Benchmark Plan

Benchmark Plan: What It Means for Health Coverage

A Benchmark Plan is a reference health insurance plan used to calculate financial help or set the benefits other plans must cover.

That sounds simple, but the term has two common meanings under the Affordable Care Act (ACA). For someone buying Marketplace coverage, it usually means the second-lowest-cost Silver plan available to that household. For insurers and state regulators, it can mean the essential health benefits benchmark that defines a state’s standard package of covered services.

Knowing which meaning applies matters. One affects how much premium tax credit an employee may receive; the other affects what individual and small-group health plans generally have to cover.

What is a Benchmark Plan?

The Marketplace benchmark is the second-lowest-cost Silver plan available where you live and appropriate for the members of your tax household seeking coverage. Under Internal Revenue Code Section 36B and its regulations, the government compares its premium with a household’s expected contribution to calculate the premium tax credit.

You don’t have to enroll in that Silver plan. You can generally apply the resulting credit to another eligible Marketplace plan, although choosing a more expensive plan leaves you paying more and choosing a cheaper one may reduce your share.

The essential health benefits benchmark serves a different purpose. Under Title 45, Code of Federal Regulations, Section 156.100, each state maintains a benchmark package covering categories such as hospitalization, prescription drugs, maternity care, mental health services, and pediatric care. Individual and small-group plans subject to essential health benefits rules use that package as their coverage baseline.

How does a Benchmark Plan work in practice?

For an employee shopping on the Marketplace, the calculation starts with household details, not simply the plan’s advertised price. Location, age, family members enrolling, household income, and available employer coverage can all change the result. The Centers for Medicare & Medicaid Services addresses the annual Marketplace framework in its 2026 Notice of Benefit and Payment Parameters.

Employer-funded coverage adds another layer. With an Individual Coverage Health Reimbursement Arrangement (ICHRA), affordability is generally tested using the lowest-cost Silver plan for self-only coverage available to the employee—not necessarily the second-lowest-cost Silver plan used to calculate premium tax credits. The governing framework appears in the 2019 Departments of the Treasury, Labor, and Health and Human Services final rule on health reimbursement arrangements.

Say Cedar Studio has eight employees and offers each one a $500 monthly ICHRA allowance. Its maximum monthly reimbursement exposure is:

• 8 employees × $500 = $4,000 per month
• One employee chooses a $620 individual plan
• The employer reimburses up to $500, leaving the employee responsible for $120

The benchmark doesn’t force Cedar Studio to set a $500 allowance or choose the employee’s plan. It’s used when determining whether the offer is affordable and whether that employee may instead qualify for Marketplace premium tax credits.

Who does the benchmark apply to?

Employees and other individuals encounter the Marketplace version when applying for subsidized individual coverage. If you have no insurance, it may help determine what financial assistance you can receive. If your employer offers coverage, including an ICHRA, that offer can affect eligibility.

Small employers don’t purchase the Marketplace benchmark for workers. Still, it can indirectly affect recruiting, allowance design, and whether employees view an ICHRA as affordable. Employers should evaluate each eligible employee category rather than assuming one plan price works everywhere.

States, insurers, and plan designers use the essential health benefits version. Medicaid also uses similar “benchmark” terminology for certain Alternative Benefit Plans, but that’s a separate Medicaid concept governed by different rules.

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Learn what a Benchmark Plan is, how Marketplace and essential health benefits benchmarks differ, and what each means for employers and employees.

What does a Benchmark Plan cost an employer?

The plan used as a benchmark doesn’t create a separate employer fee. The employer’s cost comes from the health benefit it offers, such as group-plan premiums or reimbursements through an Individual Coverage Health Reimbursement Arrangement (ICHRA).

For an ICHRA, local individual-market premiums can affect how large the allowance must be to count as affordable. Because those premiums vary by employee age and location, the same allowance may pass the affordability test for one worker and fail it for another.

An employer can cap its actual reimbursement expense at the allowance it promises. Administration, required notices, tax reporting, and any platform or professional fees are separate budget items.

Compliance duties, deadlines, and possible penalties

An employer offering an ICHRA generally must give eligible employees a written notice at least 90 days before the plan year begins. Someone who becomes eligible later must generally receive it no later than the date coverage can begin. These timing rules come from the Departments of the Treasury, Labor, and Health and Human Services’ 2019 final rule on health reimbursement arrangements.

The employer must also substantiate that participating employees and covered family members have qualifying individual insurance or Medicare for each reimbursed month. Plan documents, consistent employee-class rules, Employee Retirement Income Security Act disclosures when applicable, and annual tax reporting may also be required.

Applicable large employers—generally those averaging at least 50 full-time employees, including full-time equivalents—face additional Affordable Care Act duties. They generally file Forms 1094-C and 1095-C and must consider whether their offer is affordable and provides minimum value. For 2026 coverage, the ICHRA affordability percentage is 9.96%, as set by Internal Revenue Service Revenue Procedure 2025-25.

