Group health insurance vs. ICHRA

By Holly Bengfort on September 18, 2026 at 10:00 AM

Employee healthcare benefits are essential for attracting and retaining talent, but choosing the right coverage can be challenging. While traditional group health insurance has long been the standard, the CHOICE Arrangement, formerly known as the individual coverage health reimbursement arrangement (ICHRA), offers employers another option.

In this article, we'll compare both approaches to help you determine which best fits your organization.

In this blog post, you'll learn:

How ICHRA and group health plans work.
The key differences between ICHRA and group plans.
Which health benefit option may work for your business.

What is an ICHRA?

A CHOICE Arrangement, formerly known as ICHRA, is an IRS-approved, employer-funded health benefit. With a CHOICE Arrangement, you can offer eligible employees tax-free reimbursements for their individual health insurance premiums and other eligible medical expenses.

An ICHRA allows employees to buy their own individual health insurance plans instead of relying on employer-sponsored coverage. They also pay their own out-of-pocket medical costs. Then they submit proof of purchase. From there, you approve their eligible healthcare expenses and reimburse them up to a set allowance amount that you define.

It's a great solution for an applicable large employer (ALE) who needs to satisfy the Affordable Care Act’s (ACA) employer mandate. You can offer an ICHRA as a stand-alone benefit to all your employees or a separate benefit for those who don’t qualify for your group health plan.

You can also divide your workforce into 11 employee classes. This allows you to offer different monthly allowance amounts to different employees. For example, you can separate full-time and part-time employees into different employee classes.

You can also use employee classes to offer different benefits to different employees. For instance, you can offer a group plan to one class of employees, such as salaried workers, while offering an ICHRA to hourly workers.

The ICHRA has no minimum or maximum contribution limit, giving you the freedom to offer any allowance amount to your employees. As long as your ICHRA allowance is considered affordable, it can satisfy the affordability portion of the employer mandate. Additionally, ICHRA has no participation requirements, so you don’t need a certain number of employees enrolled to offer it.

What is group health insurance?

A group plan is a type of health coverage that organizations provide to a group of people, typically employees or members. Individuals can't purchase their own group coverage.

When offering a health benefit, most employers go with group health insurance as part of their employee benefits package. According to the U.S. Census Bureau¹, employment-based insurance was the most common type of health coverage in 2024, covering 53.8% of the population.

Employers either purchase health insurance for employees and their dependents or offer a self-funded plan. Workers can choose to get coverage or not, but most fully-insured group plans need at least a 70% participation rate for the employer to offer it.

How do group plans compare to ICHRA?

So, what are the main differences between an employer-sponsored group health plan and a CHOICE Arrangement (formerly ICHRA)? Let's take a closer look at seven key factors.

1. Cost

Group health insurance requires employers to contribute a set percentage of the monthly premiums, which can be costly for small businesses. According to KFF², annual premiums for employer-sponsored family health coverage reached $26,993 in 2025. On average, workers contributed $6,850 toward family coverage.

ICHRAs help control costs because you reimburse employees for insurance rather than purchasing it for them. You avoid annual rate hikes and can set your own predetermined budget for healthcare expenses. With no annual contribution limits, ICHRAs let you offer eligible employees as much or as little as you choose (though employers with 50 or more full-time equivalent employees must offer an affordable allowance). Plus, with PeopleKeep, unused allowances stay with the employer at the end of the plan year or when an employee leaves the organization.

Employers also benefit from the larger health risk pool that comes with an ICHRA. With a large group traditional plan, high-risk employees can drive up premiums for the entire organization. Since employees with an ICHRA purchase individual policies from the Health Insurance Marketplaces, the risk pool is much wider, usually anyone enrolled in the plan in an individual’s state. This keeps premiums low for high-risk employees, contributing to your benefit savings.

2. Tax benefits

Employers receive tax benefits for providing employer-sponsored health coverage to their employees. The portion of plan premiums employers pay is tax-deductible as a business expense, while employees contribute pre-tax, reducing their taxable income.

ICHRAs also have tax advantages for both employers and employees. Employers can deduct them and avoid payroll taxes. Since eligible employees must have an individual policy that meets minimum essential coverage (MEC) to participate in an ICHRA, their reimbursements are income tax-free.

3. Flexibility

Group health insurance often offers a limited selection of health plan options from a single health insurer. These plans also often have a network of preferred providers. While this can reduce costs, it may limit employees' choice of healthcare providers. They may need to seek care from in-network providers, which may not include their preferred doctors or specialists.

With an ICHRA, employees can choose from a wider range of individual health plans on the Health Insurance Marketplace. From there, they can select the one that best suits their needs and preferences.

