Every health plan renewal season feels a bit like a high-stakes balancing act for HR and finance teams. On one hand, you want to protect your core team with a rich, group health plan. On the other hand, rising costs, a growing roster of workers with diverse needs, and the desire to offer benefits to hourly or part-time staff are pushing your budget to its absolute limit.
You might think your choices are limited to a binary: stick with a rigid, expensive group plan or completely overhaul your benefits and switch to something new.
But there is a middle ground. What if you could provide both group health insurance and an HRA to your employee population? Read on to learn how an ICHRA carve-out strategy can solve your biggest benefits headaches in 2026.
Can an employer offer group insurance and an HRA at the same time?
The short answer: Yes, just not to the same people. The IRS and the Affordable Care Act (ACA) explicitly allow employers to offer a traditional group health plan to one group of workers and an Individual Coverage Health Reimbursement Arrangement (ICHRA) to another — provided you follow a few specific compliance guardrails.
This is known as an ICHRA carve-out (or a hybrid benefits strategy). An ICHRA carve-out strategy allows you to keep your traditional group plan for some employees while shifting others to a flexible, cost-predictable Individual Coverage Health Reimbursement Arrangement (ICHRA).
The secret to pulling this off lies in ICHRA employee classes. Under ICHRA, employers can segment their workforce into 11 distinct groups and offer different benefits to each one. These groups are defined by objective criteria.
You cannot "cherry-pick" individual employees to move off the group plan, but you can group them by legitimate business criteria, including:
- Full-time vs. part-time status
- Salaried vs. hourly compensation
- Geographic location
When does an ICHRA carve-out strategy make sense for employers?
If any of the following organizational challenges sound familiar, a hybrid ICHRA strategy may be worth considering.
→ You need health insurance for employees across different states.
Managing a single group health plan across multiple states can be an administrative challenge. A plan network that works brilliantly at your corporate headquarters in Texas might offer terrible coverage for your engineers in California or marketers in New York.
With an ICHRA carve-out: You can keep your headquarters on the traditional group plan, and create a geographic employee class for out-of-state workers to be on an ICHRA. They’ll receive tax-free dollar allowances to buy a local individual plan that features their preferred doctors and regional networks, while you escape the cross-state premium penalties.
→ You want to offer health insurance to part-time, seasonal, or hourly employees.
In a competitive hiring market, offering healthcare coverage to part-time, seasonal, or hourly workers is a massive recruitment advantage. But adding them to your traditional group plan is often cost-prohibitive and operationally chaotic due to higher turnover.
With an ICHRA carve-out: Keep salaried, full-time staff on the group plan. Carve out your hourly or part-time staff into an ICHRA class. You can set a fixed, predictable monthly contribution (e.g., $200/month) to help them purchase individual coverage. If they leave, future money stays with you — no messy COBRA administration required.
→ Your group plan renewal rates are skyrocketing, but you’re not ready to fully commit to ICHRA yet.
If you’re faced with an unsustainable renewal rate, you don't have to stay with the status quo group plan. And you don’t have to jump head-first into ICHRA, either. The good news: You can take ICHRA for a test drive without committing all your employees to a switch.
With an ICHRA carve-out: You don't have to move everyone to ICHRA all at once. Instead, you can select just one distinct segment of your workforce — using whichever IRS-approved employee class best fits your organizational structure — and transition only that group to an ICHRA. This allows you to immediately cap your premium exposure for a portion of your budget, test the administrative waters of a defined-contribution model, and gather real-world data before deciding on a wider rollout.
How does compliance work with ICHRA carve-outs?
While a hybrid benefits strategy is incredibly flexible, the IRS enforces strict ICHRA compliance guidelines to prevent adverse selection (i.e., pushing only sick employees off the group plan). This includes:
- No choice within classes: An individual employee cannot choose between the group plan and the ICHRA. Any offering must be applied uniformly across the entire class.
- Minimum class sizes: If you mix a group plan and an ICHRA for classes based on hours or salary types, the ICHRA class must meet a minimum size requirement based on your total employee count (e.g., a minimum of 10 employees for companies under 100 staff). Note: This minimum class size rule does not apply if you are separating classes by state. If you have just one remote employee in California and your group plan is in New York, you can legally create an ICHRA class just for them.
- The "same terms" & age scale: Within a carved-out class, you must offer the allowance on the exact same terms to everyone. You cannot give a preferred manager a bigger allowance simply because of performance. You can only vary contributions based on family size or age. If you scale by age, the oldest employee's allowance cannot exceed a 3:1 ratio compared to the youngest employee in that class.
Build your ICHRA carve-out strategy with Zorro
Designing a hybrid benefits plan manually comes with compliance questions and administrative needs. That is where Zorro comes in.
Zorro’s AI-powered platform provides end-to-end ICHRA support to your employees and HR team. Our tools allow brokers and employers to run real-time contribution modeling, ensuring your hybrid strategy meets ACA affordability safe harbors while optimizing your budget. We provide hands-on support throughout onboarding, individual plan selection, and tax-free compliance tracking — so you get predictable costs, and your employees get personalized coverage that actually fits their lives.
Ready to see how much a hybrid plan could save your business? Reach out to calculate your savings with a personalized quote.
