# Should we switch from a group plan to ICHRA?

Source: https://www.getprescience.com/guides/should-we-switch-from-a-group-plan-to-ichra
Author: Aditya Jain, MD, Cofounder and COO, Prescience
Published: 2026-10-13
Updated: 2026-10-13

An ICHRA lets an employer set an allowance for qualifying individual coverage. Switching can work when the local plans, employee costs and administrative process meet the team’s needs. I would compare each household’s options with a fresh group quote before terminating coverage, especially for employees in treatment. Budget predictability alone does not establish whether employees will be better off.

- **Compare first:** Local plans for every employee location
- **2026 affordability:** 9.96%
- **Notice:** Generally 90 days before the plan year
- **Employee choice:** Within available individual-market options

## 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

**Key ICHRA rules (29 CFR 2590.702-2)**

| Rule | What it means for you |
| --- | --- |
| Classes | You can set different allowances by class: full-time, part-time, salaried, hourly, seasonal, employees in a waiting period, or by rating area, among others |
| Same terms within a class | Everyone in a class gets the same allowance, except it can rise with age (oldest no more than 3 times the youngest) and with the number of dependents |
| No mixing for one class | You can't offer the same class both a group plan and an ICHRA, or let them choose |
| Minimum class sizes | If you offer a group plan to some classes and ICHRA to others, certain classes need at least 10 employees (under 100 employees total) |
| New-hire option | A permitted new-hire subclass can transition newly hired employees within an existing class while current employees retain group coverage; follow the detailed rule |
| Individual coverage required | Employees and covered dependents must be enrolled in individual health insurance (or Medicare in some cases); you must verify it |
| Written notice | At least 90 days before the plan year starts, with a model notice explaining the effect on premium tax credits |
| Opt out | Employees must be allowed to opt out at least annually and on termination as required; declining an affordable offer does not restore a tax credit |
| Special enrollment | A new ICHRA offer gives employees a marketplace window, starting 60 days before coverage begins |

## 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.

**Illustrative monthly premiums and contributions, not quotes; group premium $777, employer pays 80%, ICHRA premium-only allowance $600**

| Age | Benchmark silver premium | ICHRA pays | Employee pays on ICHRA | Employee pays on group plan |
| --- | --- | --- | --- | --- |
| 25 | $491 | $491 | $0 | $155.40 |
| 28 | $532 | $532 | $0 | $155.40 |
| 32 | $579 | $579 | $0 | $155.40 |
| 35 | $598 | $598 | $0 | $155.40 |
| 41 | $637 | $600 | $37 | $155.40 |
| 47 | $734 | $600 | $134 | $155.40 |
| 55 | $1,091 | $600 | $491 | $155.40 |
| 62 | $1,405 | $600 | $805 | $155.40 |

**What each side pays per month**

Illustrative only. The individual premiums in the table are assumed inputs, not current quotes or calculated national age-curve rates. The group premium is exactly $777 per employee monthly, with an 80% employer contribution. Assume all eight employees enroll, an ICHRA limited to premiums, and hypothetical administration of $45 per enrollee plus $50 monthly. No premium tax credits or other fees are included. A broader ICHRA may reimburse eligible nonpremium expenses, so unused premium allowance need not equal unused total benefits.

- Group employer contribution: 8 × $621.60: $4,972.80
- Group employee contributions: 8 × $155.40: $1,243.20
- ICHRA premiums reimbursed: $491 + $532 + $579 + $598 + 4 × $600: $4,600
- Assumed ICHRA administration: 8 × $45 + $50: $410
- ICHRA employer total: $5,010
- ICHRA employee premium payments: $37 + $134 + $491 + $805: $1,467

In these assumptions, ICHRA costs the employer $37.20 more monthly. The four youngest employees pay no premium, while the two oldest together pay $1,296. That distribution is not inevitable: allowances and local quotes can change it. Compare medical costs and tax treatment separately before deciding. The example does not establish that either option has a better network or lower deductible.

