Which Employees Are Eligible to Participate in an ICHRA

To participate in an ICHRA, employees must meet specific eligibility requirements:

Must Be Employees

For ICHRA purposes, only employees qualify for participation. While most employees are classified as W-2 employees, certain individuals, such as owners of S-corporations, partnerships, and sole proprietorships, may receive W-2 wages but are still considered self-employed under tax law and are not eligible to participate in an ICHRA.

These Are Not Employees

Certain individuals do not qualify as employees for ICHRA participation. These ineligible individuals include:

• Non-Employee Owners: Owners of partnerships, sole proprietorships, and S-corporations with more than a 2% stake are not considered common law employees and cannot participate in an ICHRA.
• Independent Contractors (1099 Workers): Independent contractors are not considered employees and do not qualify for ICHRA benefits.

Employees Must Be in an Eligible Class

ICHRA rules allow employers to designate specific classes of employees to whom the benefit is offered. Examples of classes include full-time employees, part-time employees, employees in a specific geographic location, or employees covered under a collective bargaining agreement. Employees within the same class must receive the benefit on the same terms and conditions, with exceptions allowed for variations based on age or family size.

Employees Must Have Individual Coverage or Medicare

Employees and any family members seeking reimbursement must be enrolled in individual coverage health insurance or Medicare that satisfies Minimum Essential Coverage (MEC) requirements under the Affordable Care Act (ACA).

• Individual Coverage: Refers to health insurance purchased by employees for themselves and their families, typically through the marketplace or an individual coverage broker. MEC-compliant coverage is required to maintain the tax-free status of reimbursements. Any ACA marketplace plan or directly purchased metal-tier plan (Bronze, Silver, Gold, or Platinum) qualifies as MEC. Vision and dental plans, employer-sponsored group plans, COBRA, Tricare, and healthcare sharing ministries do not qualify as individual coverage health insurance.
• Medicare: Employees must be enrolled in Medicare Parts A and B together or Medicare Part C (Medicare Advantage) to meet MEC requirements. Medicare Part A alone is insufficient.

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