Does an ICHRA comply with ERISA?

ICHRA Rules

ICHRA gives employers an incredible ability to design and customize a plan that’s tailor-made for their organization. We’ll cover some of the key ICHRA rules and ICHRA requirements in this section and dive-deeper on key topics (like ICHRA employee classes and ICHRA affordability) in later sections.

A key principal to keep in mind when considering design options is that while there’s a great amount of flexibility, plans have to be offered fairly to groups (ie, “classes”) of employees. Most of the ICHRA rules and ICHRA regulations are meant to prevent discrimination. With that in mind, let’s dive in!

2025 ICHRA Requirements for Reimbursement

There are no limits to how much an employer can offer for reimbursement under ICHRA. This is a big difference with QSEHRA which has rather restrictive limits. With ICHRA, employers can offer as much or as little as they’d like as long as it’s offered fairly to each class.

In addition, employers can choose what they want their ICHRA to reimburse:

• Insurance Premiums Only

• Insurance Premiums + Qualified Medical Expenses

• Qualified Medical Expenses Only

We’ll cover what counts as a “qualified premium” later when we discuss employee requirements. “Qualified medical expenses” are defined by the IRS in publication 502. If you’re familiar with Health Savings Accounts (HSAs), this is the same list. It includes things like doctor visits, co-pays, prescriptions, medical equipment, dental procedures, etc. Employers can choose to only reimburse certain types of medical expenses (ie, only prescriptions) as long as whatever elections are made are offered fairly to employees (there’s that “fair” thing again!)

Furthermore, employers can choose how to structure reimbursements to employees:

• Give all employees the same amount: This one is easy. For example, you could give all employees $200/mo.

• Vary reimbursements by family size: Since individual market plans cost more for families, employers can offer more for larger families. Unlike QSEHRA, it does not have to be tied to a reference plan but does have to be “reasonable”. For example, an employer could offer $200 for single employees, $300 for married employees, and $600 for employees with families. Or they could offer $100 for each additional dependent.

• Vary reimbursements by employee age: Similarly, since individual plans typically cost more for older employees, employers can elect to offer higher reimbursement amounts to older employees. Reimbursements must be structured using a 1:3 ratio from the youngest to the oldest employee. We strongly recommend setting it using the age range from 21 to 64. For example, you could give a 21 year old $100/mo and a 64 year old $300/mo.

• Vary by both family size and age: Combo of the above to options. Math gets a little funky but isn’t too bad.

ICHRA and Special Enrollment Periods (SEP)

To participate in an ICHRA, employees will need to maintain coverage in a qualified individual health plan. Open Enrollment for individual plans varies by state, but in general runs from November 1st to December 15th each year. Outside of Open Enrollment, individuals need a qualifying life event to trigger a Special Enrollment Period to purchase a plan; events such as marriage, divorce, having a baby, and moving qualify.

But good news! Now, employers offering an ICHRA or QSEHRA will trigger a special enrollment period for employees, giving them 60 days to buy a plan. This is key so employees can purchase qualifying plans, and allows employers to set up an ICHRA year-round.

ICHRA Employee Classes

What are the ICHRA classes and how do they work?

Employee classes are part of the magic of ICHRA. Employers can design unique benefit solutions to fit their workforce. For example, employers could offer $500/mo to full-time employees and $200/mo to part-time employees.

To take it a step further, employers can also mix-and-match traditional group plans with ICHRA implementations. For example, you could offer employees in Colorado a traditional group plan and employees in New York an ICHRA. 

The one-catch? Employee classes have to be based on legitimate job-based criteria like hours worked or geographic location.They cannot be used to discriminate against unhealthy employees (i.e., you can’t create a “diabetic” class, etc).

Here’s a summary table of the classes employers can use to design their plans:

 Subject to Class Size Minimums if one class is getting a group plan

In addition to multiple classes, employers can also offer an ICHRA to new employees while keeping current employees on a group plan. Essentially, an employer can “grandfather” in their group plan participants while offering an ICHRA to the new hires. The employer has to set an applicable date to being the delineation and then treat each case fairly. Employers can have multiple subclasses unless those classes are used to offer different ICHRA amounts.

Here are a few scenarios where utilizing ICHRA’s class structure would be helpful for you or your client:

Is your business concerned about hiring and retaining full-time employees but can’t afford benefits for part-time employees?

Then your benefits budget will be best spent on offering an ICHRA to full-time employees only. Employers can then set different allowance ratings for full-time single employees, full-time married employees, and full-time employees with families. Employers can exclude: part-time or seasonal.:

Do you have employees working in more than one state?

Instead of trying to find a group plan that works in multiple states, offer employees an ICHRA and let employees purchase plans in their local markets that best fit their needs. Since insurance rates vary by geographic locations, you can set your classes up by state. For example, employees that live in California will get $600 and employees living in Texas will get $500. There is no limit to the number of classes you set up! Employers can set up varying rates for each state employees live in and then further increase allowances by marital status or age.

Can you offer a group plan and an ICHRA together?

It depends.

Employers can offer an ICHRA and traditional group plan to employees as long as two conditions are met:

1. Employees in each class are only offered one solution. For example, an employer cannot offer employees within a class an ICHRA and a group plan.
2. Certain classes being offered reimbursement through an ICHRA must meet class size minimums. This is to avoid adverse risk shifting from employers trying to unload unhealthy risk off of their group plan and onto the individual market.

How does this work? Here are a few design examples:

Remember, benefits have to be distributed fairly to employees that fall within each class, but each class can be broken down further by age and family size. That means that employees with families can be offered a higher amount per month and rates can be scaled by age. This makes sense given that family health expenses cost more than singles, and health insurance costs rise with age.

ICHRA features a new hire rule which will allow employers to offer new employees an Individual Coverage HRA while grandfathering existing employees in a traditional group health plan. This is a great way to transition your workforce from a group plan to an individual coverage HRA.

Emergent Financial Group’s design consultants can help you strategize a plan that fits your budget and needs best.

Minimum Class Size Requirements and 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. 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:

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 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 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.