One of the biggest advantages ICHRA has over group health plans is the ability to use employee classes. Instead of offering the same health benefits to everyone, you can use 11 employee classes to tailor your benefits strategy around your workforce. That means offering different monthly healthcare contributions to different groups of employees, or even offering an ICHRA to some classes while keeping a traditional group plan for others.
Employee classes open the door to a more personalized benefits strategy, but they also come with important rules. This article walks through how allowances work across classes, when minimum class size rules apply, how classes intersect with the ACA employer mandate, and what real-world class structures look like in practice.
Not familiar with ICHRA (Individual Coverage HRA)? Go to our ICHRA Overview.
The 11 ICHRA Employee Classes
The IRS allows employers to structure an ICHRA using 11 different employee classes:
- Full-time employees
- Part-time employees
- Seasonal employees
- Employees covered by a collective bargaining agreement (union employees)
- Employees who have not yet satisfied a waiting period
- Salaried employees
- Hourly (non-salaried) employees
- Temporary employees hired through a staffing firm
- Employees working in different geographic rating areas
- Foreign employees working abroad
- A combination of two or more of the above classes
The Foundation: Same Class, Same Terms
One of the key rules of an ICHRA is simple: employees in the same class must be offered the same benefit.
For example, you can’t offer one full-time employee a $400 monthly allowance and another full-time employee $250 just because of their role, performance, or tenure. If they’re in the same employee class, they need to receive the same allowance.
Where employers do have flexibility is between classes. You might choose to offer:
- Full-time employees: $500 per month
- Part-time employees: $250 per month
- Employees in a high-cost rating area: $650 per month
The Two Permitted Variations Within a Class
Employers may adjust allowances within a class based on two factors:
- Age: Allowances can vary by age at up to a 3:1 ratio — the oldest employee can receive up to three times the allowance of the youngest employee.
- Family status: Employers can offer higher allowances to employees with dependents than to employees enrolled in self-only coverage.
Outside of those two exceptions, every employee in the same class must receive the same offer.
The Either/Or Rule
One rule often surprises employers; you cannot offer employees within the same class a choice between an ICHRA and a traditional group health plan. It’s one or the other, by class.
For example, if your salaried employees are covered under your group health plan, they can’t also be offered an ICHRA as an alternative. The decision is made at the employee class level before open enrollment begins.
Is There a Maximum ICHRA Allowance?
No. Unlike a QSEHRA, which has annual IRS contribution limits, an ICHRA doesn’t have a maximum employer contribution. You decide how much to contribute based on your budget, goals, and workforce.
When Do Minimum Class Size Rules Apply?
Minimum class size requirements only come into play when you’re offering both an ICHRA and a traditional group health plan to different employee classes.
The purpose of these rules is to prevent employers from segmenting their workforce in a way that channels higher-risk employees into the individual market while keeping healthier employees on the group plan.
The minimum class size rules apply to these five employee classes when they’re split between an ICHRA and a group health plan:
- Full-time employees
- Part-time employees
- Salaried employees
- Non-salaried (hourly) employees
- Employees whose primary site of employment is in the same insurance rating area (smaller than the state level)
The required minimum depends on overall employer size, measured on the first day of the plan year.
| Employer Size | Minimum Class Size |
|---|---|
| Fewer than 100 employees | 10 employees |
| 100–200 employees | 10% of total employees |
| More than 200 employees | 20 employees |
When Minimum Class Sizes Don’t Apply
Fortunately, there are a few important exceptions.
- You’re offering an ICHRA to everyone: If every eligible employee receives an ICHRA and you’re not offering a traditional group health plan to any class, minimum class size rules don’t apply.
- You’re creating state-level geographic classes: If your classes are based on states, such as “all employees in Minnesota” or “all employees in Texas,” there isn’t a minimum class size requirement, even if only one employee works there.
- You’re combining a waiting period class with another class: In certain situations, combining a waiting period class with another eligible class removes the minimum class size requirement.
Real-World Examples of ICHRA Class Structures
Example 1: Regional retail company
A retailer based in St. Paul, Minnesota has 80 employees (60 full-time and 20 part-time). The company wants to offer an ICHRA to its part-time staff while keeping its existing group plan for full-time employees.
Because the employer is offering both a group plan and an ICHRA, and the classes involve full-time versus part-time employees, minimum class size rules apply. The company has fewer than 100 employees, so the part-time ICHRA class must include at least 10 employees. Since there are 20 part-time employees, the company meets the requirement.
Benefit design:
- Full-time employees: Traditional group health plan
- Part-time employees: $200/month ICHRA
Example 2: Multi-state consulting firm
A consulting firm employs 150 workers across Minnesota, Illinois, and New York. The firm offers an ICHRA to all employees and no group plan.
Since everyone receives an ICHRA, minimum class size rules don’t apply. Instead, the employer sets different allowances to reflect healthcare costs in each state.
Benefit design:
- Minnesota employees: $450/month
- Illinois employees: $500/month
- New York employees: $650/month
This is the classic use case for geographic classes: matching the benefit to the real cost of coverage, rather than overspending in low-cost markets or underfunding employees in expensive ones.
Example 3: Construction company with salaried, hourly, and seasonal workers
A construction company has 40 salaried project managers, 110 hourly field workers, and 30 seasonal laborers hired each summer.
Benefit design:
- Salaried employees: $600/month ICHRA
- Hourly employees: $450/month ICHRA
- Seasonal employees: $250/month ICHRA
Since there is no group plan in play, no minimum class size requirements apply. The company can structure the three classes freely.
Related Article: A Deeper Dive Into ICHRA Contribution Strategies
ICHRA Classes and the ACA Employer Mandate
If your company has 50 or more full-time equivalent employees, you’re considered an Applicable Large Employer (ALE) under the Affordable Care Act. That means you must offer affordable health coverage to your full-time employees or potentially face IRS penalties.
An ICHRA can satisfy the employer mandate, but affordability is calculated separately for each employee class based on the lowest-cost Silver plan available in that employee’s rating area.
Employers offering different allowance amounts in different rating areas must confirm that each class-level allowance meets the affordability threshold for employees in that area. An allowance that’s considered affordable in Minnesota may not be enough in New York, where premiums are generally higher. That’s why it’s important to design your employee classes and your allowance amounts together.
Getting Class Design Right From Day One
Employee classes are one of the biggest advantages of an ICHRA because they let you tailor your benefits strategy to your workforce. Rather than offering the same allowance to every employee, you can structure contributions by employee class, helping you avoid overfunding some groups while making sure others receive enough to purchase quality coverage.
As you design ICHRA classes, ask yourself:
- Are we offering a traditional group health plan to any employees?
- If so, do minimum class size rules apply?
- Are our employee classes based on legitimate workforce distinctions?
- Is everyone within each class receiving the same allowance, except for permitted age or family status adjustments?
- Will each allowance meet ACA affordability requirements for that class?
Benafica’s quoting process and BEN360 platform are built to handle this complexity. Our team works with you to configure employee classes, set compliant allowance amounts, and monitor ongoing compliance requirements so your ICHRA operates correctly from day one.
Check out our ICHRA page for more information or get your quote today.