2023 | How do ICHRA classes work?

Wondering how ICHRA classes work? You’re in the right place. With the Individual Coverage HRA, employers can reimburse employees tax-free for individual health insurance and medical expenses. The ICHRA classes enable employers to have the flexibility they need to design a benefit within budget while retaining and recruiting quality employees.

How do ICHRA classes work? 

To help employers prioritize their health benefits budget, employee classes separate employees into groups by legitimate job-based criteria like hours worked or location.

The nice thing about an ICHRA plan is that you can combine it with a traditional group health plan. Employers may offer one class of employees a group health plan and another class of employees an ICHRA.

The only caveat is that employers cannot offer employees in the same class (say Full-time employees) the choice between a traditional group health plan or ICHRA. Each class needs to have only one benefit offering. 

The ability to scale benefits across classes is one of the benefits of ICHRA that has contributed to triple digit growth since its inception.

Here are a few scenarios:

Offering different ICHRA allowances to workers in different geographies, since the costs of individual rates might be highly variable across the country. 
Offering salaried workers a different amount than seasonal workers.
Offering different amounts to full-time employees vs part-time employees.
Keep legacy employees on the traditional group plan they are accustomed to and offer new hires an ICHRA.
Offering higher amounts to families and older employees to help cover their higher costs.

What are the ICHRA classes?

The ICHRA classes are as follows:

Full-time employees
Part-time employees
Seasonal employees
Employees covered under a collective bargaining agreement
Employees in a waiting period
Foreign employees who work abroad
Employees working in the same geographic location (same insurance rating area, state, or multi-state region)
Salaried workers
Non-Salaried workers (such as hourly workers)
Temporary employees of staffing firms
A combination of two or more of the above

The amounts offered to employees can be increased within each class based on either age or number of dependents.

What is the ICHRA new hire provision?

ICHRA also features a new hire rule which allows employers to offer new employees an Individual Coverage HRA while grandfathering existing employees in a traditional group health plan. 

Helpful resource → ICHRA New Hire Provision Guide

Does ICHRA have Minimum Class Size Requirements?

The minimum class size requirements for ICHRA were put in place to ensure that the new rule does not lead to adverse selection in the individual market, a phenomenon where only high-risk individuals purchase individual health insurance.

To avoid this, employers who offer both a traditional group health plan and ICHRA to different classes of employees are required to meet certain minimum class size requirements.

For instance, salaried employees, non-salaried employees, full-time employees, part-time employees, and employees in the same geographic rating area must have at least 10 employees in their class if the employer has less than 100 employees. For companies with 100 to 200 employees, 10% of their employees rounded down to the nearest whole number must be included in each class.

Finally, for employers with over 200 employees, the minimum class size requirement is 20 employees per class. By adhering to these minimum class size requirements, employers can ensure that their employees are not adversely impacted by the new rule, and everyone benefits from the flexibility and tax savings offered by ICHRA.

Helpful resource → ICHRA Minimum Class Requirements Guide

Here are the classes with minimum class size requirements when ICHRA is offered alongside a traditional group health plan:

Salaried Employees
Non-Salaried employees
Full-time employees
Part-time employees
Employees in the same geographic rating area 

The minimum number of employees to be included in a class ultimately depends on the size of the employer based off the employee count on the first day of the plan year. 

Class size minimum
Size of employer

10
less than 100 employees

10% employees rounded down to whole number
100-200 employees

20
200+ employees

Still need help understanding ICHRA classes?

Take Command is a recognized leader in QSEHRA administration,  ICHRA Administration and small business HRA tax strategy. We were at the forefront of the new ICHRA administration regulations and responded with our own comprehensive and exclusive research to the proposed regulations.

In addition, we were the only HRA provider invited to Washington when the new regulations were passed. Our team of ICHRA administrators is passionate about HRA’s and the impact they can have on small business. 

Additional resources →

Are you ready to take advantage of this tax-friendly benefit for your company or clients? Don’t hesitate to reach out to our team for any questions or concerns you may have about ICHRA. You can also refer to our comprehensive ICHRA Guide for a detailed overview of its background, setup process, requirements, and rules. Let us help you navigate through this exciting change in the world of health benefits.

This post was originally published in 2019 and has been updated in 2023 with the latest policy and regulatory updates.