Can employers contribute different amounts to different employees? The short answer is yes! Employers can contribute different amounts toward different employees' healthcare costs. With health reimbursement arrangements like ICHRA (Individual Coverage Health Reimbursement Arrangement), employers can customize a plan tailored to their organization.
As we mentioned the answer is yes! The federal government doesn't require the same health care coverage for all employees. The Affordable Care Act only requires employers who employ 50 or more full-time employees to offer health care coverage or pay a fine. However, that rule doesn't extend to part-time employees.
Why, you ask?
It's thanks to ICHRA employee classes. An employer is allowed to set up different classes of employees within their organization and offer them different benefits.
This strategy is often used to save on healthcare costs or offer more competitive benefits to certain roles.
There isn't a catch, but employers do need to follow the rules laid out by the Equal Employment Opportunity Commission Compliance Manual of Employee Benefits, Section 3, to prevent discrimination.
An employer, for example, cannot divide employees by things like gender or disabilities. Classes need to be structured by job-based criteria like hours worked or geographic locations.
No, you can’t create your own classes.
The IRS laid out the following classes for the ICHRA (Individual Coverage Health Reimbursement Arrangement).
The IRS also says when offering an ICHRA, the employer must offer the same terms to all employees within a class.
But they offer an exception.
An employer may offer increased contributions for older employees and employees with more dependents.
Wait! Isn’t that discrimination?
The IRS allows for higher contribution amounts based on age or dependents to ensure the ICHRA reimbursement amounts cover the premium of the insurance costs. If an employer offers a higher contribution amount for older employees, they must not exceed a 3:1 ratio.
→ Learn about ICHRA Rules
→ Learn about ICHRA Requirements
I have a QSEHRA. Can I use classes?
A QSEHRA (Qualified Small Employer Health Reimbursement Arrangement) is often used for small employers who don’t fall under the ACA employer mandate. You can’t create classes like outlined by the IRS for ICHRA. However, you can offer different contribution amounts to full-time vs. part-time employees and employees with dependents.
What about traditional group plans?
Traditional group health insurance is complex and works fundamentally differently than HRAs. An employer may offer a plan or a selection of plans for the employee to choose from. The employer can also determine their own classes as long as they adhere to the ACA full-time employee mandate and do not base classes on a discriminatory basis laid out by the EEOC.
Yes! An employer can offer a group health insurance plan to some employees and an ICHRA to others based on classes such as; full-time vs. part-time, salary vs. non-salary, or geographic location. However, a minimum class rule applies to prevent adverse selection in the individual market.
The minimum class size for ICHRA is:
The IRS also allows for new hires to be onboarded into an ICHRA while existing employers are grandfathered into their current healthcare plan regardless of class.
→ Read up on ICHRA and the New Hire Provision
While it’s possible for an employer to contribute different amounts to different employees or offer them completely different health care plans, it’s important to follow the rules to prevent discrimination or adverse selection of the insurance markets. To ensure rules and requirements don’t go overlooked it’s wise to hire a plan administrator (like us!).
Take Command has helped thousands of clients setup and administer their own reimbursement programs. Part of our process is to establish legal plan documents for the IRS and Department of labor to keep your organization in compliance with these types of rules and regulations.
→ To learn more about our process, visit our ICHRA Guide.
→ You can also check out our HRA platform demo
→ Or read up on our ICHRA administration offerings