Which Employees Are Eligible to Participate in an ICHRA

Find out who qualifies for an ICHRA, including employee classifications and coverage requirements

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

To participate in an ICHRA and receive tax-free reimbursements, employees and any family members seeking reimbursement must be enrolled in qualifying individual health insurance coverage or Medicare. Qualifying coverage includes the following:

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.
Catastrophic Plans: Refers to individual health insurance plans with generally lower premiums and higher deductibles. These plans are generally available to people under age 30 and people who qualify for a hardship or affordability exemption.
Grandfathered Individual Plans: Refers to individual health insurance plans that covered at least one person when the Affordable Care Act became law on March 23, 2010, and have continuously maintained their grandfathered status. They qualify for ICHRA participation but generally are not available for purchase as new policies.
Transitional Individual Plans: Sometimes called “grandmothered” plans, these are non-grandfathered individual policies that were already in effect when the ACA’s major 2014 requirements took effect and have been permitted to renew under federal and state transitional relief.
Insured Student Health Plans: Refers to a health plan offered through a college or university and qualifies when it is provided through insurance issued by a licensed health insurance issuer. The employee may be the student or a dependent covered under another student’s plan, such as a spouse. Self-funded student plans, campus health-clinic programs, and student health fees do not qualify.
Medicare: Employees must be enrolled in Medicare Parts A and B together or Medicare Part C (Medicare Advantage) to meet ICHRA participation requirements. Medicare Part A alone is insufficient.

Must Be Employees

These Are Not Employees

Employees Must Be in an Eligible Class

Employees Must Have Individual Coverage or Medicare

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