It’s happening again. You open the email from your broker, and there it is, a double-digit increase on your group health plan renewal. Your first instinct might be to grit your teeth and accept it. After all, what choice do you have?
Actually, you have more options than ever before. The health insurance landscape has fundamentally shifted in the past few years, and alternative models like Individual Coverage Health Reimbursement Arrangements (ICHRAs), level-funded plans, and Professional Employer Organizations (PEOs) are no longer experimental, they’re proven solutions that could save your company substantial money.
But here’s the critical question: When do these alternatives actually make sense for your business? Let’s break down the math, the logistics, and the real-world implications of moving away from traditional group coverage.
Warning Signs It’s Time to Explore Alternatives
Not every company should abandon group health insurance. But certain red flags signal it’s time to seriously evaluate your options:
1. Consistent Double-Digit Renewal Increases
If you’re seeing annual increases of 15% or higher for multiple consecutive years, you’re watching your healthcare costs spiral out of control. With 2026 ACA marketplace premiums increasing an average of 18%, the traditional group market isn’t necessarily offering stability anymore.
2. Small Group Size with High Claims Experience
Have 5-50 employees? One or two high-cost claims can devastate your rates for years. In small groups, a single catastrophic illness can create rate increases that feel impossible to escape. This is where the risk pooling of alternative models becomes attractive.
3. Geographic Dispersion of Your Team
Managing a traditional group plan across multiple states creates administrative complexity and often limits your carrier options. If you have remote employees scattered across several states, ICHRA or PEO solutions can simplify coverage dramatically.
4. Limited Budget But Need for Competitive Benefits
If you can’t offer competitive benefits packages at current group rates, but losing talent isn’t an option, it’s time to explore how alternative models can stretch your benefits dollar further.
5. Administrative Burden Is Overwhelming Your Team
When your HR person (or you) spends 10+ hours per week on benefits administration, compliance, and employee questions, you’re losing productivity that could drive revenue. Alternative models often come with administrative support that frees up your time.
6. Healthy, Younger Workforce
If your employee demographic skews younger and healthier, you might be subsidizing the broader risk pool in the traditional group market. Alternative models can sometimes better reflect your actual risk profile.
ICHRA Deep Dive: When It Makes Sense vs. Doesn’t
Individual Coverage Health Reimbursement Arrangements have exploded in popularity, with adoption increasing 124% year-over-year from 2024 to 2025. But ICHRA isn’t a silver bullet, it works brilliantly in some scenarios and fails miserably in others.
What ICHRA Actually Is
An ICHRA allows you to set a fixed monthly allowance for each employee, which they use to purchase individual health insurance on the ACA marketplace or private exchanges. The reimbursements are tax-free, and you get predictable costs instead of unpredictable renewals.
Think of it like the shift from pensions to 401(k)s, you’re moving from defined benefits to defined contributions.
When ICHRA Makes Financial Sense
Best Fit Scenarios:
- Companies with 15-199 employees – This is the current sweet spot. You’re large enough to have administrative capacity but small enough that group rates aren’t heavily discounted.
- States with robust individual markets – In some states, individual market premiums run 30-50% less than group coverage on a per-person basis. Markets with strong competition and stable pricing make ICHRA particularly attractive.
- Companies that never offered benefits before – Remarkably, 83% of employers offering ICHRA in 2025 didn’t previously provide health coverage. If you’re considering offering benefits for the first time, ICHRA lets you control costs from day one.
- Diverse employee demographics – When your workforce has varying needs (young singles, families, near-retirees), ICHRA lets each employee choose plans that fit their specific situation rather than forcing everyone into the same plan.
- Multi-state or fully remote teams – Managing 50 employees across 15 states with traditional group coverage is a logistical nightmare. ICHRA simplifies this dramatically.
- Predictable budget requirements – If you need absolute certainty on healthcare spending, ICHRA delivers. You set the allowance, and that’s your cost. No surprise mid-year adjustments.
The Math That Works:
Let’s say you have 30 employees. Your current group plan renewal came back at $750/month per employee ($270,000 annually).
