Health Plan Options Comparison: Group Insurance vs. Level-Funded vs. ICHRA

A decision framework for employers with 25, 500 employees, -

With small group health insurance premiums rising 11% in 2026. Many employers are asking a question they've never seriously considered before: is there a better way to offer health benefits?

The answer depends on your workforce, your geography, your risk tolerance, and your goals. This framework is designed to help you structure that evaluation, not to prescribe a single answer, but to help you ask the right questions and know what to look for., -

The Three Main Options

Option A: Fully Insured Group Health Insurance

The traditional model. You contract with a carrier, select plan designs, pay a fixed monthly premium per employee, and the carrier assumes the insurance risk. If claims are high one year, your renewal goes up. If claims are low, you generally see minimal savings.

Best for: Employers who prioritize simplicity, predictability of the renewal process, and are comfortable outsourcing all insurance risk to a carrier.

Key tradeoffs: Limited cost control beyond plan design choices; renewal increases tied to carrier pricing and your group's claims history; one-size-fits-all plan options for a potentially diverse workforce., -

Option B: Level-Funded Health Plan

A hybrid model that sits between fully insured and self-funded. Your company pays a fixed monthly amount (like a premium) that covers three components: expected claims, administrative costs, and stop-loss insurance. If actual claims come in below the expected level, you receive a refund at year-end. If claims are catastrophically high, stop-loss insurance caps your exposure.

Best for: Employers with 25, 200 employees who want more cost transparency and the possibility of sharing in savings when their workforce is healthy, without taking on the full risk of self-funding.

Key tradeoffs: You participate in the upside (refunds) but also have more visibility into your actual claims data; stop-loss insurance quality varies by carrier; works best when your workforce demographics and health history are reasonably favorable., -

Option C: Individual Coverage Health Reimbursement Arrangement (ICHRA)

A defined contribution model. You set a fixed monthly reimbursement amount per employee. Employees purchase their own individual health insurance (through the ACA marketplace or directly from a carrier) and submit premium costs for reimbursement up to your cap. You control your maximum spend precisely.

Best for: Employers who want complete cost predictability, geographically dispersed workforces, or situations where individual market options in your employees' locations are strong.

Key tradeoffs: Employees take on the responsibility of selecting their own coverage; transition requires clear communication and enrollment support; ACA compliance requirements apply for applicable large employers (50+ FTEs); works best in markets with robust individual coverage options., -

Side-by-Side Comparison

| Factor | Fully Insured Group | Level-Funded | ICHRA | |, , , , |, , , , , , , , , -|, , , , , , , |, , , -| | Cost predictability | Moderate, fixed monthly premium but renewal varies | High, fixed monthly amount, refund potential | Very high, employer controls the cap | | Cost control | Low, limited to plan design choices | Moderate, claims data visibility, refund if healthy | High, employer sets the contribution | | Employee plan choice | Low, 2, 3 employer-selected options | Low to moderate | High, employees choose from individual market | | Administrative complexity | Low | Moderate | Moderate (requires ICHRA admin platform) | | Best workforce size | Any | 25, 200 employees | Any; flexible by class of employee | | Geographic fit | Best for concentrated workforces | Concentrated workforces | Excellent for dispersed workforces | | Claims transparency | None | Full visibility | Not applicable (no claims) | | Year-end refund potential | No | Yes | No | | Employee experience change | No change if renewing | Minimal change from employee perspective | Significant, employees shop their own coverage | | ACA compliance complexity | Standard | Standard | Requires affordability calculation for ALEs | | Regulatory risk | Low | Moderate (stop-loss regulations evolving) | Low to moderate |, -

Decision Criteria Checklist

Use these questions to evaluate which option may make the most sense for your organization.

About Your Cost Situation

• Has your group health premium renewal increased more than 8% in the past 12 months?
• Are you spending more than $15,000 per employee annually on health benefits?
• Do you have visibility into what is driving your claims costs?
• Have you compared your group renewal against individual market options in your employees' zip codes?

About Your Workforce

• Are your employees concentrated in one geographic area, or spread across multiple states/cities?
• Is your workforce relatively young and healthy, or does it skew older or higher-utilization?
• Do employees have significantly different coverage needs (single employees vs. families with complex medical needs)?
• Would employees benefit from more plan choices, or do they prefer the simplicity of employer-selected options?

About Your Organization's Capacity

• Do you have HR bandwidth to support employees through a transition to a new benefits model?
• Can you commit to communicating benefit changes clearly and in advance?
• Do you have a benefits broker or advisor who has experience with level-funded or ICHRA structures?
• Are you prepared to invest in ICHRA administration software if you go that route?

About Your Risk Tolerance

• Are you comfortable with the possibility of a high-claims year affecting your renewal significantly? (If no → consider level-funded or ICHRA)
• Are you willing to absorb some claims risk in exchange for the possibility of year-end refunds? (If yes → level-funded may be worth evaluating)
• Do you want to cap your health benefit spend definitively regardless of your employees' coverage choices? (If yes → ICHRA deserves a close look), -

Red Flags to Watch For

With Level-Funded Plans:

• Stop-loss attachment points that are set too low, creating excessive premium cost
• Contracts that don't clearly define refund calculation methodology
• Limited claims data reporting or transparency
• Carriers with limited stop-loss experience or financially weak stop-loss reinsurers

With ICHRAs:

• Reimbursement amounts set below the ACA affordability threshold (creates compliance risk for ALEs)
• Inadequate employee enrollment support, the transition fails without this
• Individual market in employees' locations is thin or expensive
• Employees with household incomes that make them ineligible for premium tax credits (reduces individual market advantage)

With Any Plan:

• Pressure to decide at renewal without adequate time to evaluate alternatives
• Broker recommendations that aren't supported by a cost model showing assumptions
• Switching solely on price without accounting for employee disruption and communication costs: -

Questions to Ask Your Broker

If you're evaluating alternatives to your current plan, bring these questions to your advisor:

1. Can you model my current group renewal cost against a level-funded alternative, showing the refund scenario if our claims stay flat?
2. What does the individual market look like in the zip codes where my employees live, and at what ICHRA contribution level would they have access to comparable coverage?
3. What are the ACA compliance implications of each option for my specific company size?
4. What ICHRA administration platform do you recommend, and what does it cost?
5. Which of my employees might face higher out-of-pocket costs under an ICHRA, and how would we address that?
6. What has your experience been transitioning employers of my size to a level-funded or ICHRA model?, -

A Note on Timing

The best time to evaluate your options is 60 to 90 days before your renewal date, not at renewal. Evaluating a level-funded quote or modeling an ICHRA takes time, and rushing the analysis at the last minute typically results in defaulting to whatever your current carrier offers.

If your renewal is coming up in the next few months, start the conversation with your broker now. If your renewal is six months out, you still have time to do a thorough evaluation., -

Benefits Collective works with employers navigating benefits strategy decisions. If you'd like help evaluating your options for your next renewal, schedule a consultation to talk through your specific situation.