ICHRA for Small Business: How to Cap Health Insurance Costs and Keep Your Capital Working

Health insurance rarely shows up in a conversation about capital strategy, and that is a mistake. For a business owner it is often among the largest line items, second only to payroll by the estimate of Brad Owens, a health insurance broker who joined us on the BetterWealth Show. For a couple retiring at 60 it can be the single expense that decides whether they retire at all. Owens expects one of every five dollars in the economy to go to health care, and General Motors spends more on health insurance than it does on steel.

The cost is only half of the problem. The other half is volatility. Once a group is rated on its own claims, which applies to groups above 50 employees and to level-funded or self-funded plans of almost any size, a renewal can come in 5% higher one year and 80% higher the next because one employee was diagnosed with something expensive. Owens saw 80% renewals this year. Million-dollar claims, which used to be a once-in-a-career event, are up 46% in four years by his count. Every dollar a business owner loses to an unpredictable health plan is a dollar that cannot be deployed into the business, a property, or a policy that compounds.

At BetterWealth, we do not sell health insurance. We have structured more than 2,000 whole life policies for entrepreneurs, business owners, and high-income earners, and we care about this topic for one reason: health costs leak capital, and a leak that size changes every other number in a financial plan. That includes how The And Asset gets used in the years before Medicare.

This article covers how to compare health plans on worst-case cost, why bronze plus an HSA often beats gold, what ICHRA is and how employers use it, why it stabilizes costs over time, and how the ACA subsidy cliff creates a case where a policy loan can clear the loan rate by a wide margin.

Brad walks through his ICHRA slides on screen, including the plan-tier mix employees actually chose and the renewal cycle that traps small groups. The full conversation also covers health shares and Medicare timing in more depth than this article does.

01 / The ProblemWhy Is Health Insurance a Capital Problem for Business Owners?

Health insurance is a capital problem because it is a large cost that you cannot forecast, and unforecastable costs force you to hold idle cash. A business owner who cannot predict next year's renewal keeps a reserve against it. A retiree who cannot predict premiums from 60 to 65 delays the retirement. Both are paying an opportunity cost on top of the premium.

One episode frames the scale. Warren Buffett, Jeff Bezos, and Jamie Dimon combined the buying power of Berkshire Hathaway, Amazon, and JPMorgan to fix employer health care for their own workforces. They gave up. The long-term fix is probably legislative. Between now and then, the people who do well are the ones who manage the cost structure they control.

The first principle is asset protection. Going uninsured works only for someone with nothing to lose, because hospitals forgive bills they cannot collect. The threshold is low: if you earn more than about $50,000 a year or hold assets beyond your home and retirement account, one $50,000 knee surgery or one helicopter transport can undo years of work. Surgeons and specialists are not bound by a hospital's charity program.

Insurance is there to cap the worst case.

02 / The MathHow Do You Compare Two Health Plans in Five Minutes?

You compare two health plans by adding the annual premium you pay to the plan's maximum out-of-pocket, which gives you your worst-case cost for the year. Deductibles, copays, and coinsurance matter, but every one of them sits under that ceiling. Once you know each plan's worst case, you weigh it against your own health and the size of your emergency fund.

The mechanics are simple. You pay a premium whether you use the plan or not. You pay the deductible before coverage starts, anywhere from $0 to the highest Brad has seen, $10,600. After the deductible you share costs through coinsurance until you hit the maximum out-of-pocket, and from there the carrier pays 100%.

Why "Always Pick the Highest Deductible" No Longer Holds

Ten years ago the rule was to close your eyes and pick the highest deductible. That rule assumed carriers priced mostly on routine, first-dollar claims. They now price heavily on tail risk: the rising share of claims above $1 million. A higher deductible shifts routine costs to you, but it does little to reduce the carrier's exposure to the catastrophic tail, so the premium discount is smaller than it used to be. Run the worst-case math every year.

If the worst case on a cheaper plan would wipe out your reserve, there is a third option between paying more premium and taking the risk. Supplemental GAP plans cover the gap between your deductible and real protection. A GAP plan can turn a bronze plan into near-gold coverage for about $35 a month, where the same upgrade through a major carrier costs around $200 a month for an individual, by Owens's figures.