With ICHRA, you might offer:
- $600/month allowance per employee ($216,000 annually)
- Employees use this to buy marketplace plans averaging $550/month in your state
- You save $54,000 annually (20%)
- Employees save $50/month ($1,500 annually if they pocket the difference)
When ICHRA Doesn’t Make Sense
Avoid ICHRA If:
- You’re in a high-cost individual market – Some markets (particularly rural areas) have limited individual plan options with high premiums and narrow networks. If your employees would face 40% higher premiums on the individual market, ICHRA creates an employee relations nightmare.
- Your employees earn above 400% of Federal Poverty Level – With enhanced ACA premium tax credits expired in 2026, employees earning above ~$63,000 (for individuals) lost access to subsidies. This makes individual coverage more expensive for higher earners.
- You have a very healthy group with low claims – If your current group experience is excellent and you’re getting competitive rates, don’t fix what isn’t broken. ICHRA works best when you’re escaping bad group pricing.
- Your employees lack healthcare literacy – ICHRA requires employees to shop for and manage their own coverage. If your workforce struggles with benefits decisions or has language barriers, the transition could be rocky.
- You’re a large employer (500+ employees) – At this scale, group purchasing power typically outweighs ICHRA advantages. Large employers usually have too much negotiating leverage to abandon group plans.
The “Family Glitch” Problem:
Here’s a critical issue that catches many employers off guard: ICHRA still has a “family glitch” problem that the ACA’s 2023 fix didn’t address. When determining affordability, the calculation only considers the employee’s cost for single coverage, not what a family would pay. This can make ICHRA unaffordable for employees with families, disqualifying them from marketplace subsidies.
If you have many employees with families, this affordability test can become a significant barrier.
ICHRA Transition Timeline
If you decide ICHRA makes sense, here’s the realistic timeline:
- 90 days before plan year: Provide formal notice to employees (legally required)
- 60-90 days out: Begin employee education sessions
- November 1 – January 15: Open enrollment period for ACA marketplace (critical timing)
- Plan year start: ICHRA reimbursements begin
Missing these deadlines can leave employees without coverage, so planning is essential.
Level-Funded Plans: The Middle Ground
If ICHRA feels too radical but your group renewals are killing you, level-funded plans offer a hybrid approach that’s gaining serious traction.
What Level-Funded Plans Actually Are
A level-funded plan is a self-funded arrangement where you pay a predictable monthly fee that includes:
- Estimated claims costs
- Stop-loss insurance (protecting against catastrophic claims)
- Administrative fees
At year-end, if actual claims are lower than estimated, you get money back. If they’re higher, stop-loss insurance covers the excess.
According to recent surveys, 42% of small employers with under 200 workers now use level-funded plans—up from just 13% in 2020.
When Level-Funded Makes Sense
Ideal Scenarios:
- Companies with 25-100 employees – You’re large enough for underwriters to assess risk but small enough that fully insured rates feel punitive.
- Stable, relatively healthy workforce – If you don’t expect dramatic claims fluctuations, level-funding lets you benefit from your group’s health status.
- Want transparency into healthcare spending – Unlike fully insured plans where you never see claims data, level-funded plans provide monthly utilization reports. This visibility helps you implement wellness programs or identify cost drivers.
- Seeking year-end refunds – Many level-funded plans return 50% or more of unused claim funds at year-end. If you have a good claims year, you actually get money back—something impossible with fully insured plans.
- Want to test self-funding – Level-funded is essentially “training wheels” for self-funding. It gives you claims visibility and control without the full risk of traditional self-funding.
The Math That Works:
Consider a company with 50 employees:
- Fully Insured Renewal: $850/employee/month = $510,000 annually
- Level-Funded: $725/employee/month = $435,000 annually
- Potential Savings: $75,000 annually
- Year-End Refund (if claims are low): Additional $20,000-40,000 back
That’s potentially 15-20% savings with upside potential.
