Most ICHRA pitches lead with cost savings. That's often true, but it depends entirely on your workforce composition, geography, and what you're currently paying for group coverage. Here's the actual math for a 50-life employer — no hand-waving.
The Scenario
A 50-employee company headquartered in Nashville, TN. Workforce mix: 60% are between 30–45, 30% are 46–55, 10% under 30. All full-time W-2 employees. Average W-2 wage approximately $62,000/year. No union, no collective bargaining.
The employer is currently renewing a group PPO plan with a regional carrier. They're evaluating switching to ICHRA for the January 2027 plan year.
Group Plan Cost Baseline (2026)
The national average employer contribution for single coverage in 2026 is approximately $7,200/year per employee ($600/month), based on KFF Employer Health Benefits Survey data. Employees contribute an average of $1,400/year for self-only coverage.
For a 50-employee group — assuming 80% elect single coverage and 20% add dependents — total employer outlay looks like this:
- 40 employees on single coverage: 40 × $7,200 = $288,000/year
- 10 employees on family/dependent coverage: employer typically contributes $20,000–$22,000/year per family enrollment; using $21,000: 10 × $21,000 = $210,000/year
- Total employer premium contribution: ~$498,000/year
Add broker/admin fees for a 50-life group plan: typically $25–$45 PEPM ($18,000–$27,000/year). Use $22,500 as a midpoint.
Total group plan employer cost: ~$520,500/year
This does not include the employer's payroll tax on employee premium contributions run through a Section 125 cafeteria plan — that's a wash between the two structures, so we'll exclude it from both sides.
ICHRA Cost Model (2026)
Under ICHRA, the employer sets a monthly allowance per employee (and optionally higher for employees with dependents). The employer must decide whether to make the offer affordable or allow employees to opt out for PTCs.
For this scenario, the employer wants to maintain competitive benefits — so they'll aim for contribution levels that replace what employees were getting under the group plan.
Setting Contribution Levels
In Nashville (Davidson County), the lowest-cost silver plan for a 40-year-old in 2026 runs approximately $480–$520/month. Using the rate-of-pay safe harbor at $62,000 average wages:
- Monthly income proxy: $62,000 / 12 = $5,167
- 9.02% affordability threshold: $5,167 × 9.02% = $466/month
To make the ICHRA affordable, the employer's single-coverage allowance must bring employee out-of-pocket below $466/month. With a $500/month silver plan, the employer needs to contribute at least $34/month to hit the safe harbor — but that's a floor, not a competitive benefit.
To actually replace what employees were getting, the employer sets the allowance at $600/month for single and $1,500/month for family/dependent coverage — mirroring the group plan contribution.
Cost Model
- 40 employees × $600/month × 12 = $288,000/year
- 10 employees × $1,500/month × 12 = $180,000/year
- Total ICHRA reimbursements: $468,000/year
ICHRA administration fees: Most platforms charge $15–$30 PEPM for employers in this size range. Using $22/month ($264/year per employee):
- 50 × $264 = $13,200/year
Total ICHRA employer cost: ~$481,200/year
Side-by-Side Comparison
| Group Plan | ICHRA | |
|---|---|---|
| Employer premium/reimbursement | $498,000 | $468,000 |
| Admin/broker fees | $22,500 | $13,200 |
| Total employer cost | $520,500 | $481,200 |
| Annual savings | — | $39,300 |
| Cost per employee | $10,410 | $9,624 |
| Employer cost certainty | Moderate (renewal risk) | High (fixed allowance) |
| Employee plan choice | Limited (1–3 options) | Full marketplace |
| Employee out-of-pocket risk | Standardized | Variable by plan choice |
In this scenario, ICHRA saves approximately $39,300/year (~7.5%) — not dramatic, but meaningful, and it locks in cost predictability going forward.
Where the Math Shifts
The scenario above is relatively favorable for ICHRA. Here's where the calculus changes:
When ICHRA wins bigger
- Your group plan renewal comes in at 12%+ increases (common in certain markets)
- Your workforce is younger and healthier than average — individual market underwriting prices accordingly
- Your employees are distributed across multiple states where group plan coverage is awkward
- You have a significant part-time or variable-hour population you can exclude from ICHRA
When group insurance holds its ground or wins
High-cost individual markets: In some markets — parts of rural Texas, Wyoming, Alaska — the individual market is thin. Benchmark silver plan premiums may run $700–$900+/month. To make ICHRA affordable, employer contributions need to be substantially higher to hit the safe harbor. The group plan may be cheaper.
Older workforces: ACA individual market premiums are age-rated (up to 3:1). An employer with a workforce skewed toward 50–60 year olds will see much higher average individual market costs than a younger workforce. The group plan pools this risk; ICHRA exposes it.
Employee subsidy displacement: In this scenario, we assumed the employer set contributions at a level that makes ICHRA affordable for all employees. That means employees who would otherwise qualify for PTCs (those earning under 400% of FPL) lose that subsidy eligibility. In some cases, the subsidy the employee forfeits is larger than the employer's ICHRA contribution — employees come out worse even if employer costs look similar on paper.
Transition friction: Switching from group to ICHRA is a one-time cost: employee communications, plan document prep, enrollment support, and potential employee dissatisfaction. Budget for it.
The Honest Takeaway
ICHRA doesn't always win on cost. For a 50-life employer in a competitive individual market with a reasonably young workforce, the savings are real but modest. The more durable argument for ICHRA is cost predictability — you set the allowance and it doesn't move with insurer renewal cycles.
The math genuinely turns negative in high-premium markets, for older workforces, or when employer ICHRA contributions would displace significant PTC eligibility that employees were counting on.
Before you switch: pull actual benchmark silver plan premiums for every rating area where your employees live, model the affordability safe harbor for your actual wage distribution, and compare the total cost with honest assumptions — not the optimistic ones a vendor puts in their pitch deck.