ICHRA vs group health insurance: which costs less?

Group premiums vs two ICHRA budgets

Two things the table can't show. An ICHRA is a reimbursement arrangement: you pay what employees claim for their premiums and eligible costs, up to the allowance. And real groups mix single and family coverage, so get a quote for your own census before comparing.

Example: a 25-person company compares costs

Say a company has 25 full-time employees, no group plan yet, and every employee would take single coverage. This is an illustration, not a quote or tax advice.

1. Group benchmark: at KFF's 2025 small-firm averages, the employer's share of single coverage is about $7,737 a year per employee, or about $193,425 for 25 people.
2. ICHRA design A: a $400 monthly allowance is $4,800 a year per employee, at most $120,000 for 25 people, about $73,425 less than the group benchmark.
3. What an employee pays: a 40-year-old buying a plan at the 2026 average benchmark Silver premium of $625 a month pays $625 minus $400, or $225 a month, out of pocket after reimbursement (they can pay it pre-tax only for plans bought outside the Marketplace).
4. Affordability for that employee: for 2026, HealthCare.gov counts the offer as affordable if the lowest-cost Silver self-only plan, minus the allowance, is under 9.96% of monthly household income. With household income of $48,000 ($4,000 a month), that's $398.40. The lowest-cost Silver plan costs no more than the benchmark, so the net is $225 or less: affordable. That employee can't get a premium tax credit.
5. ICHRA design B: a $625 allowance would cost up to $187,500, close to the group benchmark, but the budget is fixed by the company, not by an insurer's renewal.

For plan years beginning in 2027, the IRS set the affordability percentage at 10.22% (Rev. Proc. 2026-26). For the step-by-step setup, notices and classes, see the ICHRA guide.

Payroll taxes and the employer mandate

• Payroll taxes: IRS Publication 15-B says employer payments and reimbursements of medical expenses under an accident or health plan, which includes an ICHRA, are excluded from wages and exempt from Social Security, Medicare and federal unemployment tax (2% S corporation shareholders are an exception). The same is true for an employer's share of group premiums. A taxable raise or stipend of the same amount would be wages, with payroll tax on top. See health insurance stipend.
• Fewer than 50 full-time employees (including equivalents): no employer mandate, so the ICHRA's size is a business choice. Affordability only decides whether employees can get a premium tax credit instead.
• 50 or more full-time employees: the employer mandate applies, and an ICHRA needs an amount that makes the offer affordable, tested against the lowest-cost Silver self-only plan. For 2027 plan years the percentage is 10.22%. The ICHRA guide covers the test; have a benefits advisor run your numbers.
• Age and family size: within a class, ICHRA amounts can rise with age (up to 3 to 1, oldest to youngest) and with the number of dependents, which matters because individual premiums rise with age.

Where a group plan can come out ahead

• The SHOP tax credit. HealthCare.gov says employers with fewer than 25 full-time equivalent employees, average salaries of about $65,000 or less, that pay at least 50% of full-time employees' premiums can get a credit worth up to 50% of premiums paid (35% for nonprofits). SHOP coverage is generally the only way to claim it, and it can't be combined with an ICHRA. A company with exactly 25 full-time employees is just over that line.
• Low-income employees. An affordable ICHRA offer blocks the premium tax credit, which for some lower-income employees would have been worth more than the allowance. See premium tax credit.
• One plan for everyone. A group plan gives every employee the same network and benefits. With an ICHRA, each person shops their local individual market, and choices vary by county.
• Your renewal is competitive. If a broker's group quote for your census comes in below the allowance you'd need, the group plan costs less. Compare real quotes, not averages.

KFF estimates that in 2025, 4% of firms offering health benefits, and 9% of firms that don't, gave one or more employees money to buy individual coverage. For other small-business options, see ICHRA vs QSEHRA, group health insurance and small business health insurance.

This is general information, not tax or legal advice. For plan design, ask a benefits attorney or tax advisor.

Ask Gabriel with your numbers

Gabriel can work through the same comparison with your own headcount, ages, ZIP codes and budget, free. Ask Gabriel free.

Employers with 25 or more employees can also add Gabriel for Teams, a care membership, alongside a health plan. It is not group health insurance and not an HRA or ICHRA, it doesn't replace a health plan, and it never satisfies the ACA employer mandate. Gabriel is not an insurer.