Yes, an employer can switch from a traditional group health plan to an ICHRA, and the path is well established. The transition takes planning because of the IRS 90-day notice rule, the need to avoid a coverage gap at the changeover, and the impact on lower-income employees who may have been receiving ACA subsidies. This guide walks through the steps in order.
For background on what an ICHRA is and how it works, see our ICHRA guide for small businesses. For a cost-side comparison against the group plan you are leaving, see ICHRA vs Traditional Group Health Insurance: Cost Comparison.
Last updated: June 2026.
Key takeaways
- An employer can move from a traditional group plan to an ICHRA, and the process is well established.
- The IRS requires written notice to employees at least 90 days before the ICHRA plan year begins.
- The ICHRA offer creates a special enrollment period so employees can pick individual coverage outside of Open Enrollment.
- Time the group plan termination so individual coverage starts the day after group coverage ends to avoid a gap.
- Model the impact on lower-income employees first, since an affordable ICHRA offer disqualifies them from a Marketplace subsidy.
The Step-by-Step Path
Step 1: Confirm an ICHRA Is the Right Fit
Before tearing down a group plan, make sure the ICHRA is actually the better answer. Common reasons to switch: rising group renewal rates, a multi-state or remote team that strains the group plan, low participation that puts the group plan at risk, and a desire for fixed, predictable employer cost. If you have not run the comparison yet, do that first.
Step 2: Set Employee Classes and the Monthly Budget
Decide whether everyone will receive the same contribution or whether you will vary it by IRS-defined class (for example, full-time vs part-time, salaried vs hourly, or by geographic rating area). Set the monthly reimbursement amount for each class. The IRS affordability test, which determines whether the offer satisfies the Applicable Large Employer mandate and what happens to employee subsidies, depends on the lowest-cost self-only Silver plan in each employee's area, so the contribution should be modeled per location.
Step 3: Choose an ICHRA Administrator
An ICHRA needs a written plan document and a Summary Plan Description, and someone has to verify enrollments and process tax-free reimbursements. Most employers hire a third-party ICHRA administrator. The administrator drafts the plan documents, handles the IRS-required notice, verifies that each employee has qualifying individual coverage, and processes monthly reimbursements.
Step 4: Give Employees the IRS-Required 90-Day Written Notice
The IRS requires a written ICHRA notice at least 90 days before the start of the plan year. The notice explains the contribution, the affordability information, the impact on Marketplace subsidies, and how the ICHRA interacts with the employee's current coverage. The administrator usually provides a compliant template.
Step 5: Coordinate Timing to Avoid a Coverage Gap
This is the most important operational step. Time the group plan termination so that the individual plans each employee chooses begin the day after group coverage ends. The ICHRA offer itself creates a special enrollment period on the individual market, so employees can enroll outside of Open Enrollment, but the dates have to line up. A January 1 ICHRA start is common because individual plans naturally renew at the calendar year.
Step 6: Help Employees Enroll in Individual Plans
This is where a licensed independent agent earns their keep. Each employee needs to pick an individual health plan whose network covers their doctors and whose total cost (after the ICHRA reimbursement) fits their budget. An agent can run that comparison for every employee and family, which avoids the chaos of asking everyone to figure it out themselves.
Step 7: Set Up Tax-Free Payroll Reimbursement
Reimbursements run through payroll (or a separate disbursement) up to the monthly cap for each class. The reimbursement is tax-free to the employee and tax-deductible to the employer. If the employee's plan costs more than the ICHRA amount, the difference can usually be paid through pre-tax payroll deduction under a Section 125 plan.
Common Pitfalls
- Missing the 90-day notice. The notice is mandatory. Without it, the ICHRA cannot start on the intended date. Build the timeline backward from the desired effective date.
- A coverage gap at the transition. If the group plan ends before individual plans begin, employees are temporarily uninsured. Coordinate the termination date with the individual enrollment effective date.
- Hurting a subsidy-eligible employee. If the ICHRA is considered affordable, the employee cannot claim a Marketplace subsidy. A lower-income employee who would have received a large subsidy can be worse off. Model the impact for each employee before setting the contribution.
- Forgetting ACA reporting. Applicable Large Employers still file Forms 1094-C and 1095-C reporting the ICHRA offer.
- Skipping enrollment help. A self-serve transition usually leads to confused employees, missed deadlines, and bad plan choices. A licensed agent walking each person through their options removes most of that friction.
Still weighing whether ICHRA or another structure is the better move? Compare it against a QSEHRA in QSEHRA vs ICHRA, or zoom out to the full landscape in Group Health Insurance Alternatives for Small Businesses.
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Frequently Asked Questions
Can an employer switch from a group plan to an ICHRA?
Yes. The employer terminates or non-renews the group plan and launches the ICHRA for the next plan year, with at least 90 days of written notice to employees.
How much notice do employees need before the switch?
The IRS requires written notice at least 90 days before the start of the ICHRA plan year. New hires must receive the notice by the date their eligibility begins.
How do you avoid a coverage gap during the switch?
Time the group plan termination so individual coverage begins the day after group coverage ends. The ICHRA offer creates a special enrollment period on the individual market.
Will employees lose their doctors when switching to an ICHRA?
It depends on the individual plan each employee chooses. A licensed agent can help each person pick a plan whose network covers their doctors.
Can a lower-income employee be worse off after the switch?
Yes. An affordable ICHRA disqualifies the employee from a Marketplace subsidy for that plan year. Model the impact before setting the contribution.
Does the employer still need to do ACA reporting?
Yes. An ICHRA is an offer of coverage. Applicable Large Employers still file Forms 1094-C and 1095-C.
How long does the switch take to set up?
Most employers plan a 90 to 120 day runway because of the IRS notice rule and the time needed to choose an administrator, design the contribution, and help employees enroll.
Thinking about moving from group to ICHRA? I'm a licensed independent agent based in Omaha. I can map the timeline, model the contribution, and walk each employee through their individual plan options. Free consultation, no obligation, no pressure.
Book a free consultation with Nick Depke or call (402) 680-6171.