One of the top benefits of choosing an ICHRA, or Individual Coverage Health Reimbursement Arrangement, for your employee health insurance is the flexibility that comes with separating employees by classification. Your business can choose to offer an ICHRA to its entire workforce, to offer it only to certain classes of employees, or to contribute different reimbursement amounts by class.
This versatility has multiple advantages over a standard group plan, including helping employers to prioritize their budget for health benefits and allowing companies to target their most highly valued employees with an increased level of benefits. Additionally, it can also incentive businesses to offer health benefits to employee classes it may not have in the past, like part-time or seasonal workers.
Employee classifications cannot be used to discriminate against employees or side-step health risk claims, but they can separate employees into groups based on legitimate job-based criteria like hours worked or location. Each class needs to have only one benefit offering, and allowances can be increased within each class based on age (provided the amount does not exceed a 3:1 ratio, wherein the oldest individuals cannot pay more than three times more in premiums than the youngest individuals do). If an ICHRA is offered to a class, it must be offered to everyone in that class.
So, what are the separate ways employees can be classified? When using an ICHRA, there are 11 employee classes that businesses can leverage when determining benefit eligibility and allowance amounts. Let’s look at the characteristics of each class to determine how an organization might create its own personalized system.
Typically, full-time employees (also called permanent employees) work 30-hours a week and have no set end date for their employment. For a company with over 50 employees, full-time employees and full-time-equivalent employees must be offered health care coverage under the Affordable Care Act (ACA).
Part-time employees (defined as employees who are not full-time under Internal Revenue Code § 4980H) Typically work fewer than 30 hours a week and are usually paid on an hourly basis.
Employees who are hired into their positions on a short-term basis, with a fixed end date to the employment. This could be during the holidays, just for summer, or whatever time of year a business may have extra staffing needs.
Temporary Employees of Staffing Firms
Like seasonal employees, temp employees are hired on a short-term basis, but they are formally employed through a staffing firm, rather than through the business directly.
Employees who are paid on a salaried basis, not hourly, and who are not eligible for overtime pay. For employers with multiple collective bargaining agreements, each one qualifies as a separate class under ICHRA.
These are non-salaried employees who are paid on an hourly basis.
Employees Covered Under a Collective Bargaining Agreement
Employees included in a unit covered by a particular collective bargaining agreement in which the ICHRA sponsor participates.
Employees in a Waiting Period
Employees who have not satisfied a waiting period for coverage, if the waiting period complies with health care reform’s waiting period requirements
Employees in Different Geographic Locations
Employees who live outside the individual health insurance geographic rating area of the organization.
Foreign Employees Who Work Abroad
Employees working outside the United States.
A Combination of Two or More of the Above
Additional classes can be created by the employer by combining one or more of the above classifications. For instance, an employer may create separate classes for part-time employees in different geographic locations.
Classes are determined at employer level, rather than on a controlled group basis. This allows different employers within a controlled group to vary benefits between affiliates with respect to classifications that could be considered a single class within a single employer.
A minimum-size requirement applies in certain circumstances, if the employer also offers traditional group health plan coverage. The regulations also include special rules for student employees who are offered student premium reduction arrangements.
There is no limit to how many classes may be created. Using an ICHRA and defining employee classes based on business needs helps a company to create a completely customized benefits solution to meet their own budget priorities as well as the needs of their employees.
Speak to a SureCo Benefits Expert today to design an ICHRA that works for your company.