If an applicable large employer fails to offer qualifying coverage to enough full-time employees, or offers unaffordable coverage, an employer shared-responsibility payment under Internal Revenue Code Section 4980H may apply when a full-time employee receives a Marketplace premium tax credit. The 2026 annualized penalty amounts are $3,340 under Section 4980H(a) and $5,010 under Section 4980H(b), calculated monthly under the Internal Revenue Service’s inflation-adjusted limits. Smaller employers aren’t subject to those employer-mandate penalties merely because their allowance fails an affordability test.

What does the benchmark mean for an employee’s paycheck and choices?

An ICHRA reimbursement is generally excluded from federal taxable income when the rules are followed. If your premium exceeds the allowance, you pay the difference. Marketplace premiums generally can’t be paid pre-tax through an employer cafeteria plan, while an employer may permit pre-tax payroll payment for eligible off-Marketplace coverage under a properly structured arrangement.

If the ICHRA offer is affordable, you generally can’t claim a premium tax credit for Marketplace coverage for those months, even if you decline the ICHRA. If it’s unaffordable, you may decline it and potentially claim the credit if you meet the other eligibility rules.

If you currently have no insurance, an ICHRA offer doesn’t enroll you automatically. You’ll need qualifying individual coverage, usually through the Marketplace or directly from an insurer, before reimbursements can begin. A new ICHRA offer may create a Special Enrollment Period outside annual Open Enrollment; Marketplace enrollment timing is governed by Title 45, Code of Federal Regulations, Section 155.420.

Worked affordability example

Northstar Design has 12 employees and offers Maya a $600 monthly ICHRA allowance. The lowest-cost self-only Silver plan used for her ICHRA affordability calculation costs $742 per month.

• Maya’s required contribution: $742 − $600 = $142 per month
• Maya’s annual household income: $48,000
• 2026 affordability ceiling: $48,000 × 9.96% ÷ 12 = $398.40 per month

Because $142 is below $398.40, the offer is affordable for Maya under this simplified employee-side calculation. If she enrolls, the employer can reimburse up to $600, and she pays the remaining $142. Employer safe-harbor calculations may instead use permitted income proxies and should be documented separately.

Common Benchmark Plan mistakes

1. Treating every Silver plan as the benchmark. Marketplace tax credits generally use the second-lowest-cost Silver plan, while ICHRA affordability generally uses the lowest-cost Silver plan for self-only coverage.

2. Assuming an unaffordable ICHRA automatically produces a subsidy. The employee must decline the ICHRA and still satisfy Marketplace income, filing, and eligibility requirements.

3. Assuming one allowance has the same result for everyone. Age, home location, family enrollment, and available plans can change the calculation, so employers should test eligibility groups before setting allowances.

Frequently Asked Questions About Benchmark Plan

Does the Benchmark Plan change every year?

Yes. The reference plan can change as insurers enter or leave a rating area, premiums move, or plan offerings are reordered. That means your subsidy can change even when your income and household stay the same. During each annual Open Enrollment, compare the new plan lineup instead of assuming last year’s selection is still the second-lowest-cost Silver option. The Centers for Medicare & Medicaid Services explains annual eligibility redeterminations in the Marketplace rules under Title 45, Code of Federal Regulations, Part 155.

Can two people in the same state have different Benchmark Plans?

Yes. Marketplace reference plans are tied to the rating area where each person lives, and the premium calculation also reflects the ages of household members seeking coverage. Two employees in different counties can therefore see different reference premiums even if they earn the same salary. Tobacco use may raise the price someone pays for a plan, but it isn’t included when the Marketplace calculates the premium tax credit, under Internal Revenue Code Section 36B and its Treasury regulations.

What happens to my premium tax credit if I pick a Bronze or Gold plan?

Your premium tax credit is calculated from the applicable reference Silver premium, but you can generally use it toward an eligible Bronze, Silver, Gold, or Platinum Marketplace plan. If your chosen plan costs less than your credit, the credit can reduce your premium to zero, but you won’t receive the unused amount as cash. If it costs more, you pay the balance. Credits generally can’t be applied to stand-alone dental plans or the portion of a policy covering benefits that aren’t essential health benefits.

Do I have to choose the Benchmark Plan to get cost-sharing reductions?

You don’t have to select the particular plan used to calculate your premium credit, but you must enroll in a Silver-level Marketplace plan to receive cost-sharing reductions. These reductions can lower deductibles, copayments, coinsurance, and the out-of-pocket maximum for eligible households. Income and other eligibility conditions apply. This assistance is separate from the premium tax credit, so choosing Bronze or Gold may preserve an eligible premium credit while giving up cost-sharing reductions described by HealthCare.gov.

Does Medicare use the same Benchmark Plan?

