An Individual Coverage Health Reimbursement Arrangement (ICHRA) allows employers to reimburse employees tax‑free for individual health insurance premiums and other eligible medical expenses. One of the most important design elements of an ICHRA is how employees are grouped into employee classes, which determine who is offered an ICHRA and who may instead be offered traditional group health coverage.
What Are ICHRA Employee Classes?
ICHRA employee classes are predefined, objective groupings of employees that employers use to determine eligibility for an ICHRA. Federal regulations require that classes be based on job‑related factors, not on health status or medical conditions. Once an employee is placed in a class, everyone in that class must be offered the same type of coverage option.
Employers may offer:
An ICHRA to one or more classes, and
A traditional group health plan to a different class
However, employers may not offer employees a choice between a group health plan and an ICHRA within the same class.
Common ICHRA Employee Classes
The IRS and Departments of Labor and Health and Human Services permit employers to use specific employee classes when designing an ICHRA. The most commonly used classes include:
Full‑time employees
Part‑time employees
Seasonal employees
Salaried employees
Non‑salaried (hourly) employees
Employees covered by a collective bargaining agreement
Employees in the same geographic rating area
Employers may also combine certain criteria (for example, full‑time employees in a specific location), as long as the class structure follows regulatory guidelines.
Offering Different Benefits by Class
A key advantage of ICHRAs is flexibility. Employers can offer different benefits to different classes, such as:
An ICHRA to part‑time employees
A traditional group health plan to full‑time employees
Different reimbursement amounts for different classes
What employers cannot do is treat individuals differently within the same class, except in limited, permitted ways.
Varying ICHRA Contributions Within a Class
Within a single class, employers may vary ICHRA contribution amounts based on:
Age, provided the oldest employee does not receive more than three times the contribution of the youngest employee, and/or
Family size, such as single versus family coverage
These variations must be applied uniformly and cannot be designed to favor or disadvantage employees based on health conditions.
Minimum Class Size Requirements
When an employer offers a group health plan to one class and an ICHRA to another, certain classes must meet minimum size requirements. These requirements depend on the employer’s total size and are intended to prevent employers from shifting only higher‑risk employees into an ICHRA.
Minimum size rules apply only to specific class distinctions (such as full‑time vs. part‑time) and do not apply if the employer offers an ICHRA to all employees.
A Note on ACA Affordability
For employers subject to the ACA employer mandate (generally those with 50 or more full‑time equivalent employees), ICHRAs must also meet ACA affordability requirements for full‑time employees. If an ICHRA is unaffordable under ACA standards and an employee receives a premium tax credit through the Health Insurance Marketplace, the employer may be exposed to shared responsibility penalties. As a result, class design and contribution strategy should account not only for flexibility, but also for ACA compliance.