# Is ICHRA a scam for your employees?

Source: https://www.getprescience.com/guides/is-ichra-a-scam
Author: Aditya Jain, MD, Cofounder and COO, Prescience
Published: 2026-10-03
Updated: 2026-10-15

ICHRA is a lawful employer health benefit when it follows federal rules. Whether it is a good deal depends on the allowance, local individual-plan prices, provider access and lost premium tax credits. I would test those details for employees and families before accepting either a savings pitch or a claim that the arrangement is a scam.

- **2026 affordability percentage:** 9.96%
- **Federal ICHRA allowance cap:** No annual dollar cap
- **Age rating:** Up to 3:1; state exceptions apply
- **Tax-credit rule:** Affordable offer generally blocks credits

## How ICHRA works

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.** If you go ahead with ICHRA, we run the three hard cases from this guide (your oldest employee, your largest family and your lowest-paid employee) before you set allowances, so nobody ends up worse off by surprise.
> - **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 HRA reimburses qualifying individual insurance and, if the employer permits, other eligible medical expenses. The employer can offer a group plan to a different permitted employee class, but cannot offer employees a choice between the two within the same class. These federal rules became available for plan years beginning in 2020. Employees need qualifying coverage and must substantiate it; the allowance is not unrestricted cash.

The rules come from a 2019 joint rule by the Treasury, Labor and HHS departments. They are stricter than most sales decks suggest:

**The main ICHRA rules an employer has to follow**

| Rule | What it means in practice |
| --- | --- |
| Employee must have individual coverage | Each covered person must have qualifying individual insurance or Medicare Parts A and B, or Part C. Short-term insurance and sharing ministries do not qualify. The employer has to collect proof of coverage at enrollment and an attestation with each reimbursement. |
| Same terms within a class | You can split staff into classes (full-time, part-time, salaried, hourly, by rating area and a few others), but everyone in a class gets the same offer. |
| Allowance can vary only by age and family size | Older employees can get up to 3 times what the youngest get. You can't give one engineer more than another in the same class for any other reason. |
| No group plan and ICHRA for the same class | You can't let employees choose between the group plan and the allowance. |
| Minimum class sizes | If you offer a group plan to one class and ICHRA to another, certain classes must have at least 10 people (employers under 100), 10% of staff (100–200) or 20 people (over 200). |
| Written notice 90 days ahead | Generally give notice 90 days before the plan year. Employees first eligible later must receive it no later than their coverage start; special timing applies to newly established employers. |
| Annual opt-out | Employees can opt out each year, which matters for premium tax credits (below). |

None of that is a scam. It's a legitimate tax structure. The problem is what happens to the employee after the allowance lands.

## The math employees face

There is no allowance that guarantees adequate coverage everywhere. Start with current gross premiums for each employee’s age, location and coverage tier. Then subtract the proposed benefit and examine the plan’s deductible, copays and out-of-pocket maximum. A national premium average cannot tell you whether a particular employee can keep a hospital, cover a prescription or afford family coverage.

- **Age:** federal individual-market rating generally allows up to 3:1 adult variation, with stricter state rules. New York and Vermont do not allow age rating.
- **Family coverage:** compare premiums and employer allowances for each covered family member rather than applying a single-person average to a household.
- **Medical exposure:** obtain the actual deductible and out-of-pocket limit for each plan under consideration. Low premiums do not establish low total cost.
- **Networks:** HMOs and EPOs generally restrict routine out-of-network benefits. Emergency protections, authorized exceptions and the policy’s service area need separate review.
- **Subsidies:** an affordable ICHRA offer can block premium tax credits even when the employee prefers another plan. Check the household’s position before enrollment.

_Chart: CMS 2026 federal-platform plan-county offerings: HMO 44,390 (46%), EPO 32,100 (33%), PPO 14,174 (15%), POS 6,418 (7%), out of 97,082 rows. Rounded shares total 101%; these are not unique nationwide plan or enrollment shares._

**One $600 allowance, three ages (illustrative only)**

Assume one individual-market plan costs $600 monthly at age 21 in a state using the federal default age curve. Apply factors 1.000 at 21, 1.278 at 40 and 3.000 at 64. Each person gets a $600 allowance. These are assumed prices, not quotes or national averages, and no tax credit is assumed.

