Minimum Class Requirements and ICHRA | ICHRA Class 101

Wondering about ICHRA classes and minimum class requirements for ICHRA? You're in the right place. With the individual coverage HRA (ICHRA), business owners can enjoy a higher level of flexibility and customization when it comes to offering benefits to their employees. This includes providing different types of benefits to different types of employees such as salary vs hourly workers. What's more, over 11 million American workers stand to benefit from this innovative solution. While the hallmark classes of ICHRA are undoubtedly a major advantage, it's crucial to understand how minimum class requirements and ICHRA work together.

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.

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 ICHRA 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

What are minimum class requirements for ICHRA? 

Employers who plan to offer a traditional group health plan to at least one class of employees and an Individual Coverage HRA (ICHRA) to another class of employees will need to keep in mind the minimum class size requirements, which apply to the following classes:

1. Salaried Employees
2. Non-Salaried Employees
3. Full-time Employees
4. Part-time Employees
5. Employees in the same geographic rating area

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

If your company includes less than 100 employees, your class size minimum is 10. For businesses with 100-200 employees, the requirement is 10% employees rounded down to whole number, and 200 employees or more have a minimum class size of 20.

A few other 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.

What if you’re not sure how many employees will be in one class or another? Minimum class size is based on a reasonable estimate at the start of the plan year.

Employers will want to document and demonstrate reasonable assumptions when designing their plan that they will meet minimum class sizes.

If at the end of the year, actual participation in a class dipped below the minimum, the employer will want to make changes to their ICHRA to boost participation.

Still need help with minimum class requirements and ICHRA? 

Chat with us online and our team of HRA experts will get you all squared away about this new 401-k style benefits model. 

Additional resources →

• Learn about ICHRA Classes
• Learn about ICHRA Requirements 
• Learn about ICHRA Regulations
• Learn about ICHRA Plan FAQs
• Learn about our ICHRA administration platform

This post was originally written in 2019 and has been updated for 2024 with all the latest ICHRA news.