Should I switch to an ICHRA, go level-funded, or join a PEO when my renewal goes up?

Five common answers to a renewal increase each change something different. An ICHRA (you reimburse people for their own policies) ends the group plan. Level-funded keeps a group plan priced off your claims. A PEO shares employer duties with you by contract. A higher deductible or a bigger employee premium share keeps the plan and moves cost onto your people.

What happens if I switch to an ICHRA?

An ICHRA is an individual coverage health reimbursement arrangement. Instead of buying one group plan, you set a monthly amount and reimburse employees for individual policies the employees buy on their own.

What happens to your group plan

Your group plan ends for the employees you move to the ICHRA. HealthCare.gov (checked September 11, 2026) says:

“You can’t offer the same type of employees a choice between a traditional group health plan and an individual coverage Health Reimbursement Arrangement.”

You can offer different things to different types of employees, but for one type of employee, the choice is the group plan or the ICHRA, never both.

What happens to your employees

Each employee shops for an individual policy and puts your monthly ICHRA reimbursement toward the policy. HealthCare.gov’s ICHRA page says: “To use the funds, employees must have their own individual health insurance plan (like one from the Marketplace).”

If you have 50 or more full-time employees, the Affordable Care Act says the ICHRA offer also has to count as affordable. HealthCare.gov puts the 2026 affordability test this way: the cheapest mid-level (Silver) plan for one person in the employee’s area, after subtracting your reimbursement, has to cost the employee less than 9.96% of what the employee’s household makes in a month.

The HRA Council, the trade group for health reimbursement arrangements, counted more than 20,000 US businesses offering an ICHRA (or its small-company cousin, the QSEHRA, a qualified small employer HRA) in 2026 (via PR Newswire, August 12, 2026). ICHRAs and QSEHRAs reach at least 500,000 employees, so plenty of companies already offer one.

Before you choose an ICHRA, find out what an individual policy costs in your county, because an individual policy is what your employees will buy with your reimbursement.

An ICHRA is one kind of health reimbursement arrangement, or HRA.

What happens if I go level-funded?

Level-funded is still your company’s plan, so what your employees see doesn’t change much. What changes is how the plan is priced and who carries the claims. OneDigital, a benefits brokerage (June 3, 2026), describes level-funded as:

“a fixed monthly premium based on your team’s actual claims profile, with stop-loss insurance to protect against large unexpected claims and a potential year-end refund if claims run lower than projected.”

What happens to your group plan

Your group plan stays, but the plan is now priced off your own people’s claims instead of everyone the carrier insures. The plan buys separate insurance, called stop-loss, to pay the very large claims, and if the year’s claims come in under what was projected, some money can come back to you. OneDigital says level-funded plans suit employers with “a relatively healthy workforce, generally 5 to 200 employees.” After a year with big claims, the next renewal is priced on those claims.

What happens to your employees

Day to day, not much changes for your employees. From where your employees sit, the plan is still your company’s plan.

What happens if I join a PEO?

A PEO is a professional employer organization. Joining a PEO changes who holds which employer duties. NAPEO, the PEO industry’s trade group (checked September 11, 2026), calls the PEO relationship co-employment and defines co-employment this way:

“Co-employment is a contractual agreement between a company and a PEO that allocates and divides employer responsibilities.”

What happens to your group plan

Health coverage is one of the employer duties the co-employment contract divides. That contract says whether your plan stays or your people move to the PEO’s plan. Read the coverage section of that contract first.

What happens to your employees

Your employees keep working for you, on your product, under your direction. NAPEO says the client company, meaning you, “retains responsibility for and manages product development and production, business operations, marketing, sales, and service.” What moves to the PEO side is whatever the contract puts there.

What happens if I raise the deductible?

Raising the deductible keeps the plan and the carrier. A higher deductible moves more of the cost to the person getting care before the plan pays. Raise the deductible far enough and the plan meets the IRS definition of a high deductible health plan, which can pair with a health savings account (HSA).