Every plan forces a trade.

Everyone wants a plan that is good, simple, and affordable, and today you get two. Most people who want good and affordable give up simplicity: a high deductible plan plus a supplement, or a health share plus a reserve. The question is whether the added complexity pays enough to be worth managing.

03 / The HSA CaseIs a Bronze Plan With an HSA Better Than a Gold Plan?

A bronze plan paired with an HSA often beats a gold plan once you count premiums, even for people who know they have medical costs coming. Brad Owens says he cannot recall recommending a gold plan in 2026. Several clients came to him with a scheduled surgery, and after running the numbers the bronze plan plus HSA still won.

Plan tiers measure actuarial value, the share of total medical costs the carrier is expected to pay across everyone on that tier. Under the ACA, bronze plans target about 60%, silver about 70%, gold about 80%, and platinum about 90%, each within a narrow allowed range. A gold plan is better coverage by definition. It also costs far more in premium, and actuarial value ignores premium entirely.

The HSA is what flips the math. Contributions are deductible, growth inside the account is not taxed, and withdrawals for qualified medical expenses are not taxed. Starting in 2026, bronze and catastrophic marketplace plans are HSA-eligible. The premium you save by not buying gold can go into the HSA, and those dollars stay yours if you stay healthy.

The policy logic behind high deductible plans is the third-party payer problem. When the person choosing care is not the person paying for it, nobody shops on price. An HSA puts the first few thousand dollars back in your hands, which is why HSA eligibility has historically been limited to high deductible plans, now expanded to bronze and catastrophic marketplace plans.

04 / Your OptionsWhat Options Do Self-Employed People and Small Teams Have?

Self-employed people and small teams without a group plan choose between two markets: guaranteed issue and underwritten. Guaranteed issue plans must accept everyone at the same price regardless of health, so they carry the highest rates, because roughly 5% of people drive about half of all claims. Underwritten plans price your health, so a healthy applicant usually does better there.

The intake questions are health history, pre-existing conditions, and income. Income matters because ACA subsidies are based on MAGI, modified adjusted gross income, and many business owners show a lower MAGI than they expect once retirement and HSA contributions come off. Well-paid families with three or four children sometimes still qualify. If a subsidy is available, take it.

If no subsidy is available and you are healthy, the field opens up: health shares, association plans, short-term medical (some states have allowed terms up to three years, but federal and state limits on short-term plans have changed recently, so check current rules), multiple-employer plans, and PEOs that accept single-owner companies. Each has a catch worth knowing before you sign.

The Two Risks Most People Miss

The first is renewability. Many short-term and underwritten plans review you every year and can decline to renew you. Get cancer on one of those plans and you are pushed back to the guaranteed issue market at the worst possible time. Some health shares offer perpetual insurability, meaning you stay on the plan after you get sick.

The second is the guarantee itself. A health share is not an insurance contract. It has a social obligation to pay, not a legal one. If you go that route, pick one with a large membership. A guarantee is only as strong as whoever stands behind it.

Read the contract, not the brochure.

05 / The FrameworkWhat Is an ICHRA and How Does It Work?

An ICHRA is an arrangement in which the employer sets a monthly allowance and reimburses employees, pre-tax, for individual health insurance they choose themselves. The rule was finalized in 2019, and employers have been able to use it since 2020. Brad Owens describes CHOICE (Custom Health Option and Individual Care Expense arrangement) as a proposed new name for ICHRA; confirm its status before relying on it.

The shift mirrors the move from pensions to 401(k) plans. The employer stops owning an open-ended benefit and starts funding a defined contribution. In practice, the employer says: here is $500 a month, and here are 200 plans in your county. Pick one. If the plan costs more, the employee covers the balance (see step 5 below for how that balance is paid).

How an Employer Moves to an ICHRA

1. Pull the census. Every payroll system has a canned census report: names, ages, home ZIP codes, and what each employee pays today.
2. Gather the current plan documents. Benefit summaries or last year's benefits booklet let a broker model the current plan against the individual market. A broker with modeling software can usually return a proposal within a week.
3. Define classes and allowances. Set allowances by legitimate class: full-time versus part-time, hourly versus salaried, seasonal, union, or state of residence. Age-band within IRS rules so older employees, whose plans cost more, receive more.
4. Enroll employees in individual plans. Each employee picks an ACA-compliant plan from the 50 to 200 options in their county. Employees 65 and older may choose Medicare instead (see section 06 for the limits).
5. Reimburse and verify. Reimburse up to each allowance tax-free to the employee and verify that each employee has qualifying coverage. For off-exchange plans, employees can usually pay any balance pre-tax through payroll. Marketplace plans cannot be paid that way.