When to Avoid Level-Funded Plans
- You have fewer than 15-20 employees – The risk pool is too small for accurate forecasting. One major claim and your costs explode.
- You have known high-risk employees – If you’re aware of expensive chronic conditions in your group, underwriters will price accordingly, eroding any savings.
- You can’t handle any variability – While stop-loss provides protection, some level-funded plans have “monthly reconciliation loans” if claims exceed estimates. If cash flow is extremely tight, this could create problems.
- You’re in a heavily regulated state – Some states have restrictions on self-funded arrangements that make level-funding less attractive or more complicated.
Key Due Diligence Questions
Before selecting a level-funded plan, ask:
- What’s the stop-loss attachment point? (Lower is safer but more expensive)
- What percentage of surplus do we get back?
- Are there monthly reconciliation requirements if claims run high?
- What claims data and reporting do we receive?
- What’s the laser threshold for individual high-cost claimants?
- Who handles claims administration and how quickly are claims paid?
PEO Math: When Does It Actually Pencil?
Professional Employer Organizations promise big-company benefits at small-company scale. But the co-employment model isn’t for everyone, and the math only works in specific situations.
How PEO Health Insurance Works
You enter a co-employment arrangement where the PEO becomes the employer of record for benefits purposes. Your employees join the PEO’s master health plan, which aggregates thousands of employees from multiple client companies. This pool negotiates better rates than you could alone.
The PEO industry now serves over 4.5 million employees across 170,000+ businesses in the U.S.
When PEO Makes Financial Sense
Best Fit Scenarios:
- Companies with 10-49 employees – This is PEO’s sweet spot. You’re too small for good group rates but large enough that PEO administrative fees don’t overwhelm savings.
- You have limited or no HR staff – PEOs include comprehensive HR support, payroll processing, compliance management, and benefits administration. If you’re currently paying $60,000-80,000 for an HR person primarily handling benefits and payroll, PEO could reduce that need.
- High-risk industry – Construction, healthcare, and manufacturing companies face steep workers’ compensation costs. PEOs pool risk across industries, potentially reducing your workers’ comp premiums significantly.
- You need recruitment advantages – Can’t compete for talent against larger employers? PEO gives you access to Fortune 500-caliber benefits packages (health, dental, vision, 401(k), even pet insurance) that you couldn’t negotiate independently.
- Multi-state operations – Managing payroll, taxes, and compliance across multiple states is complex. PEOs handle this seamlessly, which is particularly valuable for companies with 5-10 employees per state.
The Math That Pencils:
According to the National Association of PEOs, businesses using PEOs see average savings of $1,775 per employee annually with an ROI of 27%.
Example for a 25-employee company:
Current Costs:
- Group health insurance: $850/employee/month = $255,000
- HR staff (partial): $40,000
- Payroll processing: $5,000
- Workers’ comp: $30,000
- Compliance consulting: $8,000
- Total: $338,000
PEO Model:
- PEO fee: $150/employee/month = $45,000
- PEO health insurance: $700/employee/month = $210,000
- Workers’ comp through PEO: $22,000
- (HR, payroll, compliance included in PEO fee)
- Total: $277,000
Net Savings: $61,000 annually (18% reduction)
When PEO Doesn’t Make Sense
Avoid PEO If:
- You have great group rates already – If you’re a 200+ employee company with excellent health experience and strong rates, PEO health insurance won’t beat what you have. You’d only consider PEO for the HR administrative benefits.
- You want complete plan customization – PEOs typically offer 2-4 plan options from their master plan. If you want highly customized benefit designs or specific carriers, PEO limits flexibility.
- Your employees have very specialized healthcare needs – PEO plans may have narrower networks than some group plans. If your employees strongly prefer specific hospital systems or specialists, verify network adequacy first.
- You’re philosophically opposed to co-employment – Some business owners dislike the idea of another entity being the employer of record, even if it’s primarily administrative. If that’s a dealbreaker, PEO isn’t for you.
- You’re extremely cost-conscious and have simple needs – PEO pricing typically ranges from $100-150/employee/month just for the administrative services, before benefits costs. If you have a straightforward operation and handle HR internally, this fee might exceed the value delivered.
