so it does not mix different survey years, ages or benefit levels and present the result as a market quote.

**A 25-person premium-only budget**

Illustrative only. All 25 employees enroll in self-only coverage for 12 months. Each eligible individual premium is $700 per month. The employer allowance is $600. Assume an administration charge of $30 per enrolled employee plus $50 per company monthly. The comparison group premium is an assumed $800 with the employer paying 75%. None of these inputs is a vendor price.

- ICHRA annual reimbursement: 25 × $600 × 12: $180,000
- Assumed annual administration: (25 × $30 + $50) × 12: $9,600
- ICHRA total employer budget: $189,600
- ICHRA employee premium balance: 25 × $100 × 12: $30,000
- Group employer budget: 25 × $800 × 75% × 12: $180,000
- Group employee premiums: 25 × $800 × 25% × 12: $60,000

In this example the ICHRA costs the employer $9,600 more while employees pay $30,000 less in premiums. That does not establish the better benefit. If the individual policies have larger member costs or exclude an essential provider, the premium comparison is incomplete. Replace every assumption with matched quotes before deciding.

> **Affordability is a separate calculation:** The $700 selected premium in this example is not necessarily the lowest-cost silver benchmark. An ALE must evaluate its offer using the applicable ICHRA affordability rules. Run the ALE count using the prior calendar year and related entities. Do not infer compliance from a 25-person enrollment list or from the employee accepting the offer.

## How costs change over two to three years

A fixed allowance limits the stated contribution per eligible person, but total employer spending still changes with headcount, participation, permitted age or family adjustments, and reimbursed expenses. Employees experience the difference between renewal premiums and the allowance. I would show them that difference before enrollment rather than describing the benefit only as a fixed monthly amount.

**Illustrative premium renewal with a fixed $600 allowance**

| Scenario | Premium | Employer reimbursement | Employee premium |
| --- | --- | --- | --- |
| Current year | $700 | $600 | $100 |
| Premium rises 10% | $770 | $600 | $170 |
| Allowance also rises to $650 | $770 | $650 | $120 |

The 10% increase is a sensitivity test, not a forecast. It increases the employee's premium balance by 70% when the allowance stays fixed. If the employer raises its allowance instead, update both the budget and affordability calculation. Compare renewal notices for the actual individual plans and verify that providers and covered drugs remain available. Employees may have to change policies even if the allowance does not change.

## What it is like to be the employee

- **Shopping.** Compare premiums, deductible structure, specialist access, prescriptions and maximum member spending. A familiar insurer name does not identify the exact network. Save the policy name and network identifier.
- **Ongoing treatment.** Ask the insurer about an existing authorization, scheduled procedure or prescription before changing plans. An authorization from the old insurer does not automatically transfer. Have employees use a private benefits channel rather than giving health details to a manager.
- **Cash flow.** Confirm whether the employee must pay the premium first and when reimbursement arrives. A tax-favored allowance is less useful if an employee cannot advance the monthly bill. Ask the platform about missed payments and rejected substantiation.
- **Tax credits.** An affordable ICHRA generally prevents premium tax credits even if declined. With an unaffordable offer, the employee must opt out and meet the other credit requirements. Taking the ICHRA and a credit for the same month can create a tax problem.
- **Medicare.** ICHRAs can integrate with Medicare Part A and Part B together, or Part C, under the regulation. Verify the document and substantiation process. Do not assume an employee must buy an individual Marketplace policy at Medicare age.

Some employees value individual choice; others prefer a company-selected plan and a shared support process. I do not assume either preference from age or job title. Ask about priorities without collecting diagnoses, then compare the actual policy options. A plan that works well in one county may be unavailable to a new remote hire in another county.

## Compliance and admin burden

**Who does what under an ICHRA vs. a Prescience plan**

| Task | ICHRA | Prescience |
| --- | --- | --- |
| Plan document and notices | Employer, usually through the ICHRA platform; advance notice, with regulatory timing exceptions | Prescience prepares and runs them |
| Class design and minimum class sizes | Employer | Confirm eligibility in the plan documents |
| Proof of coverage and reimbursements | Platform and employees, monthly | Not needed |
| Affordability testing (50+ full-time employees) | Per employee, by location | Standard group plan test against the employee's own premium share |
| COBRA | Applies to the ICHRA itself for employers with 20+ employees | Prescience handles COBRA |
| Employee support | Each insurer separately | One 24/7 physician-led care team |

## How to move from an ICHRA to a group plan

1. **Pick a start date (60–90 days out)** A Prescience plan can start mid-year. Choose the first of a month, and give employees enough time to cancel their individual plans for the day before.
2. **Get a quote from your census** Send ages, ZIP codes and coverage tiers. Compare the quote against your current allowances plus platform fees, and against what employees pay above the allowance.
3. **Check networks** Have employees confirm provider participation and any transition-of-care requirements privately with the administrator before changing coverage.
4. **Notify the ICHRA platform** End the ICHRA the day before the group plan starts. Ask the platform for the deadline to submit final reimbursements.
5. **Run enrollment** Employees elect the group plan. Tell them to cancel their individual plans effective the last day before the group plan starts, and to report the change to the marketplace if they bought there.
6. **Close out** Pay final reimbursements for months the ICHRA covered, and keep the records. Deductibles reset when people change plans, which matters less with an effective $0 deductible.

## How a Prescience plan works

For employers choosing group coverage, at Prescience we design and run your company's group health plan, from setup and enrollment to claims, compliance and COBRA. What your team gets:

- **An effective $0 deductible,** so the plan helps from the first visit.
- **Simple copays** shown before a visit, capped by a low out-of-pocket maximum.
- **A broad national PPO network,** plus providers we contract with directly.
- **24/7 physician-led care navigation:** a care team that finds the right provider, books appointments and explains costs up front.

