As startups and SMBs strive to attract and retain talent while managing costs, choosing the right health insurance offering has never been more important. Two leading options are Individual Coverage Health Reimbursement Arrangements (ICHRAs) and traditional group insurance plans. Here is a detailed comparison to help founders and people leaders evaluate both approaches.
What Is an ICHRA?
Definition: An ICHRA lets employers set aside a fixed monthly reimbursement (pre-tax) for employees, who use those funds to buy their own individual health insurance plan from the marketplace and get reimbursed for premiums and qualified medical expenses.
Launch Date: Created as a flexible alternative, ICHRAs became available in 2020 and are rapidly gaining traction among startups and SMBs because of their customization and budget control.
What Is Regular (Group) Insurance?
Definition: With traditional employer-sponsored group insurance, the company negotiates coverage with an insurer and offers a standard set of plans to all employees. Both employer and employee typically share the cost of monthly premiums.
Features: Coverage is broad but often less customized, and employees lose coverage if they leave the company (unless they use COBRA).
Key Differences at a Glance
ICHRA | Traditional (Group) Insurance | |
|---|---|---|
Cost Predictability | Fixed, employer-set reimbursements | Subject to annual premium hikes and participation rates |
Budget Control | Employer determines allowance; scalable for any size business | Less employer control over costs; premiums set by insurer |
Employee Choice | Employees choose any qualifying individual plan fitting their needs | Employees limited to plans the employer picks |
Coverage Portability | Employee keeps coverage if leaving the company | Coverage tied to employment; ends if job ends |
Administration | Employer only manages reimbursements | Employer manages renewals, claims, compliance |
Participation Requirements | None | Requirements vary by state. Usually need at least 2 W2 employees for benefits eligibility |
Tax Advantages | Employer contribution tax-deductible; employee reimbursement not taxed as income | Employer premium payments are tax-deductible Employee Contributions at a Pre-Tax Benefit |
Pros & Cons for Startups and SMBs
ICHRA Strengths
Customization: Employees select plans with their preferred networks, doctors, and coverage levels.
Cost Control: Employers fix their health benefit budgets—good for cash flow.
No Size Limits: Works for teams of all sizes and distributed workforces.
Portability: Employees keep their coverage even after leaving.
Simpler admin: No complex negotiations with insurance companies.
ICHRA Limitations
Compliance: Must follow federal rules (ERISA, ACA). Need solid admin support.
Education Needed: Employees must shop for insurance—requires guidance.
Variation in Markets: Not all regions may have robust individual insurance options.
Group Insurance Strengths
Comprehensive Coverage: May include dental, vision, prescriptions.
Shared Risk: Premiums often lower due to risk pooling.
One-Stop Enrollment: Simplifies decision for employees.
Traditional Perk: Familiarity increases perceived stability.
Group Insurance Limitations
Cost Volatility: Premiums can spike annually; hard to control.
Limited Choice: Employees must select from the employer’s menu.
Coverage Ends with Job: Leads to gaps if employee leaves or is let go.
Admin Intensity: Ongoing plan management and regulatory reporting.
Which Is Best for Your Startup or SMB?
Choose ICHRA if: You want predictable costs, maximum choice for a diverse or remote workforce, and easier administration. Especially effective if you have high turnover, hybrid teams, part-time workers, or need flexible benefits.
Choose Group Insurance if: You have the budget for higher premiums, a stable team, and place high value on offering a traditional, comprehensive benefit with less employee involvement in plan shopping.
Startups and SMBs navigating early growth or scaling phases often find ICHRAs offer flexibility, tax efficiency, and customization. However, established companies with resources may prefer the simplicity and traditional package of group insurance.
Employers can also mix options, such as offering group insurance to some classes of workers (e.g., full-timers) and ICHRAs to others (e.g., part-timers).
Final Thoughts
The best solution depends on your business priorities, team demographics, and how much time and money you want to invest in administering health benefits. ICHRAs are redefining healthcare for small companies, but traditional insurance still appeals where stability and simplicity are paramount. If you are interested in understanding your options, we have free consultations available with our Licensed Benefits Advisors.
About Rollfi
Rollfi empowers banks, vertical SaaS platforms, accounting firms, and fintechs to add payroll and benefits to their offerings through white-label solutions and robust APIs. With Rollfi’s infrastructure, platforms can unlock new revenue, boost customer retention, and gain valuable payroll data insights. Fast deployment and full regulatory coverage make Rollfi the easiest way to turn your platform into a one-stop shop for essential business services.
