Is an ICHRA cheaper than a group plan?

It depends on the individual market where your employees live. Where silver plans cost less than your group premium, an allowance can deliver comparable coverage for less, and the employer's cost is fixed. Where the individual market is expensive, the allowance needed to pass affordability can exceed what you pay toward the group plan.

Can a company with 100 employees offer an ICHRA?

Yes, any size employer can. With 50 or more full-time employees, counting full-time equivalents, the ICHRA must be affordable for each full-time employee: the lowest-cost silver plan minus the allowance within 9.96% of income for 2026 plan years and 10.22% for 2027. Otherwise each such employee who gets a premium tax credit can cost $5,010 a year for 2026 and $5,670 for 2027.

Does one affordability result cover the whole group?

No. The test runs per employee. A pass for one employee says nothing about another with a different age, wage or address, so test the hardest cases in every class.

Can we offer a group plan to some employees and an ICHRA to others?

Yes, by class. A class offered an ICHRA cannot also be offered the group plan, and minimum class sizes of 10 to 20 employees apply to certain classes, depending on how many employees you have.

GUIDES / ICHRA VS GROUP PLAN

GUIDES · ICHRA

ICHRA vs a group health plan

An individual coverage HRA (ICHRA) gives each employee a fixed, tax-free monthly allowance to buy their own individual plan; a group plan buys one plan for everyone. An ICHRA fixes your cost, but with 50 or more full-time employees it must pass the affordability test for each employee, one at a time.

COST AND AFFORDABILITY

Employer cost for the group, the test for one employee.

Your group

PLAN YEAR

EMPLOYEES OFFERED COVERAGE120

EXPECTED TO ENROLL70%

GROUP PREMIUM / EE / MO$720

Employee-only, blended.

EMPLOYER SHARE OF THAT PREMIUM75%

ICHRA ALLOWANCE / MO$450

ICHRA ADMINISTRATION / EE / MO$15

One employee's affordability test

LOWEST-COST SILVER PLAN / MO$560

Self-only, for this employee's age, where they live or work.

THIS EMPLOYEE'S MONTHLY PAY$2,900

Rate of pay safe harbor: monthly salary, or 130 hours at the hourly rate.

ICHRA SAVES THE EMPLOYER

$75,600

a year, for 84 employees who enroll

Group plan, employer share$540.00 per employee per month: $544,320
ICHRA, allowance plus administration$465.00 per employee per month: $468,720

Employer cost only, employee-only coverage. Taxes, dependents and age bands are not modeled.Get a real quote

AFFORDABILITY TEST · THIS EMPLOYEE · 2027 PLAN YEAR

Passes

For this employee only. Test each employee, starting with the oldest and the lowest-paid in each class.

Employee pays for the silver planLowest-cost silver plan minus the allowance: $110.00
Limit: 10.22% of monthly payRequired contribution percentage for 2027 plan years: $296.38
Lowest allowance that passesFor this employee's age, area and pay: $263.62

Applies with 50 or more full-time employees, counting full-time equivalents.

WHAT YOU ARE CHOOSING BETWEEN

A fixed allowance against one plan for everyone.

How an ICHRA works

You set an allowance by class of employee, such as full time, part time, salaried, hourly or rating area. Employees buy an individual plan, on or off the exchange, and are reimbursed tax free up to the allowance. There is no carrier participation minimum, and the cost is the allowance times the people who use it. An employee who accepts the ICHRA cannot also take a premium tax credit.

The affordability test, one employee at a time

For an applicable large employer, the test takes the lowest-cost silver plan for self-only coverage at that employee's age, subtracts the monthly allowance, and compares the rest with a share of the employee's income: 9.96% for 2026 plan years and 10.22% for 2027. A flat allowance that passes for a 25-year-old can fail for a 60-year-old, which is why allowances are often set by age.

Safe harbors

You will not know household income, so the IRS offers separate affordability safe harbors based on Form W-2 wages, the employee's rate of pay, or the federal poverty line. IRS proposed rules, which employers may rely on, add separate ICHRA safe harbors: price the silver plan where the employee works instead of where they live, and use the prior year's silver plan prices for a calendar plan year.

Who it suits

Employers with staff spread across states and metro areas, where one group plan fits nobody; groups that miss carrier participation minimums; and areas with several silver plans priced below the group rate. It fits less well where the individual market is thin or expensive, or where a rich group plan is part of how you recruit.

DESIGN RULES

What the ICHRA rules require of you.

01One offer per class. A class offered an ICHRA cannot also be offered the group plan.
02Minimum class sizes. When some classes keep the group plan, certain ICHRA classes need at least 10 employees under 100 employees, 10% of employees from 100 to 200, and 20 above 200.
03Written notice. Each eligible employee gets a notice at least 90 days before the plan year starts.
04Test every employee. Check the lowest-paid and the oldest employees in each class, not an average.

COMMON QUESTIONS

Is an ICHRA cheaper than a group plan?: It depends on the individual market where your employees live. Where silver plans cost less than your group premium, an allowance can deliver comparable coverage for less, and the employer's cost is fixed. Where the individual market is expensive, the allowance needed to pass affordability can exceed what you pay toward the group plan.
Can a company with 100 employees offer an ICHRA?: Yes, any size employer can. With 50 or more full-time employees, counting full-time equivalents, the ICHRA must be affordable for each full-time employee: the lowest-cost silver plan minus the allowance within 9.96% of income for 2026 plan years and 10.22% for 2027. Otherwise each such employee who gets a premium tax credit can cost $5,010 a year for 2026 and $5,670 for 2027.
Does one affordability result cover the whole group?: No. The test runs per employee. A pass for one employee says nothing about another with a different age, wage or address, so test the hardest cases in every class.
Can we offer a group plan to some employees and an ICHRA to others?: Yes, by class. A class offered an ICHRA cannot also be offered the group plan, and minimum class sizes of 10 to 20 employees apply to certain classes, depending on how many employees you have.

SOURCES

Estimates for planning, not quotes, plan designs or tax advice. Each limit is labeled with the plan year it applies to.

MORE GUIDES + TOOLS

FUNDINGLevel-funded vs fully insuredLevel funding can cost less in a normal claims year, but refunds come late, part may belong to employees, and a bad year shows up at renewal.PLANNINGOpen enrollment timelineStart the renewal review 120 days before the plan year: for January 1, 2027, September 3, 2026. Past that date, start now and hold enrollment to November 17 to December 1.ALL GUIDESEvery guide and calculatorPEO costs and Section 125 savings, alongside these guides.

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