ICHRA Plan Design Part 2 of 3: Carve-outs

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Welcome back to our compliance miniseries!

In our last stop on our ICHRA compliance journey, we covered Classes and how we can use them to group employees in different ways to build an equitable and strategic allowance model.

The question that always comes up next? What if ICHRA isn’t the right solution for one of these groups? Maybe the ICHRA plans in a certain state are too expensive or the level of coverage doesn’t meet the standards that your other states have.

At Zorro, we are strong believers in acknowledging when the value may not exist yet and want to be the first to advise on alternative routes for those situations.

Introducing the next arrow in the ICHRA quiver: the carve-out. 


Carve-outs are instances when employers keep a certain class of employees on a traditional group plan while others receive an ICHRA. This can be a great strategy when individual health plan prices are favorable in one location but less so in another or when wanting to give different plan designs to different classes. 

<blog-icon-title>Who can I carve-out?<blog-icon-title>

Exactly as with the class distinctions we discussed in our last piece, you are allowed to carve-out a class based on geographic location or HR classes. 

Keep in mind that you need to be cautious here, though! You cannot carve-out based on any factor that could be discriminatory (e.g. between your high- and low- compensated employees). 

In addition, there are minimum class sizes when you carve-out an ICHRA class. The minimum class sizes are meant to guarantee that you do not selectively switch over specific employees. When using a geographic class you do not need to meet any minimum size, but when carving out based on the HR classes, each group must meet the following minimums (based on the total number of employees in your company):


Carve-outs are a great way to address any big obstacles you may face as you onboard ICHRA. While they are not always needed, carve-outs can be a great piece to your strategy to optimize the company’s objectives. It's important to understand who your “winners” and “losers” may be with a move to ICHRA and see if a carve-out may be the solution to keeping everyone on the positive side!

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