ICHRA Eligibility: Who Qualifies to Offer and Receive It

The single most common question we hear is simple: "Who actually qualifies for an ICHRA?" The reassuring answer is that eligibility is broad on the employer side and clear on the employee side — but there are a few edges that trip people up, especially the ACA affordability test and the rules for business owners. Here is the full picture.

Employer eligibility: almost everyone qualifies

There is no size floor or ceiling, no industry restriction, and no state carve-out. An employer can offer an ICHRA regardless of:

Company size — from a single W-2 employee to 100,000+.
Industry — any sector, for-profit or nonprofit.
Business structure — LLCs, S-Corps, C-Corps, nonprofits, and government entities.
Location — all 50 states and DC.

The one hard rule: an employer cannot offer both a traditional group plan and an ICHRA to the same class of employees. You can offer a group plan to one class and an ICHRA to another, but you cannot let a single class choose between them.

Employee eligibility: three requirements

1. They must have qualifying individual coverage

This is the load-bearing rule. To receive reimbursements, an employee must be enrolled in individual coverage that meets minimum essential coverage (MEC) standards. Acceptable coverage includes:

ACA marketplace plans — bronze, silver, gold, or platinum
Off-marketplace individual health plans
Medicare Part A and B, or Part C
Student health insurance plans that meet MEC

2. They cannot be on a conflicting group plan

An employee covered by a spouse's employer group plan can still be offered the ICHRA, but to actually use it they would have to move to qualifying individual coverage. You cannot reimburse premiums for someone enrolled in another employer's group plan.

3. They must be in an eligible class

The employee has to fall inside a class the employer designated for ICHRA coverage. That brings us to how classes work.

Employee classes the IRS permits

Employers can create different classes with different allowance amounts, which is how ICHRA flexes to a real workforce. Permitted distinctions include:

Full-time employees
Part-time employees
Seasonal employees
Employees under a collective bargaining agreement
Employees still inside a waiting period
Non-resident aliens with no US-source income
Employees in different geographic rating areas
Combinations of the above

Class-size minimums apply when you split full-time and part-time workers, which keeps employers from gerrymandering only the healthy or the cheap into a class — a detail your administrator will size for you.

The ACA affordability test — the part that matters most

For applicable large employers (50+ full-time-equivalent employees), the ICHRA must be "affordable" under ACA rules. It is considered affordable when the employee's remaining cost for the lowest-cost silver plan in their area — after the ICHRA allowance is subtracted — does not exceed 9.02% of household income (the 2026 threshold).

Affordability, worked out

Say the lowest-cost silver plan in an employee's area is $450/month and the employer offers a $400/month allowance. The employee's remaining cost is $50/month, or $600/year. If that employee earns $45,000, $600 is about 1.3% of income — comfortably under 9.02%, so the offer is affordable and counts as an ACA-compliant offer of coverage.

What if the ICHRA is not affordable?

If the remaining cost pushes past the threshold, the employee has options: they can opt out of the ICHRA, enroll in a marketplace plan on their own, and potentially qualify for ACA premium tax credits instead. The trade-off is real — accepting an affordable ICHRA generally disqualifies someone from subsidies, so employees should compare both paths.

Who cannot participate

A few categories are excluded by tax law rather than by the employer's choice:

Self-employed sole proprietors with no employees
Owners holding more than 2% of an S-Corp
Partners in a partnership
Employees who decline to enroll in individual coverage

These owner rules catch a lot of small businesses off guard, so if you are structured as an S-Corp or partnership, confirm which of your people are eligible before you design the plan. Our employer guide walks through it, and the savings map shows whether the numbers justify the setup in your county.

Frequently asked questions

Can a business with just one employee offer an ICHRA?

Yes. There is no minimum headcount — an employer with a single W-2 employee can offer an ICHRA. The excluded categories are owner-level (S-Corp owners above 2%, partners, and sole proprietors with no employees), not size-based.

Can employees keep their ACA subsidy and take the ICHRA?

Generally no. If the ICHRA offer is affordable, the employee is not eligible for premium tax credits for that period. If the offer is unaffordable, they can opt out and claim subsidies instead. Because it is one or the other, employees should compare both paths.

Does Medicare count as qualifying coverage?

Yes. An employee enrolled in Medicare Part A and B, or Part C, holds minimum essential coverage and can participate in an ICHRA, so long as they are in an eligible class.

The bottom line

On paper, nearly every employer qualifies and most employees can participate as long as they hold qualifying individual coverage. The nuance lives in two places — employee classes and the ACA affordability calculation — and both are worth getting right the first time. If you are unsure where your business or a specific worker lands, a quick eligibility review will save headaches later. Start with our contact page to talk it through.