Hidden PEO Costs to Watch For
Many PEOs have pricing structures that appear attractive initially but include hidden markups:
- Health insurance markups: Some PEOs apply 5-20% hidden markups on health premiums beyond the stated carrier rates
- Workers’ comp premiums: Can be charged separately with significant margins
- Setup fees: $500-2,000 upfront, sometimes waived for larger contracts
- Termination fees: Early exit penalties if you leave before contract term ends
- Minimum monthly fees: Some impose minimums regardless of headcount
Critical Due Diligence: Request fully transparent pricing showing actual carrier rates versus PEO charges. Ask for client references specifically about unexpected cost increases.
The PEO Decision Framework
PEO makes sense when:
- (Current HR costs + Benefits costs + Compliance risk) > (PEO total cost + Value of freed-up time)
And when:
- Your industry has high workers’ comp costs OR
- You lack internal HR expertise OR
- You’re growing rapidly and need scalable infrastructure OR
- Multi-state complexity is overwhelming you
If none of these apply, PEO probably isn’t worth the trade-offs.
Transition Logistics: How to Actually Move Off Group Plans
Deciding to switch is one thing. Executing the transition without losing employees or facing gaps in coverage requires careful planning.
The 6-Month Transition Roadmap
Month 1-2: Analysis and Decision
- Get ICHRA, level-funded, and PEO quotes
- Model costs across different scenarios
- Assess employee demographics and needs
- Review state-specific regulations
- Make the formal decision
Month 3: Legal and Regulatory Compliance
- Terminate current group plan (usually requires 30-60 day notice)
- Ensure new arrangement complies with ACA employer mandate (if applicable)
- Review ERISA implications
- Draft required employee notices
Month 4: Vendor Implementation
- Sign agreements with ICHRA administrator, level-funded carrier, or PEO
- Set up systems integrations (payroll, HRIS)
- Train HR staff on new processes
- Prepare employee communication materials
Month 5: Employee Education (Critical Phase)
- Hold mandatory all-hands meetings explaining the change
- Provide one-on-one enrollment assistance
- Create FAQ documents and video tutorials
- Address concerns transparently
- For ICHRA: ensure employees understand marketplace shopping
Month 6: Enrollment and Launch
- Complete enrollment process
- Verify all employees have coverage
- Establish reimbursement processes (ICHRA)
- Set up claims administration (level-funded)
- Go live on effective date
Critical Timing Considerations
For ICHRA:
- Must align with ACA open enrollment (November 1 – January 15) or trigger Special Enrollment Periods
- Provide legally required 90-day notice before plan year
- Allow 60 days before ICHRA start date for employees to shop
For Level-Funded:
- Often starts on traditional dates (January 1, July 1) for easier underwriting
- Need 90-120 days for underwriting and setup
- Consider mid-year transitions carefully, may need gap coverage
For PEO:
- Can typically transition any time
- Allow 60-90 days for payroll system integration
- Benefits often available within 30 days of start date
Avoiding Common Transition Mistakes
Mistake #1: Insufficient Employee Communication Solution: Over-communicate. Assume employees understand nothing about the new model. Hold multiple sessions, create visual guides, and offer individual help.
Mistake #2: Underestimating Technology Integration Solution: Test all system integrations (payroll, HRIS, time tracking) extensively before going live. Have IT resources ready for launch week.
Mistake #3: Poor Timing with Open Enrollment Solution: Map out every deadline—IRS, DOL, carrier, marketplace—and work backward from your target start date. Miss one deadline and you could leave employees without coverage.
Mistake #4: Assuming All Employees Will Be Happy Solution: Some employees will be upset by change, period. Have a plan for addressing complaints and, if necessary, consider transition assistance for employees who strongly object.
Mistake #5: Neglecting Dependent Coverage Issues Solution: Understand how dependents are covered under your new model. ICHRA’s “family glitch” and PEO network limitations can create problems you don’t anticipate.
