One of the most common questions we hear about the Individual Coverage Health Reimbursement Arrangement (ICHRA) is: “Do I have to offer ICHRA to all of my employees?”
The quick answer: No.
The longer answer: It depends on how you structure your workforce into employee classes.
ICHRA gives employers flexibility to design benefits around real-world staffing needs, but that flexibility comes with IRS and ACA guardrails. Let’s walk through what those rules mean, how classes work, and what this looks like in practice.
The Foundation: 5 ICHRA Rules Every Employer Should Know
1. Eligibility by class: You don’t have to offer ICHRA to every employee. Instead, you can segment staff into defined classes, like full-time, part-time, seasonal, salaried, hourly, union, employees in a waiting period, employees in different locations, or even combinations.
2. Consistency within classes: If you offer ICHRA to a class, every employee in that class must be eligible on the same terms. No cherry-picking.
3. Class size minimums (when mixing with group health): If you offer a traditional group plan to some classes and ICHRA to others, the ICHRA class has to meet minimum size requirements:
- 10 employees (if fewer than 100 total employees)
- 10% of employees (if 100–200 employees)
- 20 employees (if more than 200 employees)
The exception: If you’re offering ICHRA to a class of employees based on their rating area that covers an entire state or larger, the minimum class size requirement does not apply.
Example: Imagine your headquarters is in Dallas, Texas, where most employees are covered under a traditional group health plan. But you also have five employees who live in New Jersey, New York, and Massachusetts. Because that class of employees is defined by their residence in a state or larger rating area, you can offer them ICHRA without worrying about minimum class sizes.
The catch: Once you establish that class, every time you hire a new employee in one of those states, they must be offered ICHRA, not your group plan.
4. Age-based contributions allowed: One unique feature of ICHRA is that you can vary employer contributions based on age. This works because the individual health insurance marketplace is generally age-banded: the older an employee is, the higher their insurance premium for the same coverage.
For example, let’s look at two employees in Michigan purchasing individual coverage:
- A 23-year-old has a monthly premium of $276.84.
- A 60-year-old has a monthly premium of $751.31 for the same plan.
Without adjustments, younger employees could feel like they’re being over-subsidized while older employees struggle to afford their share. That’s why ICHRA allows age-based contributions, but only up to a 3-to-1 ratio.
Here’s how that works in practice:
- If you contribute $600 toward the 60-year-old’s premium, you must contribute at least $200 to the 23-year-old’s coverage.
- This keeps the contributions proportional while respecting the natural differences in insurance costs across ages.
The age-banding rule gives employers flexibility to align contributions with real-world premium structures while ensuring fairness across the workforce.
5. Large vs. small employer differences:
- Applicable Large Employers (50+ FTEs): ICHRA can meet the ACA employer mandate if contributions are affordable compared to the lowest-cost silver plan in your rating area.
- Non-ALEs (under 50 FTEs): No ACA mandate applies, but class rules still do.
For a deeper dive into the compliance requirements, visit our ICHRA Rules resource page.
8 Real-World Examples
1. The Small Employer with Mixed Staff
A landscaping business has 30 employees: 12 full-time, 10 part-time, and 8 seasonal.
- With a group plan, it’s “all or nothing.”
- With ICHRA, the owner can offer full reimbursements to full-time employees, partial reimbursements to part-time employees, and exclude seasonal employees altogether.
This allows a small employer to control costs while still offering competitive benefits.
2. The Large Employer That Needs ACA Compliance
A manufacturing company has 200 employees, 140 of whom are full-time. As an ALE, they must provide affordable coverage to at least 95% of full-timers.
- By offering ICHRA to all full-time employees (with affordable contributions based on IRS safe harbors), they satisfy the ACA mandate.
- They may exclude part-time or union employees if those groups are carved out as valid classes.
For more details on how ICHRA helps large employers meet ACA obligations, see our Applicable Larger Employers resource page.