- Age 21: $600 × 1.000: $600 premium; $0 monthly gap
- Age 40: $600 × 1.278: $766.80 premium; $166.80 monthly gap
- Age 64: $600 × 3.000: $1,800 premium; $1,200 monthly gap
- Age 64: $1,200 × 12: $14,400 annual premium gap

A flat allowance creates different employee costs under these assumptions. Age-adjusted allowances can reduce the difference within the ICHRA rules. Group-plan employee contributions also depend on employer policy; they are not legally guaranteed to be identical for all ages or classes.

The chart’s rounded 46% HMO, 33% EPO, 15% PPO and 7% POS shares match plan-county listings in CMS’s 2026 federal-platform Marketplace landscape file, not distinct nationwide plans or enrollment. The same plan appears in multiple counties. Deduplicating that file by standard component plan ID gives about 52% HMO, 27% EPO, 10% PPO and 10% POS. Rounding can prevent totals from equaling 100%. HMO and EPO coverage generally restricts routine out-of-network care, but emergency services and other legal or contractual exceptions require separate review.

## The premium tax credit trap

This is the part most employees never hear about. When an employer offers an ICHRA, the employee's eligibility for marketplace subsidies depends on whether the offer counts as **affordable**:

- **Affordable ICHRA:** the employee can't get a premium tax credit for any month the ICHRA is offered, whether or not they use it.
- **Unaffordable ICHRA:** the employee can opt out and claim the premium tax credit instead, if their income qualifies. If they accept the ICHRA, they lose the credit.
- **The test:** the ICHRA is affordable if the cost of the lowest-cost silver plan for self-only coverage, minus the monthly allowance, is no more than 9.96% of household income for 2026 plan years (9.02% in 2025).

So a lower-income employee can end up worse off than if the company offered nothing at all. Without any offer, they might qualify for a large subsidy. With a modest but "affordable" ICHRA, the subsidy disappears and the allowance may cover less than the credit would have. The affordability test also looks only at self-only coverage, so a family can lose subsidies while the allowance covers a fraction of a family plan. You can check the employer side with our [ACA affordability calculator](https://www.getprescience.com/tools/aca-affordability-calculator).

## Who ICHRA really works for

An ICHRA lets the employer choose its allowance, while employees choose qualifying individual coverage. Platform charges are separate. Thatch’s direct Standard pricing lists $45 per enrolled employee monthly plus a $50 monthly compliance charge for employers with 1–49 eligible employees. That published price is a vendor-specific fee, not evidence of an industry margin or a typical ICHRA cost.

ICHRA can work across ages and family types when allowances are sufficient and local coverage fits. It may also simplify purchasing for a dispersed workforce. Conversely, an inadequate allowance or missing provider can make it a poor fit for an employee of any age. I would compare actual household outcomes rather than treating young workers as automatic winners and older workers as automatic losers.

**When ICHRA is a fair choice, and when it isn't**

| Your team | ICHRA is a reasonable fit if… | Look elsewhere if… |
| --- | --- | --- |
| Mostly under 35, single | Your local marketplace has several insurers and broad plans | Your area has one or two insurers with narrow HMOs |
| Spread across many states | No group carrier has a usable network everywhere you hire | A national PPO covers where your people live |
| Several parents and older staff | You fund age-scaled and family allowances generously | The budget only stretches to a flat single allowance |
| Lower-wage staff | The allowance is clearly larger than the subsidy they'd lose | An "affordable" offer would wipe out their tax credits |
| Recruiting senior hires | Candidates already buy their own coverage | Candidates compare you with big-company PPO plans |

## Red flags in an ICHRA sales pitch

ICHRA isn't a scam, but some of the ways it's sold are misleading. Watch for these:

- **"Employees get more choice and better coverage for less."** More choice, yes. Better coverage for less only holds if the allowance is generous and the local market is healthy. Ask to see actual plan prices for your oldest employee and your largest family.
- **Savings shown against your current group renewal only.** The employer saves; the comparison rarely shows what employees now pay out of pocket.
- **No mention of the premium tax credit rules.** If the vendor can't explain affordability, they haven't modeled your lower-income staff.
- **Allowances that don't move with premiums.** If premiums rise 26% and the allowance rises 3%, your team just took a pay cut.
- **Fees quoted per enrolled employee without the minimums.** Read the pricing page for platform fees, minimums and what large-employer compliance costs.