Employers also experience greater flexibility with an ICHRA. They can offer different allowance amounts to different employee classes.

4. Portability

Group health insurance is tied to employment, which means that if an employee changes jobs or loses their job, they may lose coverage. This lack of portability can be a significant disadvantage, especially for individuals who may have difficulty obtaining new coverage.

Unlike traditional group health insurance plans, an individual policy under an ICHRA is portable. This means that if an employee changes jobs, they can take their individual health insurance coverage with them. This provides continuity of coverage and eliminates the need to switch insurance plans when employment changes.

On the employer side, ICHRA funds are not portable. This means that, unlike other account-based health benefits such as a health savings account (HSA), employees don’t keep their unused ICHRA funds when they leave your organization. This provides even greater cost savings.

5. Employee choice and personalization

Group health insurance often provides a one-size-fits-all approach by grouping all individual employees into the same plan. As a result, plans may not provide the specific coverage each needs. Employees may find that certain services or treatments they need are not covered or are only partially covered.

With ICHRAs, employees can select an individual plan that aligns with their healthcare needs, ensuring coverage for specific medications, doctors, or treatments.

According to Remodel Health’s 2026 National ICRHA Report, employees on its platform selected an average of 14 unique health plans per organization, compared with the single plan design typically offered through a traditional group health plan.

6. Popularity and familiarity

Because traditional group plans are so common, most employees already understand how their coverage will work.

The ICHRA requires employees to navigate the individual health insurance market on their own. This can be overwhelming for those unfamiliar with choosing and managing their own individual insurance plans. It can also take time to research and compare coverage options to find the best fit.

If you offer a CHOICE Arrangement (formerly ICHRA) through PeopleKeep by Remodel Health, we can provide resources to help your employees learn about their new health benefits.

7. Administrative burden

Group health insurance requires employers to handle administrative tasks such as enrollment, claims, and compliance.

With an ICHRA, much of the administrative burden shifts to the individual insurance carriers, reducing the employer's workload.

Plus, when you use HRA administration software like PeopleKeep, managing your health benefit is quick and easy. We draft federally required plan documents, provide cloud-based document storage, and offer award-winning customer support. Our experts review employee reimbursement requests to make sure your money is spent as intended.

	CHOICE Arrangement (formerly ICHRA)	Group plan
What employers are eligible?	Employers of all sizes with at least one W-2 employee.	Employers of all sizes, though many group plans have minimum participation requirements.
What employees are eligible?	W-2 employees with qualified individual health insurance policies (ACA-compliant plans with MEC).	Any employee of the employer's choosing.
When can organizations enroll?	Employers can enroll at any time of the year. Employees offered a CHOICE Arrangement don't need to wait until the annual Open Enrollment period to sign up for coverage if the employer offers the benefit midyear. They're eligible for a special enrollment period (SEP) if you’re offering the benefit for the first time that plan year.	Employers can enroll at any time of the year, and employees enroll during the benefit’s open enrollment period.
Any contribution limits?	No.	No.
Are there any minimum participation requirements?	No.	Yes.
Taxation	CHOICE Arrangement reimbursements are tax-free.	Employee contributions are pre-tax.
Premium tax credit coordination	If an employee opts into the CHOICE Arrangement, they can’t receive premium tax credits (PTCs). They can only opt and elect to receive PTCs if their CHOICE Arrangement contribution is unaffordable.	In rare cases, an employee might be able to enroll in an individual health plan and receive PTCs if their group health plan is unaffordable.

Conclusion

Ultimately, the choice between a traditional group health insurance plan and a CHOICE Arrangement, formerly known as an individual coverage health reimbursement arrangement (ICHRA), depends on your business and employees’ needs. CHOICE can offer small businesses greater flexibility and cost control, while group plans may be a better fit for large employers with bigger budgets that want traditional coverage.

Save on healthcare costs with a CHOICE Arrangement. Schedule a call with an HRA specialist today to get started!

This article was originally published on November 1, 2023. It was last updated on September 18, 2026.

References

Frequently asked questions

It depends on your organization's budget, workforce, and employees' needs. CHOICE Arrangements, formerly known as ICHRAs, can provide more flexibility and cost control, while group plans may be a better fit for employers who prefer traditional, employer-sponsored coverage.

Yes. Employers can use employee classes to offer a group health plan to one class of employees and a CHOICE Arrangement to another, as long as they meet applicable eligibility and class requirements.

Generally, no. Employees who participate in a CHOICE Arrangement can't receive premium tax credits for the same months. Depending on whether the CHOICE Arrangement is considered affordable, employees may have different options if they decline the arrangement.