ICHRA Classes: what they are and how they work

With the Individual Coverage HRA, employers can reimburse employees tax-free for individual health insurance and medical expenses. One of the hallmark characteristics of the Individual Coverage HRA is the freedom of the ICHRA classes, which enable employers to have the flexibility they need to design a benefit within budget while retaining and recruiting quality employees. But what are the ICHRA classes and how do they work? Let’s walk through it.

How the 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 ICHRA 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 11 ICHRA classes

Full-time
Probably self-explanatory, but your business can define whether this means 30 hours or 40 hours a week, but keep in mind that to satisfy the employer mandate, it will need to be at least 30 hours a week.

Part-time
Depending on the employer’s needs, this can be defined as either less than 30 or less than 40 hours a week.

Seasonal
Employees who are hired on a short-term basis or for a particular season.

CBA Class
This includes employees who are part of a Collective Bargaining Agreement which signifies a written agreement between an employer, employee, and their trade union on the basis of employment, pay rate, work hours, and other working conditions.

Waiting Period Class
Employees that just joined an employer. This is standard practice when new employees come on board. Businesses can choose up to 90 days before an employee’s health benefits kick in.

Rating Area Class
This class can be broken up by employees located in different geographic locations. It is generally thought of as employees whose primary site of employment is in the same rating area.

Non-Resident Alien Class
Employees who are non-resident aliens with no US-based income, including foreign employees who work abroad.

Salaried
Employees who receive a salary as wages.

Non-Salaried
Employees, such as hourly workers, who do not receive a salary as wages.

Staffing Firm
Employees placed for temporary assignments. ICHRA is a game-changer for this category, because now employers can choose the budget that works best for them and reimburse temporary employees that amount each month. It keeps the employer free from skyrocketing group plan costs and allows the employee faster access to the healthcare coverage they need!

Combination Classes
Employers can combine two or more of the above classes to create a new class based on their needs. Each class can further be divided by age and family size.

That means the possibilities are endless!

One more thing to note about ICHRA classes

Employers who plan to offer a traditional group health plan to at least one class of employees and an ICHRA to another class of employees will need to keep in mind the minimum class size requirements. These requirements were put in place to prevent the individual market from being saturated with high risk individuals.

Minimum class size requirements apply to the following classes:

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.

A few other ICHRA class size notes:

Combo Classes: Minimum class size applies to any combo-classes that include one of the classes listed above unless it’s a combo with the waiting-period class, in which case there is no restriction
Rating Area Classes: Minimum class sizes only apply to rating areas smaller than a state. For example, if you or your client has one employee in a remote state, you could have a class of one without violating the rules. However, if you’re using a narrower rating area design (typically at the “county” level) then minimum class sizes apply.

Important Reminder: Minimum class sizes only apply when at least one class is being offered a traditional group plan. If an employer is offering multiple ICHRAs to different classes, there are no minimum class size restrictions.