The Individual Coverage Health Reimbursement Arrangement, or ICHRA, is just one of the Modern Health Reimbursement Arrangement regulations gaining traction among higher group insurance costs. ICHRA is an employer-funded health benefit that reimburses employees for individual health, dental, and vision insurance premiums and, in some cases, eligible healthcare expenses. This exciting benefit gives employers a practical option that creates flexibility and maintains employee satisfaction; however, ICHRA classes must first be defined.

What Are ICHRA Classes?

Since the enactment of the Affordable Care Act, employers have had minimal access to Health Reimbursement Arrangements (HRAs). Until June 2019, using an HRA to pay for individual health insurance was strictly prohibited.

In January 2020, ICHRA restored the opportunity for employers to reimburse an employee for all or a portion of their individual/family insurance policy. ICHRA created more options for employers and improved how they offer their employees benefits.

ICHRA Plans can have immense flexibility in offering to different defined classes.  The ICHRA employee classes can be provided by themselves, as a combination of classes, or as a carve-out of classes. Since the DOL had a role in the ICHRA Regulation, the classes closely aligned to labor classes instead of the carve-out classes of administrative, production, front of the house, back of the house, executive, or management classes, to name a few in traditional group health insurance classes.  ICHRA employee classes allow businesses to draw distinctions among employees in benefits.

ICHRA Classes Defined

ICHRA allows employers to define benefit eligibility and contribution levels across 11 different employee classes, giving them flexibility to design plans around how their workforce is structured. These classes are based on objective job-related criteria such as hours worked, location, or employment type. Employers may offer ICHRA to one or more classes and can vary the contribution amounts across those groups. Here are the 11 classes:

  1. Full-Time Employees: Employees who meet the company’s definition of full-time work—generally 30 hours per week or more.
  2. Part-Time Employees: Employees working fewer hours than full-time. Employers often use this class to provide benefits to employees not eligible under a traditional group plan.
  3. Salaried Employees: Employees paid on a fixed salary schedule. This class can be used to distinguish benefits from those provided to hourly workers.
  4. Hourly Employees: Employees compensated based on hours worked. ICHRA allows for different contribution strategies between salaried and hourly teams.
  5. Temporary Employees of Staffing Firms: Workers hired through staffing agencies but placed on assignment with other companies. The staffing firm can use this class to offer ICHRA benefits.
  6. Seasonal Employees: Employees who work during specific periods of the year, such as summer staff or holiday workers. Seasonal employees can be included or excluded from ICHRA offerings.
  7. Employees Covered Under a Collective Bargaining Agreement: Union-represented employees subject to a CBA. This class must be treated separately unless the agreement allows for ICHRA participation.
  8. Employees in a Waiting Period: Newly hired employees who are within the employer’s waiting period up to 90 days—before benefits begin. This class allows for a delayed ICHRA offering.
  9. Foreign Employees Who Work Abroad: Employees working outside the U.S. who are on foreign assignment. These employees can be excluded or provided with different benefit levels through ICHRA.
  10. Employees in Different Locations, Based on Rating Areas: Employees can be grouped based on geographic rating areas used to determine insurance premiums under ACA rules. This is especially useful for remote teams across multiple states or counties.
  11. A Combination of Two or More of the Above: Employers may create combined classes, such as “part-time employees in California” or “full-time hourly employees outside the headquarters’ rating area” to tailor benefits even further.

Employers may offer different ICHRA contribution amounts to different classes or keep contributions consistent across all classes for simplicity. They can also account for family status, offering different rates for single employees versus those covering dependents.

Example:
An employer could offer $300/month to full-time employees who are single and $600/month to those with family coverage. Alternatively, they might provide a flat $400/month to all eligible employees in a specific class, regardless of family size. This flexibility allows employers to tailor benefits to meet both employee needs and budget goals.

Age-Based Contributions

Employers offering ICHRA can vary contribution amounts based on age, but they must follow the 3:1 ratio rule. This means the oldest eligible employee cannot receive more than three times the amount given to the youngest.

Because older employees typically face higher individual insurance premiums, this flexibility helps make benefits more equitable. However, the ratio must be carefully managed to stay compliant.

Example:
If an employer offers $600/month to employees aged 50 and older, the youngest eligible employee must receive at least $200/month. Many employers find it easiest to work backward starting with the oldest employee’s amount and calculating the minimum for the youngest based on the 3:1 ratio.

Can you offer Group Health Insurance and an ICHRA Plan?

Yes—employers can offer both a traditional group health insurance plan and an ICHRA, but not to the same class of employees. To do this, the ICHRA must be offered to a separate, clearly defined employee class. When offering both types of benefits, certain class size requirements may apply, depending on the employer’s size and the location of the employees. These ICHRA rules ensure that class distinctions are meaningful and not used to steer employees between plans.

Group Health Insurance and ICHRA Size Requirements

The class size requirements ONLY apply for companies offering group insurance and an ICHRA to different classes in the same headquartered region.

Employers may want to offer their employees group health insurance and an ICHRA plan. If they choose to provide both based on an ICHRA class, they must ensure their employee classes are of a specific size. This size criterion varies by employer as follows:

  • 10 employees for employers with fewer than 100 employees
  • 10 percent of the total number of employees for employers with between 100 and 200 employees
  • 20 employees for employers with more than 200 employees

For example, this 45-life company currently has a group health insurance plan for all salaried management and executives. This company would like to implement an ICHRA for all full-time hourly employees. To have an ICHRA plan, they must have at least 10 eligible employees in their full-time hourly class.

Note: This section does not apply to temporary employees, collective bargaining agreements, seasonal employees, foreign nationals, or those in a waiting period.

ICHRA Remote or Regional Classes

One of the most powerful features of ICHRA is the ability to carve out benefits for employees based on where they live and work, which is especially useful for remote teams or businesses operating in multiple states.

If you have employees located outside your group plan’s rating area, for example, in a different region, state, or across multiple states, you can offer those employees an ICHRA without being subject to class size minimums. This makes ICHRA an ideal solution for extending benefits to geographically dispersed employees while keeping your traditional group health plan in place for your core or headquarters-based team.

Keep in mind, however, that once you establish a regional class (such as all employees working in Florida), all future hires in that location must be offered the ICHRA as part of that defined class. This ensures consistency and compliance in how benefits are offered.

Premium costs for individual health insurance can vary significantly, even within the same state. Urban areas might have more competitive rates, while rural or less populated regions may face higher costs. With ICHRA, employers can tailor contributions to match those local premium realities.

Example:
A company based in New York City offers a traditional group health plan to its local employees. For its remote employees in Florida, the company creates an ICHRA class and offers a separate benefit. They can even go a step further, establishing one class for employees in the Miami-Dade region and another for employees in other parts of Florida, allowing for more targeted contribution strategies based on local market conditions.

 More Flexibility Equals Benefits Success

With numerous options and flexibility, the Individual Coverage Health Reimbursement Arrangement (ICHRA) can be customized to fit each business’s budget, enabling them to achieve optimal outcomes. The ICHRA restores flexibility to employers while providing choice to employees and their families. By structuring employee eligibility based on specific defined classes, businesses can effectively attract new talent and retain valued employees. Flexible plan options like the ICHRA will help employers succeed in offering benefits, creating a win-win situation for everyone involved.

If you want to learn more about ICHRA or how to setup ICHRA classes, contact us.