The flexibility of individual coverage HRAs (ICHRAs) make them an ideal benefit for employers interested in providing a health benefit to a diversified workforce. For example, ICHRAs make it easy to offer different health benefits to salaried and hourly workers, as well as seasonal or part-time workers.
They also are ideal for providing health benefits to geographically distributed workforces. However, minimum class size requirements leave many employers wondering whether an ICHRA is an option if they only have one or two employees in different states, as often happens when an organization has a “main office” in one state and work-from-home employees in other states.
So can an employer offer an ICHRA only to out-of-state employees? The answer is yes, an ICHRA can be offered to out-of-state employees exclusively. This article examines why in more detail.
When the minimum class size rule applies
The final rule for HRAs defines minimum class size rules. These rules apply when:
- an employer offers a traditional group health plan to at least one class of employee and
- offers an ICHRA to a group of employees that combines one of the following "applicable classes" with any other ICHRA class, except the waiting period class.
- geographic area (the minimum class size does not apply if the geographic area defining the class is a state or a combination of two or more states)
Under these rules, for employers that offer a traditional group health plan to at least one group of employees and offer an ICHRA to a group that includes a combined applicable class, minimum class sizes are as follows:
- 10 employees for employers with fewer than 100 employees
- 10 percent of the total number of employees for employers with between 100 and 200 employees
- 20 employees for employers with more than 200 employees
Designing ICHRA classes for out-of-state employees
If you’re an employer that chooses to offer a group health plan to employees in one class (for example, in your company’s “home state”) and offer an ICHRA to employees in other states, you do not need to worry about ICHRA minimum class size requirements. It’s common for employers in this situation to create ICHRA classes for each state that provide different allowances based on the cost of each state’s individual coverage premiums.
It’s important to note that minimum class sizes only apply when at least one class is being offered a traditional group plan. If you are offering an ICHRA as your only health benefit, there are no class size restrictions.
Many of our customers offer group coverage to employees located in the state where they are headquartered (sometimes pairing it with a group coverage HRA), while offering out-of-state employees an ICHRA they can use to purchase individual coverage. If the trend toward distributed workforces continues, we expect ICHRAs to become extremely popular, as they make it easy for employers to control the cost and quality of health benefits they provide employees no matter where in the US they are located.
Do you have questions about how ICHRAs work?
Learn more in this demo video.