Should we switch from a group plan to ICHRA?

The short answer

Switch only after testing both employer cost and employee access. ICHRA can suit a team with good individual-market choices and adequate allowances. Staying with group coverage can make sense when its network, contributions or treatment continuity are difficult to replace. Age alone does not decide: an age-adjusted allowance and the local market can change the result.

The individual coverage HRA rules generally applied beginning in 2020. It is an employer health arrangement, not an insurer or a new category of medical policy. Employees still need qualifying coverage, timely enrollment and help understanding reimbursement. Review the legal terms rather than relying on branding or a sales presentation.

The ICHRA rules that shape your decision

What employees would buy in 2026

Use actual local options for the coming coverage year. I would collect premiums, provider networks, drug formularies, deductibles and out-of-pocket maxima for realistic choices in each employee’s area. Do not assume a national average represents a plan any employee can buy.

• Age: individual-market premiums may vary within legal age-rating limits, subject to state rules. A flat dollar allowance can leave different employee contributions.
• Financial assistance: taking ICHRA reimbursements precludes a premium tax credit for the same month. An unaffordable offer can allow credits only if the employee opts out and otherwise qualifies.
• Treatment: check the actual clinician, facility and medication, including authorization requirements. A carrier name is not enough.
• Families: compare all covered people, family deductibles and individual embedded limits. Do not treat a single-employee quote as a household budget.
• Timing: confirm the individual policy start date, first premium payment and termination date of the old plan before ending group coverage.

Group plan vs ICHRA for an 8-person mixed-age team

Here's a worked comparison for a team with typical startup ages plus two senior hires. Everyone is on single coverage to keep it readable.

The affordability test, with a worked example

An ICHRA is "affordable" if the employee's cost for the lowest-cost silver self-only plan in their area, minus the monthly allowance, is no more than 9.96% of household income in 2026 (up from 9.02% in 2025). It matters in two ways:

• For employees: if the offer is affordable, they can't get a premium tax credit. If it's unaffordable, they can opt out of the ICHRA and claim a credit if they're otherwise eligible.
• For employers with 50+ full-time equivalents: an unaffordable offer can trigger an employer mandate penalty for each full-time employee who gets a credit ($5,010 per affected employee in 2026). Employer penalty analysis may use applicable affordability safe harbors. Confirm the permitted location, age and look-back methodology with the administrator; it is separate from the employee’s household-income tax-credit test.

Edge cases that catch teams mid-switch

• People in treatment. Someone mid-chemotherapy or pregnant may lose their doctors if the local individual plans are HMOs or EPOs that exclude them. Check their providers before you set the date.
• Employees in several states. ICHRA handles this well; premiums differ by rating area, and you can set allowances by rating area as a class.
• Families. Allowances can rise with dependents, but family individual premiums climb fast. Price your largest family separately.
• Medicare: ICHRA can integrate with Medicare Part A and Part B together, or Part C, under the rules. Medicare secondary payer and nondiscrimination requirements still need review. Do not move older employees into a Medicare-only arrangement merely to shift employer liability.
• People on COBRA from your old plan. Ask your carrier and counsel what happens to their coverage when the group plan ends.
• Switching mid-year. Possible, but deductible credit should not be assumed on new individual plans, and you must still give employees adequate notice.
• Recruiting. Candidates compare plans. "You get $600 to buy your own plan" reads differently from "PPO, we pay 80%".

If you do switch: the step-by-step timeline

1. 120+ days out: run the census math Build the table above with your real ages, ZIP codes, tiers and local lowest-cost silver premiums. Compare against a fresh group quote, not just your renewal.
2. Pick classes and allowances Decide whether to vary by age, family size, full-time or part-time, or rating area. Check minimum class sizes if any class keeps the group plan.
3. Choose an administrator Get the per-enrollee fee, monthly minimum and whether premiums are paid directly to carriers or reimbursed.
4. 90+ days out: send the written notice Use the model notice. Give your current carrier the termination notice its contract requires.
5. 60 days out: employees shop and enroll The special enrollment window opens 60 days before the ICHRA starts. Help each employee check their doctors, drugs and affordability.
6. Start date: verify coverage and pay Collect proof of individual coverage, then reimburse or pay premiums each month. Plan for the same work at every open enrollment.

Five questions before you switch

1. What plan could each employee buy with the allowance, including deductible and network?
2. What happens to your older employees and families, who pay the most on the individual market?
3. Will your team's doctors be in network on marketplace HMOs and EPOs?
4. What will the platform charge per employee, on top of the allowance?
5. How will you explain it to candidates comparing your benefits with a group plan?

Run the math both ways

Compare total employer cost (allowance plus platform fees) and total employee cost (premiums above the allowance plus expected out-of-pocket costs). Then price a group plan built to cost less. Either option may win, depending on contributions, local premiums, fees and employee needs. More on the tradeoffs in the ICHRA alternative and why insurers are pushing ICHRA.

At Prescience, we design and run your company's 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.