ICHRA eligibility: who qualifies?

Which employers can offer an ICHRA

Any employer with at least one W-2 employee who is not a self-employed owner (or owner''s spouse) can offer an ICHRA. There''s no minimum or maximum company size and no minimum-participation requirement — a key advantage over group plans, which often require most employees to enroll. You can offer an ICHRA whether you have one employee or a thousand.

Which employees are eligible

Employees become eligible to be reimbursed once they''re enrolled in qualifying individual health coverage or Medicare. An employee can''t receive ICHRA reimbursements while on a spouse''s group plan or with no coverage at all — the arrangement is built around individual coverage. Employees must attest to and substantiate their coverage to be reimbursed tax-free.

Can business owners participate?

It depends on entity type. C-corporation owners can generally participate in an ICHRA. Sole proprietors, partners in a partnership, and more-than-2% S-corporation shareholders typically cannot receive tax-free ICHRA reimbursements — though their W-2 employees can. If owner coverage is a goal, confirm your structure with a broker or tax advisor before designing the plan.

Eligibility by employee class

Employers can offer the ICHRA to specific classes (full-time, part-time, seasonal, by location, and others), as long as everyone in a class is offered it on the same terms. This lets you target eligibility — for example, offering an ICHRA to part-time staff who weren''t eligible for your group plan — without offering ad-hoc amounts to individuals.

The coverage requirement

To be reimbursed, an employee must have qualifying individual coverage or Medicare. This is the defining eligibility condition on the employee side: the ICHRA reimburses real coverage, not just anyone on payroll. Employees enroll in an individual plan (on or off the marketplace) and prove it before reimbursement.

Who is not eligible

• Self-employed owners and owner''s spouses (for tax-free reimbursement, varies by entity).
• Employees with no qualifying coverage.
• Employees covered only by a spouse''s group plan.
• Employees a class excludes (within the same-terms rules).

The permitted employee classes

An ICHRA can be offered to specific groups of employees using classes the regulations define. You can vary who gets an ICHRA, and how much, by these classes (or combinations of them).

• Full-time and part-time employees.
• Seasonal employees.
• Salaried vs. hourly (non-salaried) employees.
• Employees in the same insurance rating area (geography).
• Employees covered by a collective bargaining agreement.
• Employees in a waiting period.
• Temporary employees of a staffing firm and certain foreign employees.

New hires and mid-year eligibility

Employees who join or become eligible partway through the year can be brought into the ICHRA, with their notice generally due by the first day their coverage takes effect rather than 90 days in advance. A new ICHRA offer opens a special enrollment period so they can buy an individual plan.

Eligibility is not the same as affordability

Being eligible for an ICHRA and receiving an affordable ICHRA are two different things. Eligibility is about whether the employee is in an offered class; affordability is a separate IRS test that matters for larger employers and for whether an employee could instead take a marketplace subsidy.

How eligibility interacts with a group plan

You cannot offer the same class of employees a choice between an ICHRA and a traditional group plan. If you want to run both, you split the workforce into separate classes — for example a group plan for full-time staff and an ICHRA for part-timers — subject to minimum class-size rules.