ICHRA eligibility: which employers and employees qualify

Which employers can offer an ICHRA

Employers of any size can, as long as they have at least one employee who isn't a self-employed owner or an owner's spouse. There's no minimum headcount and no participation requirement — a business with two employees qualifies just as a business with two thousand does.

The one structural limit: you can't offer the same class of employees a choice between an ICHRA and a traditional group plan. You can offer each to different classes.

Which employees can participate

W-2 employees in the classes you offer it to. Independent contractors paid on a 1099 aren't employees for this purpose and can't participate.

You decide which classes are eligible, using the classes the regulations allow — full-time, part-time, seasonal, salaried, hourly, union, employees in a waiting period, employees in particular rating areas, and certain others. Within a class, everyone must be offered the ICHRA on the same terms.

• New hires can be put in a waiting period before they become eligible.
• Part-time and seasonal staff can be offered a different amount, or excluded as a class.

Why business owners usually can't participate

This catches a lot of owners out. For tax purposes, these people are treated as self-employed rather than employees, so they generally can't receive tax-free ICHRA reimbursements:

• sole proprietors;
• partners in a partnership, including most multi-member LLCs;
• shareholders who own more than 2% of an S corporation — and, through attribution rules, certain of their family members who work for the business.

Owners of a C corporation who are also W-2 employees generally can participate. If covering yourself is a priority, confirm your situation with your accountant before choosing an ICHRA.

What coverage employees need

To be reimbursed, an employee — and every family member they want reimbursed — must be enrolled in individual health insurance or Medicare:

• a Marketplace plan, or an individual plan bought directly from an insurer;
• Medicare Parts A and B, or Part C.

These don't qualify:

• short-term health plans;
• limited-benefit coverage such as dental-only or vision-only plans;
• a spouse's group plan (this is one of the key differences from a QSEHRA).

Employees confirm they have qualifying coverage before reimbursements start, and again when they request reimbursement.

Family members

If your plan allows it, the ICHRA can reimburse a spouse's and dependents' premiums, as long as each of them has qualifying individual coverage. You can also give a larger allowance to employees with families.