Employee Communication Challenges: The Real Battleground
Here’s an uncomfortable truth: the biggest barrier to alternative health insurance models isn’t cost or logistics—it’s employee resistance to change.
Why Employees Resist
Fear of Complexity Traditional group coverage is passive. Employers choose, employees receive. ICHRA requires employees to become healthcare shoppers, which many find overwhelming or intimidating.
Perception of Reduced Benefits Even if ICHRA allowances are generous and give employees more money, many perceive “individual coverage” as inferior to “group coverage” regardless of actual plan quality.
Concern About Continuity “Will my doctors be covered?” is the first question. Network concerns dominate employee thinking, often more than cost.
Distrust of Employer Motives Employees often assume changes are purely cost-cutting measures that harm workers, even when the new model genuinely benefits them.
Communication Strategies That Work
Strategy #1: Frame It as an Upgrade, Not a Downgrade
Poor messaging: “We’re switching to ICHRA to control costs.”
Effective messaging: “We’re moving to personalized health benefits where you choose the plan that works best for your family. You’ll have more options and often more money in your pocket.”
Strategy #2: Show Real Numbers
Create personalized comparisons for each employee showing:
- Current plan cost (employer + employee share)
- New ICHRA allowance or plan options
- Estimated out-of-pocket under each scenario
- Network coverage for their current providers
Transparency builds trust. Vague assurances create suspicion.
Strategy #3: Provide Extensive Shopping Support
For ICHRA specifically:
- Partner with a navigator service or licensed broker
- Offer one-on-one phone appointments
- Create plan comparison tools specific to your allowance amounts
- Host “office hours” where employees can ask questions
Don’t just give employees an allowance and say “good luck.” Hand-hold through the process.
Strategy #4: Address Network Concerns Head-On
Before announcing any change:
- Audit your employees’ current providers
- Verify which plans in the new model cover those providers
- Create a provider lookup tool or guide
- Be honest about any gaps and offer solutions
Strategy #5: Highlight Wins for Different Demographics
- Young, healthy employees: Show how they can choose lower-cost plans and pocket savings
- Employees with families: Demonstrate family coverage options that work
- Employees with chronic conditions: Ensure comprehensive plans are available and affordable
- Near-retirement employees: Address Medicare transition and retiree coverage
Strategy #6: Use Peer Advocates
Identify 2-3 respected employees to learn the new system first and serve as peer resources. Hearing “I went through this and it was fine” from a coworker carries more weight than employer assurances.
The ICHRA Communication Challenge Is Real
One survey found that among employers not offering ICHRA, 68% cited “employee resistance” as a barrier. That’s not because ICHRA is bad for employees, it’s because change is hard and healthcare is emotional.
Budget extra time and resources for education. The companies that succeed with ICHRA treat employee communication as a 6-month project, not a one-hour meeting.
When to Walk Away from Employee Concerns
Sometimes employee resistance is legitimate. If analysis shows that:
- Individual market premiums in your area are genuinely 30%+ higher than group
- Networks are significantly narrower with no reasonable alternatives
- Your workforce demographics make ICHRA affordability tests problematic
Then listen to the concerns and reconsider. Employee morale and retention matter more than theoretical savings that create real-world problems.
Making Your Decision: A Practical Framework
Let’s bring this all together with a decision framework you can actually use.
Step 1: Run the Numbers on All Four Options
Create a spreadsheet with these columns:
- Current group plan
- ICHRA
- Level-funded
- PEO
For each, calculate:
- Total employer cost
- Average employee out-of-pocket
- Administrative time required
- Risk/uncertainty factors
Step 2: Assess Your Risk Tolerance
- Low risk tolerance: Level-funded or PEO (more predictable than ICHRA)
- Medium risk tolerance: ICHRA or level-funded
- High risk tolerance: Full self-funding (beyond scope of this article)
Step 3: Consider Your HR Capacity
- No dedicated HR: PEO is attractive
- One HR generalist: Level-funded or PEO
- Experienced benefits person: Any option feasible
- Robust HR team: ICHRA or level-funded give you most control
Step 4: Evaluate Your Workforce
- Young, tech-savvy, geographically dispersed: ICHRA
- Older, less tech-comfortable, concentrated locally: Level-funded or stay with group
- High-risk industry with workers’ comp issues: PEO
- Mix of full-time, part-time, contractors: ICHRA offers most flexibility
Step 5: Calculate the Break-Even Point
For each alternative, determine:
- Savings in Year 1
- Implementation costs and time
- Risk of employee turnover during transition
If you save $50,000 but lose two key employees worth $100,000 to replace, you didn’t actually save money.