3. The Multi-State Employer
A software company has 75 employees spread across Minnesota, Texas, and Florida.
- Group health plans struggle to provide consistent networks in multiple states.
- With ICHRA, employees buy individual coverage tailored to their own state and rating area.
- The employer can classify eligibility by geography and keep benefits fair and compliant.
4. Younger vs. Older Workforces
A construction firm has apprentices in their 20s and foremen in their 60s. Premiums rise with age.
- ICHRA allows contributions that increase by up to 3x for older employees compared to younger ones.
- This ensures older workers aren’t disadvantaged by higher premiums.
5. High-Turnover Industries
Restaurants and retail often struggle with turnover.
- ICHRA can be offered only to core, year-round full-time employees.
- Seasonal staff can be excluded as a separate class, giving stability without overspending.
6. Group Plan + ICHRA Side by Side
A professional services firm has 150 employees.
- Salaried employees at headquarters remain on a group plan.
- Hourly and remote employees receive ICHRA instead.
Because they’re over 100 employees, the ICHRA class has to meet the 10% size requirement (at least 15 employees). This blended strategy lets them keep traditional coverage for some staff while still giving flexibility to others.
7. Executive-Level Benefits
A startup wants to attract executive talent but control costs.
- By separating salaried executives from hourly staff, they can set higher ICHRA reimbursements for leadership without breaking compliance rules.
8. Staffing Agencies and Temp Workers
A logistics company has 300 employees, including 50 temps from an agency.
- Staffing agency workers are a separate valid class and can be excluded.
- ICHRA is offered only to W-2 employees, focusing benefits where they matter most.
What About QSEHRA?
If your company has fewer than 50 employees, there’s another option: the Qualified Small Employer HRA or QSEHRA. Unlike ICHRA, QSEHRA must generally be offered to all eligible employees and comes with annual IRS contribution limits. It’s simpler but less flexible. For very small employers who don’t want to deal with employee classes, it can be a good fit.
Final Word: Flexibility With Guardrails
You don’t have to offer ICHRA to every employee, but you do have to follow class rules and keep compliance in mind. For some, ICHRA is a cost-control tool. For others, it’s a way to expand benefits to distributed or varied workforces.
The real question isn’t “Do I have to offer ICHRA to all employees?” It’s “How can I design ICHRA to fit my workforce strategy?”
If you’d like expert guidance on designing a compliant, cost-effective ICHRA tailored to your team, Flyte HCM is here to help.
Employees choose and purchase their own ACA-compliant individual health insurance plan or be enrolled in Medicare, including applicable Medicare parts. After enrolling, they must submit an official invoice or billing statement from their insurance provider as proof of premium. If the employer allows reimbursement for additional medical expenses, employees must submit detailed documentation (such as an Explanation of Benefits (EOB) or itemized receipts) to be reimbursed for eligible expenses.
Employers do not pay for insurance directly. Instead, they reimburse employees for their premiums and qualifying expenses after proof of payment is provided. This allows employers to manage costs without dealing with insurance carriers directly.
ICHRA can be offered by businesses of any size and allows different reimbursement amounts for different employee classes.
QSEHRA is only for employers with fewer than 50 employees and must offer the same reimbursement amount to all employees (with some adjustments for age and family size). Additionally, QSEHRA has annual contribution limits, whereas ICHRA does not.
It’s simple. ICHRA Administration puts cost control back in the employer’s hands and puts the choice of health coverage in the employee’s.
Yes, when properly designed and administered, ICHRA complies with IRS, ACA, and ERISA regulations. Using a third-party administrator ensures compliance and simplifies documentation requirements.
Third-party administration helps employers stay compliant, manage reimbursements, and simplify the employee experience. Admins handle documentation, reporting, claims processing and remittance of reimbursements.
ICHRA administration refers to the management of reimbursements, compliance, and employee communications related to an ICHRA plan. Many employers use a third-party administrator to handle these functions for efficiency and compliance.