As startups and SMBs strive to attract and retain talent while managing costs, choosing the right health insurance offering has never been more important. Two leading options are Individual Coverage Health Reimbursement Arrangements (ICHRAs) and traditional group insurance plans. Here is a detailed comparison to help founders and people leaders evaluate both approaches.
What Is an ICHRA?
Definition: An ICHRA lets employers set aside a fixed monthly reimbursement (pre-tax) for employees, who use those funds to buy their own individual health insurance plan from the marketplace and get reimbursed for premiums and qualified medical expenses.
Launch Date: Created as a flexible alternative, ICHRAs became available in 2020 and are rapidly gaining traction among startups and SMBs because of their customization and budget control.
What Is Regular (Group) Insurance?
Definition: With traditional employer-sponsored group insurance, the company negotiates coverage with an insurer and offers a standard set of plans to all employees. Both employer and employee typically share the cost of monthly premiums.
Features: Coverage is broad but often less customized, and employees lose coverage if they leave the company (unless they use COBRA).
Key Differences at a Glance
ICHRA | Traditional (Group) Insurance | |
|---|---|---|
Cost Predictability | Fixed, employer-set reimbursements | Subject to annual premium hikes and participation rates |
Budget Control | Employer determines allowance; scalable for any size business | Less employer control over costs; premiums set by insurer |
Employee Choice | Employees choose any qualifying individual plan fitting their needs | Employees limited to plans the employer picks |
Coverage Portability | Employee keeps coverage if leaving the company | Coverage tied to employment; ends if job ends |
Administration | Employer only manages reimbursements | Employer manages renewals, claims, compliance |
Participation Requirements | None | Requirements vary by state. Usually need at least 2 W2 employees for benefits eligibility |
Tax Advantages | Employer contribution tax-deductible; employee reimbursement not taxed as income | Employer premium payments are tax-deductible Employee Contributions at a Pre-Tax Benefit |
Pros & Cons for Startups and SMBs
ICHRA Strengths
Customization: Employees select plans with their preferred networks, doctors, and coverage levels.
Cost Control: Employers fix their health benefit budgets—good for cash flow.
No Size Limits: Works for teams of all sizes and distributed workforces.
Portability: Employees keep their coverage even after leaving.
Simpler admin: No complex negotiations with insurance companies.
ICHRA Limitations
Compliance: Must follow federal rules (ERISA, ACA). Need solid admin support.
Education Needed: Employees must shop for insurance—requires guidance.
Variation in Markets: Not all regions may have robust individual insurance options.
Group Insurance Strengths
Comprehensive Coverage: May include dental, vision, prescriptions.
Shared Risk: Premiums often lower due to risk pooling.
One-Stop Enrollment: Simplifies decision for employees.
Traditional Perk: Familiarity increases perceived stability.
Group Insurance Limitations
Cost Volatility: Premiums can spike annually; hard to control.
Limited Choice: Employees must select from the employer’s menu.
Coverage Ends with Job: Leads to gaps if employee leaves or is let go.
Admin Intensity: Ongoing plan management and regulatory reporting.
Which Is Best for Your Startup or SMB?
Choose ICHRA if: You want predictable costs, maximum choice for a diverse or remote workforce, and easier administration. Especially effective if you have high turnover, hybrid teams, part-time workers, or need flexible benefits.
Choose Group Insurance if: You have the budget for higher premiums, a stable team, and place high value on offering a traditional, comprehensive benefit with less employee involvement in plan shopping.
Startups and SMBs navigating early growth or scaling phases often find ICHRAs offer flexibility, tax efficiency, and customization. However, established companies with resources may prefer the simplicity and traditional package of group insurance.
Employers can also mix options, such as offering group insurance to some classes of workers (e.g., full-timers) and ICHRAs to others (e.g., part-timers).
Final Thoughts
The best solution depends on your business priorities, team demographics, and how much time and money you want to invest in administering health benefits. ICHRAs are redefining healthcare for small companies, but traditional insurance still appeals where stability and simplicity are paramount. If you are interested in understanding your options, we have free consultations available with our Licensed Benefits Advisors.
About Rollfi
Rollfi empowers banks, vertical SaaS platforms, accounting firms, and fintechs to add payroll and benefits to their offerings through white-label solutions and robust APIs. With Rollfi’s infrastructure, platforms can unlock new revenue, boost customer retention, and gain valuable payroll data insights. Fast deployment and full regulatory coverage make Rollfi the easiest way to turn your platform into a one-stop shop for essential business services.