The Rules That Trip People Up

You cannot be inherently discriminatory. Pre-tax benefits come with rules that bar pushing the benefit toward owners or the highest earners, so every class has to make sense on its own terms. You can keep a group plan for one class and run an ICHRA for another, and a common first step is keeping salaried staff on the group plan while hourly staff move to the ICHRA. You cannot offer both to the same person.

Most health shares do not qualify for reimbursement, because ICHRA requires ACA-compliant coverage, including preventive care. And you do not have to replace your broker. Platforms built for ICHRA let an existing broker keep the relationship and the compensation.

Size is not the barrier people assume. An ICHRA works for a team of two. By Owens's figures, the fastest growing segment is companies with more than 1,000 employees, up 170% last year, the largest covers about 20,000, and only about a third of group health brokers have ever written one.

06 / The SavingsWhy Does an ICHRA Cost Employers Less Over Time?

An ICHRA costs employers less over time because it moves employees out of a small risk pool, where one sick person sets the price, into an individual market of roughly 25 million people, where no single claim moves the rate. There are five sources of savings, and claims come first.

Groups above 50 employees, and level-funded or self-funded plans below that size, are rated on their own claims. Fully insured ACA small groups are community-rated instead, which is why claims-driven renewal shocks hit the first category. One child on a cystic fibrosis drug costs about $500,000 a year by Owens's estimate, and spread across 50 employees that one claim can consume the entire budget. Employers in that position have saved over $1 million by leaving a group plan after a 50% renewal. The second source is geography: one group plan rarely fits employees in Maine, Florida, Washington, and California, while an ICHRA lets each employee buy where they live. The third is age: the 25-year-old and the 64-year-old in accounting get plans that fit them. The fourth is conceptual alignment, meaning the employer stops underwriting an open-ended cost. The fifth is the cap: the allowance is a fixed number the employer sets.

The Renewal Treadmill

Claims-rated group plans renew every year, and the renewal arrives 60 to 90 days before the plan date. It is always an increase. A 5% increase is a good year. Owens saw 80% increases this year. A group with a known high claimant that tries to shop its plan gets declined by every other carrier, and the remaining options are cutting the plan, cutting the employer's contribution, or asking the incumbent for a favor. Level-funded, captive, and self-funded plans all try to give the employer more control, and all of them still put the employer on the hook for the next large claim.

An ICHRA gets you off that cycle.

Employees Over 65 and the Valuation Question

Employees who keep working past 65 are not required to move to Medicare, and an employer cannot pressure them to. Owens estimates each one who stays on a small group plan costs about $20,000 a year in claims impact. Under an ICHRA, employees 65 and older may choose Medicare and have the employer reimburse it, typically $300 to $500 a month for a strong Medicare plan. Employers with 20 or more employees face Medicare Secondary Payer limits on how that can be offered, so confirm the design with benefits counsel before you build a plan around it.

Health plans also show up in an exit. When a buyer runs diligence on your company, they look at the health plan and its claims, and a group plan with heavy claimants can lower the price or break the deal. An ICHRA is simple to review, so it holds up well in diligence.

The employees appear to agree. On Owens's platform, gold-tier selections rose 30% after employers moved to an ICHRA. Most did not default to the cheapest plan they could find.

07 / The CliffHow Does the ACA Subsidy Cliff Connect to The And Asset?

The ACA subsidy cliff connects to The And Asset because policy loans are generally not taxable income, so they let a pre-Medicare retiree fund spending without raising the MAGI that decides their premium. For a household sitting just over the cliff, that difference can be worth tens of thousands of dollars a year.