Step 6: Pilot Test If Possible
Some options allow partial implementation:
- Offer ICHRA to new hires only first
- Try level-funded for one division
- Use PEO for remote workers while keeping group plan for HQ staff
Testing reduces risk before full commitment.
The 2026 Wild Card: Market Instability
One final consideration: 2026 is a particularly volatile year for health insurance due to the expiration of enhanced ACA premium tax credits.
What This Means:
- Individual marketplace premiums increased about 18% on average
- Subsidies decreased significantly for middle-income households
- Some insurers exited markets (Aetna notably withdrew from ACA exchanges)
- States like California, Colorado, Connecticut, Maryland, Massachusetts, and New Mexico added their own subsidies to partially compensate
Impact on Your Decision:
If you’re considering ICHRA in 2026, understand that individual market volatility is higher than normal. This might argue for:
- Waiting until 2027 when the market stabilizes
- Choosing level-funded or PEO instead for more stability
- Proceeding with ICHRA but building in higher allowances to cushion premium increases
The companies succeeding with ICHRA in 2026 are those providing generous allowances that absorb market fluctuations without employees feeling the pinch.
Final Recommendation: Don’t Default to “Yes” on Your Renewal
The biggest mistake companies make isn’t choosing the wrong alternative to group health insurance, it’s not exploring alternatives at all.
When your renewal arrives with a 17% increase, commit to doing this:
- Spend 2-3 hours getting quotes on ICHRA, level-funded, and PEO (Most brokers can provide these within a week)
- Model the costs for your specific employee demographics (Use actual ages, zip codes, family status—not averages)
- Have candid conversations with 5-10 employees about their healthcare priorities (You might be surprised what they value most)
- Calculate your break-even including implementation costs (Don’t just compare sticker prices)
- Make an informed decision, not a default one
Maybe you conclude your group plan is still the best option. That’s fine, but make it a deliberate choice based on analysis, not inertia.
The Bottom Line
There’s no universal “right answer” for every company. But here are the patterns we see:
- Companies under 20 employees: ICHRA or no coverage (most cost-effective)
- Companies with 20-50 employees: Level-funded or ICHRA (depending on claims experience and geography)
- Companies with 50-150 employees: Level-funded or PEO (depending on HR capacity)
- Companies with 150+ employees: Level-funded or stick with group (unless special circumstances)
- Multi-state remote teams of any size: ICHRA or PEO (massive administrative simplification)
That 17% renewal increase? It might be the best thing that happened to your benefits strategy, if it forces you to finally explore options you’ve been ignoring.
Your broker should be helping you analyze alternatives, not just shopping your group renewal to five carriers. If they’re not bringing you ICHRA, level-funded, and PEO options alongside your traditional renewal, you might need a new broker.
The health insurance market has fundamentally changed. Companies that adapt will control costs and potentially offer better benefits. Companies that don’t will watch premiums consume an ever-larger share of their budgets.
Which one will you be?
Ready to explore alternatives to your group health plan? The best time to start is 4-6 months before your renewal date. Don’t wait until the renewal lands to begin your analysis, by then, you’ve already lost negotiating time and flexibility. Aspireship can help you make the best decision for your business. If you’d like to learn more, click here.
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About Aspireship: We help growing companies upskill employees and access enterprise-level health insurance and benefits at SMB-friendly costs, without guesswork, pressure, or one-size-fits-all solutions.