What your company gets: one monthly cost set in your quote, usually 10–20% below comparable fully insured coverage and fixed before the plan starts, with no admin fees. You keep your payroll provider, and the plan can start mid-year.

> **Prescience Diamond: A company health plan with an effective $0 deductible.** If the math above points to a group plan, this is the one we run, with one monthly cost set before the plan starts.
> - **An effective $0 deductible** and simple copays shown before a visit
> - **A broad national PPO network,** plus providers we contract with directly
> - **24/7 physician-led care navigation** that books visits and explains costs
> - **Usually 10–20% below comparable fully insured coverage,** fixed in your quote, with no admin fees
> Best for teams of about 15 or more that want one great group plan. [Get a Diamond quote](https://www.getprescience.com/get-started?p=Employer&product=diamond)

## When an ICHRA is honestly the better choice

- **You need a hard per-employee budget** and accept that employees will end up on very different plans, with some paying a lot more than others.
- **Your employees have suitable local options** and lives in states with competitive individual markets, where benchmark premiums are low.
- **You want a class you don't put on the group plan,** such as part-time or seasonal staff, while full-time staff stay on a group plan. Watch the minimum class-size rules.
- **Your employees want specific individual plans,** such as a regional HMO they already use.
- **You are not an ALE and do not offer a group health plan.** Also evaluate a [QSEHRA](https://www.getprescience.com/guides/what-is-a-qsehra), including its annual caps, eligible-employee rules, substantiation and premium-tax-credit interaction.

Compare a Prescience quote with total ICHRA reimbursements, platform costs and employee premium balances. I would choose the arrangement with the most suitable documented coverage and a sustainable contribution policy, not the one with the most attractive allowance headline. Keep the comparison for the next renewal so you can distinguish price changes from changes in benefits or enrollment.

## Frequently asked questions

**Can I offer an ICHRA and a group health plan at the same time?**

Yes, to permitted different classes, subject to the ICHRA rules. An individual cannot choose between the two offers. Class-size minimums apply only to specified splits; when applicable they are 10, 10% rounded down, or 20 depending on employer size. Entire-state geographic classes generally have no minimum.

**Is an ICHRA cheaper than group health insurance?**

Either can cost less. Compare actual reimbursements, administration, employee premium balances and the benefits purchased. A lower employer allowance may simply shift more spending to employees.

**How should I set an ICHRA allowance?**

Use local individual premiums, the permitted class rules and the employee affordability calculation. There is no universal allowance that produces equivalent coverage for every age, county and family size.

**What does ICHRA affordability mean for 2026?**

For plan years beginning in 2026, compare the applicable self-only lowest-cost silver premium after the allowance with 9.96% of household income. ALE penalty safe harbors need a separate review. The 2027 percentage is 10.22%.

**Can we move from an ICHRA to Prescience mid-year?**

Usually yes. A Prescience plan can start mid-year. We set the start date with you so employees can cancel their individual plans without a gap or overlap in coverage.

**Can an ICHRA allowance vary by age?**

Yes. The same-terms rules permit age and family-size adjustments. Within a class the oldest participant's age-based maximum cannot exceed three times the youngest participant's maximum. Carryovers and certain other regulatory exceptions also need review.

**How much notice do employees need before an ICHRA starts?**

Generally 90 days before the plan year. Newly eligible employees and certain newly established employers have special timing rules. Use the regulatory notice requirements and CMS model notice.

**What do ICHRA platforms charge?**

Ask for a dated quote. Check whether fees count eligible employees, enrolled employees or accounts, and whether company charges, setup, cancellation or support fees apply. I have not treated any unverified advertised price as a current quote.

**Do employees on an ICHRA keep their own doctors?**

Only if the chosen policy covers the provider under its network and benefit terms. Check the exact network, location and accepting-new-patients status. Also verify prescriptions and authorizations.

**Can an employee turn down an ICHRA and get marketplace subsidies?**

An unaffordable ICHRA can permit credits only if the employee opts out and meets the other Marketplace credit requirements. An affordable offer generally blocks credits even if declined; accepting an ICHRA blocks credits for those months.

## Sources

- [Thatch, Standard pricing checked October 15, 2026 (1–49 eligible employees; 50+ custom)](https://thatch.com/pricing)
- [CMS, individual coverage HRA resources](https://www.cms.gov/marketplace/private-health-insurance/health-reimbursement-arrangements)
- [26 CFR 54.9802-4, ICHRA integration, classes and notices](https://www.ecfr.gov/current/title-26/chapter-I/subchapter-D/part-54/section-54.9802-4)
- [IRS Revenue Procedure 2025-25, 2026 affordability](https://www.irs.gov/pub/irs-drop/rp-25-25.pdf)
- [IRS Revenue Procedure 2026-26, 2027 affordability](https://www.irs.gov/pub/irs-drop/rp-26-26.pdf)
- [IRS, Employer shared responsibility questions and answers](https://www.irs.gov/affordable-care-act/employers/questions-and-answers-on-employer-shared-responsibility-provisions-under-the-affordable-care-act)
- [IRS Publication 15-B (2026), employer health benefits and QSEHRA limits](https://www.irs.gov/publications/p15b)
- [CMS, ACA market rating rules](https://www.cms.gov/marketplace/private-health-insurance/market-rating-reforms)
- [HealthCare.gov, Summary of Benefits and Coverage](https://www.healthcare.gov/health-care-law-protections/summary-of-benefits-and-coverage/)
- [HealthCare.gov, plan and network types](https://www.healthcare.gov/choose-a-plan/plan-types/)