1. **Price your three hardest cases** Your oldest employee, your largest family and your lowest-paid employee. Get real marketplace quotes for each in their ZIP code.
2. **Compare total cost to each person** Annual premium gap plus expected cost sharing, or the out-of-pocket maximum for a high-use scenario, against what they pay on your group plan today.
3. **Check networks** Make sure the hospital and doctors your team actually uses are in at least one plan at each price point.
4. **Model the tax credit** For anyone who might qualify for subsidies, compare the allowance with the credit they'd lose.
5. **Decide who helps employees** Someone has to answer "is this doctor in network?" and "why was this denied?" Ask whether the platform does that or only reimburses.

## Support matters after enrollment

I want a benefits proposal to say who helps after the plan is selected. Ask who checks provider participation, helps with enrollment errors and explains how to appeal a denied claim. The individual insurer still makes coverage decisions under its contract; an HRA administrator cannot promise approval. A named support channel and an escalation procedure make the practical responsibility clear without assuming employees must manage everything alone.

If you want to go deeper on the switch itself, read [Should we switch from a group plan to ICHRA?](https://www.getprescience.com/guides/should-we-switch-from-a-group-plan-to-ichra) and [Why are insurers pushing ICHRA?](https://www.getprescience.com/guides/why-are-insurers-pushing-ichra)

## If your employer just moved you to ICHRA

1. **Read the notice.** It states the benefit terms, substantiation and opt-out procedures, and explains the tax-credit interaction. Use the stated allowance and household information to check your own affordability; the notice does not determine your personal tax-credit eligibility.
2. **Check your income against the subsidy rules.** If the offer is unaffordable for you, opting out and claiming the premium tax credit may be worth more than the allowance.
3. **Shop on networks first, price second.** Search for your doctors and nearest hospital in each plan's directory before comparing premiums.
4. **Price the whole year.** Add 12 months of premium gap to the applicable out-of-pocket maximum for a high-use comparison. Do not add the deductible again because covered in-network deductible payments count toward that maximum. A cheap bronze plan can cost more than a gold plan if you expect care.
5. **Watch the enrollment window.** Gaining an ICHRA (or losing a group plan) opens a special enrollment period, usually 60 days, so you don't have to wait for open enrollment.
6. **Keep receipts and proof of coverage.** Reimbursement depends on showing you're enrolled in individual coverage.

## A better way to cap your costs

If what you want from ICHRA is a predictable cost, you can get that from a group plan too:

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 what you wanted from ICHRA was a predictable cost, Diamond gives you one monthly cost set in your quote without moving your team to the individual market.
> - **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)

## Test affordability separately from the preferred plan

For an illustrative employee with $48,000 annual household income, the 2026 threshold is $48,000 × 9.96% ÷ 12 = $398.40 monthly. If the applicable lowest-cost silver self-only premium is an assumed $800 and the monthly ICHRA amount used in the test is $450, the required contribution is $350. That is affordable under these assumptions even if the employee prefers a more expensive plan. This calculation is not a quote or an individual tax determination.

Employer safe harbors used to avoid shared-responsibility penalties and the employee’s household-income test serve different purposes. A payroll-based safe harbor does not establish the household’s premium-tax-credit result. Related individuals offered ICHRA coverage also need review under the ICHRA rules, which differ from the family affordability test for a traditional employer plan. If the employee declines an unaffordable ICHRA, tax-credit eligibility still depends on the other Marketplace requirements.

Before implementation, record the applicable class, allowance, eligible relatives, notice date, coverage substantiation and opt-out procedure. Confirm the special enrollment deadline before ending existing coverage. For employees already receiving advance credits, use the Marketplace process to report the new offer promptly. The provider’s sales estimate is not a substitute for the Marketplace determination or annual tax reconciliation.

## What the published averages actually measure

PeopleKeep’s $583 monthly allowance figure describes single employees at businesses with 5–49 employees in its 2025 customer report. It is not a national allowance standard or a promise of available coverage. KFF’s October 2025 analysis estimated a 26% average increase in gross Marketplace premiums for 2026. Gross premiums are not the same as households’ payments after tax credits, and individual changes differ. Compare the final local premium, employer allowance and any tax-credit eligibility for each employee.