No. Medicare has its own benchmark calculations, including amounts used in the Medicare Advantage and Part D prescription-drug programs. Those figures don’t determine an ACA Marketplace premium tax credit or a state’s essential health benefits package. If you become eligible for premium-free Medicare Part A, you generally can’t continue receiving Marketplace premium tax credits once that Medicare eligibility takes effect. Coordinate the transition carefully because retroactive Medicare enrollment can affect Marketplace assistance for overlapping months.

Can a state change its essential health benefits benchmark?

Yes. A state may select a new benchmark plan or otherwise update its essential health benefits package if it follows federal standards and the required process. The package must cover all ten statutory benefit categories, provide an appropriate balance among them, and meet scope-of-benefits requirements. Changes may affect items such as visit limits or covered treatments in future plan years, but they don’t rewrite an existing policy midyear. The governing requirements appear in Title 45, Code of Federal Regulations, Sections 156.100 through 156.115.

How do state rules change which Benchmark Plan applies?

Your state can affect both sides of the term. Marketplace reference premiums depend on the insurers and Silver plans offered in your local rating area, while each state’s essential health benefits package can include different covered services, visit limits, and benefit details.

Some states run their own Marketplace and set enrollment procedures or state-funded subsidies that go beyond federal premium tax credits. State benefit mandates may also apply differently to individual and fully insured small-group policies, while self-funded employer plans generally aren’t subject to the same state insurance mandates. The federal baseline appears in Title 45, Code of Federal Regulations, Part 156, but you should check your state insurance department and Marketplace before comparing coverage.

What happens to my benchmark premium after I move, get married, or have a baby?

A qualifying life event can change the household members, ages, or location used to identify your applicable reference premium. Marriage, birth, adoption, and a permanent move may also open a Special Enrollment Period if the federal or state Marketplace conditions are met.

Report the event promptly rather than waiting until you file taxes. The Marketplace may recalculate advance premium tax credits for the remaining months, and a baby’s coverage can generally be effective from the date of birth when enrollment is completed on time. Moving doesn’t always qualify by itself; prior coverage and the circumstances of the move can matter under Title 45, Code of Federal Regulations, Section 155.420.

Can owners, part-time employees, and new hires use the same benchmark rules?

The premium tax credit calculation applies to eligible Marketplace applicants regardless of job title, but access to an employer reimbursement arrangement can differ. Under the Individual Coverage Health Reimbursement Arrangement (ICHRA) regulations, an employer may create permitted classes such as full-time, part-time, seasonal, salaried, hourly, or employees in different rating areas, subject to consistency and minimum-class-size rules where required.

A new hire can have a waiting period before ICHRA eligibility, generally within the maximum 90-day waiting-period rules. Owners need entity-specific review: a C-corporation owner may be treated as an employee, while sole proprietors, partners, and more-than-2% S-corporation shareholders generally can’t participate on the same tax-free basis. These distinctions arise under Internal Revenue Service rules and the 2019 federal HRA final rule.

Can I get a premium tax credit if COBRA is available?

Merely being offered continuation coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA) generally doesn’t block a premium tax credit if you decline COBRA and otherwise qualify for Marketplace assistance. Once you enroll in COBRA, however, you generally can’t receive a credit for overlapping Marketplace coverage months.

Timing is the trap. Losing job-based coverage usually creates a Marketplace Special Enrollment Period, but voluntarily dropping COBRA later generally doesn’t create another one. Exhausting the full COBRA period, or losing an employer contribution that makes COBRA materially more expensive, may qualify. Department of Labor COBRA guidance and Marketplace rules should be checked before ending coverage.

What if the Marketplace says I qualify for Medicaid instead?

If you’re eligible for Medicaid that counts as minimum essential coverage, you generally can’t receive a Marketplace premium tax credit for the same months. In that situation, the Marketplace reference plan may appear in comparison results, but it won’t produce a federal subsidy for you.

Eligibility rules vary by state because not every state uses the same Medicaid income standards or expansion rules. Changes in income, pregnancy, disability status, age, or household size can also change the result during the year. If Medicaid ends, that loss may open a Special Enrollment Period for Marketplace coverage, so update your application quickly and keep the termination notice.

Put the Benchmark Plan to Work

Remember that “Benchmark Plan” can mean the Marketplace reference plan used to calculate premium tax credits or the state standard for essential health benefits. For employers using an Individual Coverage Health Reimbursement Arrangement (ICHRA), a different Silver-plan reference helps determine affordability. In every case, location, household details, eligibility, and annual plan changes can affect the answer.

SimplyHRA fits small businesses, HR managers, and employees dealing with these questions because we built it after living small-business benefits problems ourselves. We’ve helped other owners and their teams set up and run Individual Coverage HRAs and Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) without enterprise overhead, while employees choose individual coverage that fits their needs.

This article is for education, not legal or tax advice. Email info@simplyhra.com or schedule a call for a consultation about employer or employee benefits.