## 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.

**Is a $600 allowance affordable for a 62-year-old?**

Illustrative. A 62-year-old single employee. Assumes her lowest-cost silver plan is $1,300 a month and her benchmark silver plan is $1,405. 2026 marketplace credits use the 2025 poverty line of $15,650 for one person. Assume the contiguous-state guideline, no other disqualifying coverage or tax circumstance, and eligibility for the general 2026 credit rules.

- Lowest-cost silver minus allowance: $1,300 − $600 = $700
- At $90,000 income: 9.96% ÷ 12: $747, so the offer is affordable; no tax credit
- At $60,000 income: 9.96% ÷ 12: $498, so the offer is unaffordable
- $60,000 is about 383% of the poverty line: Potentially eligible if she opts out and meets all other credit requirements
- Her benchmark silver cost with the credit: About $498 a month instead of $805 on the ICHRA

At $60,000 she saves about $307 a month by declining the ICHRA and taking the tax credit; at $90,000 that assumed benchmark costs $805 after the allowance, although she can compare other policies. Employees need this explained one by one, which is part of why ICHRA enrollment takes more work than a group plan.

## 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](https://www.getprescience.com/compare/ichra-alternative) and [why insurers are pushing ICHRA](https://www.getprescience.com/guides/why-are-insurers-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.

## Frequently asked questions

**Can we switch from a group plan to ICHRA mid-year?**

Yes, generally, and employees gain a special enrollment period when the ICHRA starts. Check your current plan's termination terms, and remember deductible credit should not be assumed on new individual plans.

**Is ICHRA cheaper than a group plan?**

It depends on local premiums, allowances, fees, tax-credit eligibility and the benefits being compared. Model each household and the employer budget. Older employees and families can face different contributions, but age-adjusted allowances and local market conditions can change the result.

**What is the ICHRA affordability percentage for 2026?**

9.96% of household income, up from 9.02% in 2025. It's measured against the lowest-cost silver self-only plan where the employee lives, minus the monthly allowance.

**Does a new marketing name change the ICHRA rules?**

Branding does not replace the governing individual coverage HRA regulations. Ask for the formal plan document and the applicable legal requirements, including enrollment substantiation, classes, notice, opt-out rights and the effect on premium tax credits.

**Can we offer both a group plan and an ICHRA?**

Yes, to different classes of employees, such as full-time vs part-time or different rating areas, subject to minimum class sizes. You can't offer both to the same class.

**Can we give older employees a bigger ICHRA allowance?**

Yes. The allowance can rise with age as long as the oldest employees get no more than 3 times what the youngest get.

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

At least 90 days before the plan year starts, with limited exceptions for new employers and newly eligible employees.

**Can employees on an ICHRA still get premium tax credits?**

Only if the ICHRA is unaffordable for them and they opt out. An employee who accepts the ICHRA can't also take a credit.

## Sources

- [Federal Register, 2019 final HRA integration rules](https://www.federalregister.gov/documents/2019/06/20/2019-12571/health-reimbursement-arrangements-and-other-account-based-group-health-plans)
- [DOL, Individual coverage HRA model notice](https://www.dol.gov/sites/dolgov/files/EBSA/laws-and-regulations/rules-and-regulations/completed-rulemaking/1210-AB87/individual-coverage-model-notice.pdf)
- [IRS, Questions and answers on the premium tax credit](https://www.irs.gov/affordable-care-act/individuals-and-families/questions-and-answers-on-the-premium-tax-credit)
- [IRS Revenue Procedure 2025-25, 2026 affordability](https://www.irs.gov/pub/irs-drop/rp-25-25.pdf)
- [IRS Revenue Procedure 2025-26, 2026 employer payments](https://www.irs.gov/pub/irs-drop/rp-25-26.pdf)
- [HHS ASPE, 2025 poverty guideline computations](https://aspe.hhs.gov/topics/poverty-economic-mobility/poverty-guidelines/prior-hhs-poverty-guidelines-federal-register-references/2025-poverty-guidelines-computations)