Can an employer offer different benefits to different employees? Yes! With health reimbursement arrangements like ICHRA, employers can customize contributions based on employee classes. This guide explains the health insurance employer contribution rules that allow different benefit levels while maintaining compliance.
Can I offer health insurance to certain employees only?
The short answer: it depends on how you structure it. The federal government doesn't require identical health care coverage for all employees. The Affordable Care Act mandates that employers with 50+ full-time employees must offer coverage or pay penalties, but do you have to offer benefits to full-time employees exclusively? No, the rules are more flexible than many realize.
The flexibility comes from ICHRA employee classes, which allow employers to create different tiers based on legitimate job-based criteria.
Many employers use this strategy to manage healthcare costs while offering competitive benefits for key roles. However, it's important to follow the rules laid out by the Equal Employment Opportunity Commission Compliance Manual of Employee Benefits, Section 3, to prevent discrimination.
Understanding ICHRA Employee Classes
Can an employer offer employees different rates for health insurance based on salary?
While you cannot base rates directly on salary, you can achieve similar cost management goals through proper ICHRA class structuring.
The IRS established the following ICHRA classes:
- Full-time employees
- Part-time employees
- Employees working in the same geographic location (based on insurance market areas)
- Seasonal employees
- Employees covered by collective bargaining agreements
- Employees in waiting period
- Non-residents with no U.S. -based income
- Non-salaried workers
- Temporary employees of staffing firms
- Any group of employees formed by combining two or more of these classes
→ Learn about ICHRA Classes
Important: Within each class, you must offer the same terms to all employees. However, the IRS provides exceptions. You may increase contributions for older employees and those with more dependents.
Health Insurance Employer Contribution Rules: Preventing Discrimination
When implementing different contribution amounts, understanding health insurance employer contribution rules is crucial. Here's what's permitted:
Age-Based Adjustments:
- Higher contributions for older employees are allowed
- Must not exceed a 3:1 ratio between highest and lowest age-based amounts
- Designed to account for higher premiums older employees typically face
Dependent-Based Adjustments:
- Can offer increased contributions for employees with more dependents
- Helps ensure coverage remains affordable for families
These adjustments exist to maintain affordability across your workforce while staying compliant with anti-discrimination laws.
→ Learn about ICHRA Rules
→ Learn about ICHRA Requirements
QSEHRA: Different Rules for Small Employers
Can I offer health insurance to certain employees through QSEHRA?
The rules differ from ICHRA. With QSEHRA (Qualified Small Employer Health Reimbursement Arrangement) you:
- Cannot use classes as you can with ICHRA
- Must offer the same allowances to full-time and part-time employees
- Can adjust amounts based on family status (single vs. family coverage)
Combining Group Insurance with ICHRA
Can an employer offer different benefits to different employees by mixing plan types?
Yes! You can offer traditional group insurance to some employees and ICHRA to others, based on classes like:
- Full-time vs. part-time status
- Salaried vs. hourly workers
- Geographic location
Minimum class size requirements apply:
- Employers with <100 employees: 10 employees minimum per class
- Employers with 100-200 employees: 10% of total employees
- Employers with 200+ employees: 20 employees minimum per class
The IRS also permits a "new hire rule" where new employees receive ICHRA while existing employees remain on current plans.
→ Read up on ICHRA and the New Hire Provision
Traditional Group Plans vs. HRAs
Traditional group health insurance operates fundamentally differently than HRAs. With traditional plans:
- Employers offer one plan or a selection of plans for employees to choose from
- Employers can create their own classification systems
- Must adhere to ACA full-time employee mandate requirements
- Cannot base classifications on discriminatory criteria outlined by the EEOC
This flexibility means can an employer offer different benefits to different employees through traditional group plans? Yes, but the structure and rules differ significantly from ICHRA's defined class system.
Key Takeaways for Employers
Understanding health insurance employer contribution rules helps you design compliant, cost-effective benefits:
- Different benefits for different groups are allowed through approved IRS classifications
- Discrimination based on protected characteristics is prohibited (except age-based adjustments within limits)
- Full-time employees don't require identical benefits as other groups when using proper classifications
- Documentation must be maintained properly to ensure ongoing compliance
Get Expert Help with Compliance
Take Command helps thousands of employers navigate these complex health insurance employer contribution rules. We establish legal plan documents and ensure ongoing compliance with IRS and Department of Labor requirements.
→ Learn more, visit our ICHRA Guide.
→ See it in action: check out our HRA platform demo
→ Get support: read about our ICHRA administration offerings
Frequently Asked Questions
Do you have to offer benefits to full-time employees if you have part-time workers?
If you have 50 or more full-time employees, the ACA requires offering health coverage to full-time workers or paying penalties. However, you don't have to offer the same benefits to full-time employees as you do to part-time workers. ICHRA allows different contribution levels for different employee classes.
Can I offer health insurance to certain employees only?
Yes, you can offer health insurance to certain employees through approved ICHRA classes like full-time workers, employees in specific locations, or salaried staff. You must offer identical benefits within each class and meet minimum class size requirements to comply with health insurance employer contribution rules.
Can an employer offer different benefits to different employees in the same role?
An employer can offer different benefits to different employees performing similar work only if they fall into different IRS-approved classes. You cannot discriminate based on performance or favoritism, but can differentiate based on full-time status, location, or other approved classifications.
Can an employer charge employees different rates for health insurance based on salary?
Employers cannot charge different rates based on salary directly, but you can create separate classes for salaried and non-salaried employees with different contribution amounts. This achieves similar cost management goals while following proper health insurance employer contribution rules.