KFF’s later analysis put the average deductible across selected Marketplace coverage at $3,786 for 2026, versus $2,759 in 2025. Enrollment moving between metal levels affected that average. It does not show what a fixed plan’s deductible did or predict an employee’s spending. Network types also differ by market: CMS public-use files cover federal-platform Marketplace states, not every US individual plan. A national-looking network chart cannot substitute for checking the exact local plan, providers and out-of-network terms.

## Frequently asked questions

**Is ICHRA legal?**

Yes. Federal rules have allowed individual coverage HRAs since 2020. The question isn't legality; it's whether the allowance is enough for your employees to buy a good plan.

**What is the average ICHRA allowance?**

There is no federal minimum allowance that guarantees a good employee outcome. Employers choose the benefit. Evaluate current prices by age, location and family tier, together with applicable affordability rules.

**Why are ICHRA plans more expensive for employees in 2026?**

Costs depend on the employee’s current plan, location and allowance. A premium increase or a smaller employer benefit raises the employee’s gap; changes in subsidy eligibility can matter too. Use actual plan-year prices rather than a national estimate.

**Who benefits most from ICHRA?**

Employers control the allowance. Employees can benefit when available plans and the allowance meet their needs. Age, family size, local networks and subsidy eligibility all matter; no demographic group is an automatic winner.

**Can employees get marketplace subsidies with an ICHRA?**

Only if the ICHRA is unaffordable and they opt out of it. For 2026 plan years, an ICHRA is affordable if the lowest-cost silver self-only plan minus the allowance is no more than 9.96% of household income. If it's affordable, no subsidy.

**Can an employer give older employees a bigger ICHRA allowance?**

Yes. Allowances can rise with age, up to three times the amount for the youngest employees, and with family size. They must otherwise be the same for everyone in a class.

**Can I offer both a group plan and ICHRA?**

Yes, but not to the same class of employees. For example, a group plan for full-time staff and ICHRA for part-time staff, subject to minimum class-size rules.

**How much do ICHRA platforms charge?**

Prescience Choice charges $20 per enrolled employee monthly, with no setup or platform fee. Thatch Standard lists $45 per enrolled employee monthly plus $50 monthly for employers with 1–49 eligible employees. Compare the written scope, minimums and fees of any platform you consider.

**What's the alternative to ICHRA?**

A group plan with a fixed employer cost. Prescience quotes one monthly contribution, usually 10–20% below comparable fully insured coverage, with no admin fees and an effective $0 deductible for your team.

## Sources

- [HealthCare.gov, individual coverage HRAs](https://www.healthcare.gov/small-businesses/learn-more/individual-coverage-hra/)
- [Treasury, Labor and HHS, 2019 HRA final rules](https://www.irs.gov/irb/2019-28_IRB)
- [CMS, ICHRA model notice](https://www.cms.gov/files/document/cms-10704-hra-model-notice.pdf)
- [IRS Revenue Procedure 2025-25, 2026 affordability](https://www.irs.gov/pub/irs-drop/rp-25-25.pdf)
- [CMS, market rating reforms and state variations](https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-Insurance-Market-Reforms/state-rating)
- [CMS, federal default and state-specific age curves](https://www.cms.gov/cciio/programs-and-initiatives/health-insurance-market-reforms/downloads/statespecagecrv053117.pdf)
- [HealthCare.gov, plan and network types](https://www.healthcare.gov/choose-a-plan/plan-types/)
- [Thatch, published pricing](https://thatch.com/pricing)
- [DOL, ACA implementation FAQs Part 71, 2026 cost-sharing limits](https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/aca-part-71)
- [KFF original analysis, 2026 Marketplace enrollment and deductibles](https://www.kff.org/affordable-care-act/what-we-know-so-far-about-2026-aca-marketplace-enrollment-premiums-and-deductibles/)
- [CMS, Marketplace public-use files and geographic scope](https://www.healthcare.gov/health-plan-information/)
- [PeopleKeep, original 2025 ICHRA customer report](https://www.peoplekeep.com/offers/ichra-report)
- [KFF, estimated 2026 gross Marketplace premium increases](https://www.kff.org/quick-insights/aca-insurers-are-raising-premiums-by-an-estimated-26-but-most-enrollees-could-see-sharper-increases-in-what-they-pay/)
- [CMS, 2026 individual-market medical landscape data (plan-county listings)](https://data.healthcare.gov/datafile/py2026/individual_market_medical.zip)