ICHRA Plan Design Part 1 of 3: Classes

<blog-icon-title>Introduction<blog-icon-title>

Welcome back to our compliance miniseries!

ICHRA plan design is different from traditional group health insurance. Instead of picking a carrier, network, and cost-share levels for all employees, employers set dollar allowances for employees to buy their own individual plans.

Designing a good ICHRA plan design that is equitable for employees and strategic for your company’s goals can be incredibly complex. In this stop on our compliance journey, we’ll discuss the different ways we can group and categorize employees to assure the best plan design for all stakeholders. 

Introducing classes and carve outs – the secret weapons of a smart ICHRA plan design. 

<blog-icon-title>Types of Classes<blog-icon-title>

Classes are the different types of employee categories which employers are allowed to build different allowance models for. It is helpful to think of two types of classes: the first is based on how individual healthcare premiums are priced and the second is dictated by your company’s HR benefits strategy. 

<blog-icon-title>"Buying-Power" Classes<blog-icon-title>

Since the inception of the ACA, individual healthcare premiums are determined largely by 3 factors: age, dependents, and geography. At Zorro, we believe that in order to take all 3 variables into account, it’s best to think of allowances in terms of buying power rather than dollar amount. 

Do you want employees to be able to buy 80% of a top-tier plan, or maybe 60% of the mandatory Low-Cost Silver Plan (LCSP)? Do you want to provide additional funds to help cover spouses and dependents? What if a LCSP costs $300 in one location but $400 in another? 

These are answered by what we call “Buying-Power Classes”: 

1. Age: Since individual plan prices differ by age, you are allowed to vary allowances by age, too. While a 40-year-old employee may need $500 to fund 60% of that LCSP, a 30-year-old may only need $350. You can refer to each age as a class, or for a simpler option, create fewer classes using age bands (e.g. 30-34, 35-39, 40-44…). 
2. Family units: ICHRA allows you to give different allowances depending on how many people an employee chooses to cover. Want to cover 80% of a top-tier plan for employees and also add 30% for spouses and dependents? You can create allowance classes of $500 for employees-only, $750 for employee+spouse, and $1,000 for a family.  
3. Geography: Individual plan prices also vary by geography, so funding a certain plan can mean $300 in State A but $400 in State B. You can therefore create an allowance model to separate employees based on where they live - even down to the county level, because that’s often how granularly carriers create price differences!

<blog-icon-title>HR-Related Classes<blog-icon-title>

Along with the Buying-Power classes that cover the ‘equitable’ piece of a good plan design, HR-Related classes help align your plan design to your company’s benefits strategy. What if, as part of your benefits strategy, you want to fund 80% of the top-tier plan for your full-time employees but only 60% of the LCSP for part-timers? 

Here, you can create the following different allowance classes: 

1. Full time vs. part time 
2. Salaried vs. hourly 
3. Seasonal vs. regular
4. Unionized/employees under a collective bargaining agreement 
5. Foreign-based workers 
6. Temporary/staffing agency 
7. Employees on a waiting period

<blog-icon-title>Some more complexity (and the Zorro solution)<blog-icon-title>

All of the classes above can also be combined – i.e. you can have separate full-time and part-time allowance models in State A and State B. This creates the possibility of a highly refined and targeted plan-design.  

But with great flexibility comes great responsibility! While there seems to be endless flexibility in creating your ICHRA plan design, figuring out the dollar amounts for each class can get pretty complicated. On top of that, there are some rules to the allowance models such as that the ratio of the allowance for your oldest and youngest employees cannot have more than a 3x difference (aligning with the individual market where plans for the oldest members cannot be priced more than 3x of the youngest ones either).  

<blog-icon-title>Conclusion<blog-icon-title>

Classes are a complex part of ICHRA because they require deep expertise of the insurance landscape and a strategic HR approach. Zorro is here to help you make sense of it all and to be your partner along the way, reducing costs with a smart and flexible ICHRA allowance model meeting each organizations’ specific goals and needs. Our AI models can help you ensure optimizing your business’ objectives while meeting all compliance and equity requirements.