What happens to your group plan

Your group plan stays. The trade is a lower premium for a higher deductible. The IRS set the 2026 lines in Rev. Proc. 2025-19 (May 1, 2025): a high deductible health plan needs a deductible of at least $1,700 for self-only coverage or $3,400 for family coverage, with out-of-pocket costs (not counting premiums) capped at $8,500 and $17,000. Rev. Proc. 2025-19 also caps 2026 HSA contributions at $4,400 for self-only and $8,750 for family coverage.

What happens to your employees

Your employees pay more of their own care costs before the deductible is met. With a high deductible health plan, employees can put money into an HSA up to the IRS limits, but whether your people have the cash flow to fund an HSA depends on what they earn.

What happens if I shift more premium to employees?

Shifting more of the premium to employees is the simplest move and the move that shows up first on a paycheck. KFF, a health policy nonprofit, found in its October 22, 2025 employer survey that family premiums ran $26,993 a year across the employers KFF surveyed, with workers paying $6,850 of the $26,993 and the employer paying the rest. Every percentage point you shift changes the split between you and your employees.

What happens to your group plan

Nothing changes about the plan: same plan, same carrier, same network. The only line that moves is the split between what the company pays and what employees pay.

What happens to your employees

Your employees’ take-home pay drops by about the amount you move, and your employees see the drop on the next check. Check the new split against what your people earn before you decide. If you have 50 or more full-time employees, the Affordable Care Act’s affordability test (the employee’s share of your cheapest self-only plan has to stay under 9.96% of what the employee’s household makes) applies to premium shifting as well as to ICHRAs: shift enough onto your employees and the plan can fail the test.

Which renewal options keep my group plan?

If the comparison on your desk is ICHRA versus level-funded, level-funded keeps a group plan and an ICHRA replaces the group plan with individual policies. If the comparison is a PEO versus your own group plan, the answer is in the co-employment contract. Raising the deductible or shifting premium keeps the plan too.

Is there a way to keep the plan I have and still pay less?

You can keep the plan you have, keep your broker, and get some payroll tax back with SIMERP, a self-insured medical expense reimbursement plan your company sponsors, which redirects payroll tax you already spend into real medical care for your team. simerp.com/renewal walks through SIMERP with two numbers from your renewal notice. Other ways to lower the cost of the plan you already have are in How do I lower my health insurance renewal without changing plans?

References

• HealthCare.gov (CMS), “Individual coverage Health Reimbursement Arrangements (HRAs),” checked September 11, 2026. https://www.healthcare.gov/small-businesses/learn-more/individual-coverage-hra/
• HRA Council via PR Newswire, “Strong ICHRA Growth Among Large Employers Strengthens ACA Marketplace and Risk Pool, HRA Council Report Finds,” August 12, 2026. https://www.prnewswire.com/news-releases/strong-ichra-growth-among-large-employers-strengthens-aca-marketplace-and-risk-pool-hra-council-report-finds-302849192.html
• OneDigital, “5 Mid-Year Moves Small Businesses Should Make Before Their Next Health Plan Renewal,” June 3, 2026. https://www.onedigital.com/en-US/articles/5-mid-year-moves-small-businesses-should-make-before-their-next-health-plan-renewal
• NAPEO, “Intro to PEOs: FAQs,” checked September 11, 2026. https://napeo.org/intro-to-peos/faqs/
• Internal Revenue Service, Rev. Proc. 2025-19, May 1, 2025. https://www.irs.gov/pub/irs-drop/rp-25-19.pdf
• KFF, “Annual Family Premiums for Employer Coverage Rise 6% in 2025, Nearing $27,000, With Workers Paying $6,850 Toward Premiums Out of Their Paychecks,” October 22, 2025. https://www.kff.org/health-costs/annual-family-premiums-for-employer-coverage-rise-6-in-2025-nearing-27000-with-workers-paying-6850-toward-premiums-out-of-their-paychecks/