ICHRA vs. group plans | How do they compare?

Looking to compare ICHRA vs group plans for your business or client? While both meet the employer mandate and both are technically group benefits, there are advantages and disadvantage to both. Let's walk through the differences and help decide which benefits option is best for you.

ICHRA vs. Group Plans

Let's compare and contrast ICHRA vs. Group Plans.

Most of you are familiar with group plans; they are proven recruitment and retention tools, there are a lot of options out there, people generally understand how they work. Enough on that.

Let's jumpstart the conversation by sharing a little bit about ICHRA, as it's relatively new.

An alternative to pricey, one-size-fits-all group plans, the individual coverage health reimbursement arrangement (ICHRA), is a tax-friendly model that brings greater flexibility, efficiency, and cost-control to the employer as well as more choices and personalization for employees. Employers will be happy to hear that ICHRA takes the burden of managing a health plan and underlying health risks off of you!

There's no need to hassle with renewals, worry about participation rates, stress about what doctor networks your employees want, or be surprised by annual premium increases.

Instead, you can decide which employees qualify, set their monthly allowances, and get back to managing your business while employees get to choose the plans they want.

What is an individual coverage HRA? 

As the name implies, the individual coverage health reimbursement arrangement is based on reimbursing employees for insurance rather than buying it for them.

How does an individual coverage HRA work?

At a high-level, the way ICHRA works is very simple:

1. Employers design their plan, including defining which employees are eligible and establishing reimbursement limits based on a number of custom ICHRA classes 
2. Employees purchase the individual plans they want
3. Employees submit claims for reimbursement
4. Employers reimburse employees for valid claims
5. Employers outsource certain administrative functions like coverage verification, on-boarding, compliance, etc.

How does a group plan compare to ICHRA? 

In the past, a big advantage of traditional, employer-sponsored group plans was that they were deductible expenses for employers and were taken out of employee paychecks on a pre-tax basis. More and more, these big group plans are simply unaffordable and cumbersome for small business owners to offer. Another disadvantage of group plans is forcing everyone to choose the same type of plan, when people by nature have different needs and preferences. 

How do ICHRAs compare to group plans? 

• ICHRA can be used with companies of any size.
• ICHRA offers more flexibility in terms of design (who is offered the benefit) and budget.
• Employers have the option to have unused allowances to carry forward to the following year or reset to zero. Unused funds stay with employer.  
• There are no minimum or maximum contribution limits.
• ICHRAs can meet the employer mandate for employers with greater than 50 full-time Applicable Large Employers (ALEs) if the offer is “affordable” and meets minimum value (MV)
• Plans can be designed to include or exclude employees based off of customizable class criteria  (11 classes total)
• Both premiums and medical expenses can be reimbursed. Plans can be designed to allow for premiums only or premiums plus expenses.

Is ICHRA better than a group plan?

Here are a few things that ICHRA can do that group plans cannot do. At the end of the day, however, the answer is it depends on your local insurance market, how your company is set up, your budget, etc. 

1. Transfers employer responsibility for health risks.  
2. More personalized plan choices for employees. No employee is locked into a plan that might not be a good fit for them. They can also take their plan with them if they leave. 
3. Simpler and more flexible plan design options. 
4. Greater budget control. 
5. No participation concerns. 

What benefits option is best for my company?

What’s best for one business isn’t always best for another. So if you’re deciding between an ICHRA and a group plan, you should consider factors that determine what’s best for you, like local insurance market conditions, individual plan costs, market stability, number of carrier options, etc.  Don’t go looking too hard - we did the research for you already. Check out our post on the top ICHRA markets to see where your city lands in its HRA preparedness. 

While we always advise our clients to speak with their CPA before jumping in, we are ready to chat on our website if you have any specific questions about your business and how HRAs could help. We have also put together a really helpful ICHRA Guide and Small Business HRA Tax Strategy Guide as well as our wildly popular ICHRA FAQ post.