Brad's example is two 60-year-olds planning to live on about $100,000 a year from pensions and savings. For a household of two in 2026, the subsidy cutoff sat around $85,000 of MAGI. The subsidy does not phase out gradually. One dollar under, they had an affordable plan. One dollar over, they faced about $30,000 a year in premiums for five years until Medicare. Working with their financial advisor, Owens got them under the line with HSA contributions and IRA timing, and they landed at about $500 a month.

There is a limit. The approach only works within roughly $15,000 to $20,000 of the cutoff, and a projection that lands right at the edge can fail. A $10,000 scratch-off win in the wrong year could cost that couple $30,000.

Where IBC Ends and The And Asset Begins

Nelson Nash pioneered the idea of using whole life insurance as a personal banking system in Becoming Your Own Banker. We respect that foundation. The And Asset shares roots with IBC but operates on different principles.

IBC says you can use the policy as a personal bank for any purchase, including living expenses in retirement. The And Asset says you only borrow when the borrowed dollars out-earn the carrier's loan cost, because anything less is an expensive way to spend money. A loan that keeps MAGI under the cliff clears that bar on paper: at an illustrative 6% loan rate, $21,300 of borrowing costs about $1,278 in first-year interest and protects roughly $24,000 a year in subsidies. The real comparison is narrower than that: the loan is replacing a larger IRA withdrawal, which would count toward MAGI. Roth withdrawals, cash, and the cost basis in a brokerage account also stay out of MAGI, so a household with enough of those may find them cheaper than borrowing. The loan earns its place only when those sources are thin or are doing a better job elsewhere.

Many IBC marketers will tell you that you are paying yourself interest on that loan. You are not. The interest goes to the carrier. Your return is the subsidy you keep. Meanwhile the policy keeps compounding net of mortality and expense charges, and how the borrowed portion is credited depends on whether the carrier uses direct or non-direct recognition.

The math has to work, or you do not borrow.

Precision matters here. Loans from a policy that is not a modified endowment contract and stays in force are generally not taxable income under the rules in IRC Section 7702 and related sections. If the policy lapses with a loan outstanding, the gain can become taxable. Confirm how the loan interacts with your MAGI with a tax advisor before you rely on it.

08 / The MistakesWhere Do People Get Health Insurance Wrong?

People get health insurance wrong by optimizing for the monthly premium instead of the worst case, and by taking advice from someone with one product to sell. Work with someone who has multiple options and no reason to push one.

The advice to skip insurance entirely works only when you have nothing to protect. Hospitals forgive. Surgeons, specialists, and anyone scheduling elective care often will not see you. For anyone with assets, going uninsured trades a known premium for an unlimited liability.

Financial advisors make a different error: they ignore health insurance in retirement projections. Owens works with clients who did everything right for decades and still cannot retire at 60 because nobody planned for the five years before Medicare. COBRA runs 18 months and costs up to 102% of the full plan cost, so it rarely solves the problem. The sequence of withdrawals (Roth first, IRA timing, HSA contributions, policy loans) decides whether a household lands under the cliff or over it.

09 / The TradeoffsBenefits and the Real Tradeoffs of an ICHRA

An ICHRA's benefits are a capped, predictable cost for the employer and real choice for the employee. Its tradeoffs are complexity, dependence on the individual market, and the change-management work of moving people off a familiar plan.

On the benefit side: the employer sets the number, large claims stop driving renewals, employees in different states get plans that fit where they live, and employees over 65 may choose Medicare and have it reimbursed. On the cost side: there are more decisions to make, from class design to age bands; individual market networks vary by county and some are narrow; carriers enter and leave that market (Owens noted Cigna recently pulled out of guaranteed issue individual coverage); and most health shares will not qualify.

The Medicare savings only appear if employees 65 and older choose to leave the group plan, and an employer cannot push them; the Medicare Secondary Payer limits in section 06 also apply. Enrollment software can model classes and handle enrollment, but someone still has to explain the change to the team. Some owners start with one class, often hourly employees, and expand once it works.

Simplicity has a cost. So does a 50% renewal.

10 / Head to HeadICHRA Versus the Alternatives

Compared with the other ways small employers fund health coverage, an ICHRA trades the simplicity of one group plan for a fixed cost and protection from any single large claim. The table compares the four common funding models on the four dimensions an owner actually feels.

FAQICHRA and Health Insurance Questions