The strategy behind the ICHRA
Defined-contribution health benefits.
Retirement benefits made this shift decades ago: pensions — one promise, all the risk on the employer — gave way to 401(k)s. Health benefits are making the same move now: from one employer-chosen group plan to a fixed budget each employee spends on coverage they pick. Here is what that means, precisely.
What actually changes.
Who holds the risk
Defined benefit
Defined benefit: the employer buys one plan and eats the renewal when the group's claims year goes badly.
Defined contribution
Defined contribution: the employer fixes the dollars; employees buy community-rated coverage priced from public filings — the group's claims never reprice the budget.
Who makes the choice
Defined benefit
One plan (maybe two), chosen once a year by whoever runs benefits, compromising for everyone at once.
Defined contribution
Each employee picks from every plan filed in their county — their doctors, their prescriptions, their tradeoffs.
What the CFO sees
Defined benefit
A renewal letter with a number nobody predicted, arriving weeks before it takes effect.
Defined contribution
A fixed monthly line item that changes only when the company decides — the same shift budgets made when pensions became 401(k)s.
Renewal letter in hand right now? Price the alternative before you sign it.
The three vehicles.
The ICHRA
The federal rail that made defined contribution real for health insurance (effective January 1, 2020): any company size, no dollar cap, allowances that can vary by employee class, tax-free to employees and deductible to the company. This is the vehicle serious defined-contribution programs run on.
The QSEHRA
The small-company version — under 50 employees, federally capped amounts adjusted annually, uniform terms. A genuine defined-contribution vehicle with a lower ceiling.
The taxable stipend
Defined contribution without the tax advantage: extra wages an employee may or may not spend on coverage. Simple to start, expensive to run — both sides pay payroll taxes on it, and it satisfies no coverage obligation. Usually the sign a company wanted an ICHRA and didn't know it existed.
The full vehicle comparison: ICHRA vs. QSEHRA.
companies projected to adopt individual-coverage arrangements
Federal projection
what defined-benefit group single coverage costs today, per year
KFF 2025 survey
the 2026 affordability threshold a defined-contribution offer is measured against
Rev. Proc. 2025-25
Defined-contribution questions, answered.
What does defined contribution mean in health benefits?
The company commits a fixed dollar amount per employee instead of a specific plan — the same structural shift retirement benefits made when pensions gave way to 401(k)s. Employees spend the allowance on individual coverage they choose; the employer's cost stops depending on the group's claims.
Is defined contribution the same thing as an ICHRA?
Defined contribution is the strategy; the ICHRA is the tax-advantaged federal vehicle that executes it. A QSEHRA does the same for companies under 50 employees with capped amounts, and a taxable stipend is the strategy without the tax advantage.
Is this established, or an experiment?
Established. The ICHRA has been federal law in effect since January 1, 2020, regulators projected roughly 800,000 employers would eventually adopt the model, and three states have already enacted small-employer tax credits for it — Indiana (a state we price), Mississippi, and Connecticut, as of August 2026.
What happens to employees who qualify for marketplace subsidies?
The affordability test decides it, employee by employee: an affordable offer replaces the premium tax credit; an unaffordable one lets that employee opt out and keep it. The mechanics — the 9.96% test and a worked example — are at insurf.io/ichra/affordability.
How does a company actually switch?
Price the alternative first — the free audit compares your current bill against every plan filed for your team's counties, in seconds, from ages and ZIP codes alone. If the math favors switching, the calendar runs: employee notice about 90 days before the plan year, employees shop during Open Enrollment or the special enrollment period a new ICHRA opens.
Make the shift with the math shown.
Insurf, Inc. is not a licensed insurance agency, does not sell insurance, and receives no commissions; enrollment applications are submitted by an individually licensed insurance producer. This page is an educational overview — not an offer of coverage, not a recommendation to buy or drop any plan, and not financial, tax, legal, medical, coverage, or insurance advice. Projections are labeled and are not guarantees.