The Individual Coverage Health Reimbursement Arrangement (ICHRA) offers a great alternative to traditional group insurance. For employers looking to provide their employees’ benefits for the first time or those looking for a better, simpler way to provide benefits, the ICHRA model provides a new, more flexible, and personalized model of employer-sponsored health insurance.
Employee classes are part of what makes ICHRA plans so great. Employers can design custom benefit solutions to meet their unique business needs and do not need to offer every employee the same amount. Rather they can divide their employees into classes and choose a max reimbursement amount for each class.
Employee Classes and How They Work
ICHRA offers 11 different employee classes employers can utilize when determining benefit eligibility and allowance amounts:
|Full-Time||Work at least 30 hours per week.|
|Part-Time||Work anything less than what is defined as full-time (above).|
|Seasonal||Hired on short-term basis or for a particular season.|
|CBA||Have a written agreement between employer, employee, and union (collective bargaining agreement).|
|Waiting Period||Just joined employer – can be up to 90 days.|
|Rating Area||Broken up by geographic location.|
|Non-resident aliens||No US-based income; including foreign employees who work abroad.|
|Temporary employees of staffing firms|
|Combination of two or more classes above based on their needs|
|Subject to Class Size Minimums if one class is getting a group plan|
Employers are able to mix-and-match traditional group plans with ICHRA implementations. For example, employers can modify available offerings based on the employee’s location; employees in New York can be offered a traditional group plan and employees in Texas an ICHRA. Additionally, ICHRA has a new hire provision, allowing employers to offer new hires an ICHRA while grandfathering existing staff members in a traditional group health plan.
Within each class, employers can also change the allowance amount based on the employee’s age and family size. This can be done in a variety of ways. Employees can get an additional ICHRA amount based on age or a different amount if they have a family. Alternatively, they can get an additional dollar amount per dependent.
One thing to note: Employers can only offer higher allowances to older employees. ICHRA rules allow allowances to the oldest employees in the class that are up to 3x higher than the amount offered to the youngest employees in the class. Aside from age, employers must offer the ICHRA to each employee in the same class on the same terms.
Beyond those two exceptions, businesses must offer the Health Reimbursement Account (HRA) to each employee in the same class on the same terms.
ICHRA Class Benefits
Offering benefits to both full-time and part-time employees can be expensive. Employers can offer traditional group benefits to full-time employees and an ICHRA benefit to part-time or seasonal staff. With ICHRAs, they can also create different allowances for full-time single employees, full-time married employees, and full-time employees with families.
Employers can eliminate the hassle of coordinating healthcare for employees in multiple states. As an alternative, employees can receive an ICHRA benefit to purchase plans in their local markets. Insurance rates vary by location, allowing employers to determine different rates for each state employees reside in and then further increase allowances by marital status or age. There is no limit to the number of classes that an employer can create!
- An employer can offer both a group health plan and ICHRAs to their employees if the following conditions are met:
Employees in each class are only offered one benefit (ICHRA or traditional group coverage).
- When the employer offers both group coverage and an ICHRA, certain classes being offered the ICHRA benefit must meet class size minimums.
Minimum Class Sizes
While there is no minimum employer size, there are some instances where there is a minimum class size. The minimum number of employees to be included in a class depends on the size of the company based on the employee count on the first day of the plan year. These requirements are in place to keep the individual market from becoming saturated with high-risk individuals.
The minimum class sizes are as follows:
- 10 for companies with less than 100 employees
- 10% for companies with 100-200 employees
- 20 for companies with over 200 employees
Minimum class sizes apply ONLY when at least one class is being offered a traditional group plan. If an employer is only offering an ICHRA to their employees, the minimum class sizes do not apply.
Minimum class size requirements apply to the classes below:
- Salaried Employees
- Non-Salaried Employees
- Full-Time Employees
- Part-Time Employees
- Employees in the same geographic rating area (smaller than state level)
For more information on what an ICHRA is and how to set up an ICHRA, check out W3LL’s solution! We help employers build their ICHRA offerings from the ground up and provide our expertise every step of the way.