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CHOICE Arrangement (Formerly ICHRA) Employee Classes and Minimum Class Sizes, Explained

A short guide to employee classing with CHOICE (formerly ICHRA).

Last updated Sep 8, 2026

Naming note: On September 3, 2026, CMS and the SBA renamed ICHRA to CHOICE Arrangement (Custom Health Option and Individual Care Expense).

Classes do two jobs. They decide who is offered the CHOICE Arrangement, who stays on a group plan, and who gets nothing. And they let allowance amounts differ across groups. They are also where employers create their compliance problems, because the class list is closed and the size rules are conditional.

The 11 classes

  1. Full-time employees
  2. Part-time employees
  3. Salaried employees
  4. Non-salaried employees
  5. Seasonal employees
  6. Employees covered by a collective bargaining agreement
  7. Employees who have not satisfied a waiting period
  8. Non-resident aliens with no US-based income
  9. Employees whose primary worksite is in the same rating area. A state is a combination of its rating areas, so whole-state and multi-state classes work
  10. Temporary employees of staffing firms
  11. Any combination of the above

You define full-time and part-time within reason, but if the CHOICE Arrangement is doing employer mandate duty, full-time means the ACA's 30-hour standard. Health status, job title, tenure, and "everyone except one person" are not on the list and cannot be classes.

The structural rules

Each employee belongs to exactly one class. Each class gets one benefit type: the CHOICE Arrangement, a traditional group plan, or no offer. No individual employee may be given a choice between the group plan and the CHOICE Arrangement; the choice happens at the class level. Within a class, the CHOICE Arrangement must be offered on the same terms to everyone, with amounts varying only by age, up to a 3:1 ratio, and by family size. Between classes, amounts can differ freely. Classes are set before the plan year begins and hold for the year.

When minimum class sizes apply

Only in one situation: a traditional group plan is offered to at least one class while a CHOICE Arrangement goes to another. Offer the CHOICE Arrangement to everyone and no minimums exist, down to a company of one. Offer the CHOICE Arrangement to some classes and nothing to others and no minimums exist either, though a large employer leaving full-time employees without an offer takes on mandate exposure.

When the rule does bind, it binds only five class types: full-time, part-time, salaried, non-salaried, and geographic classes smaller than a full state. Whole-state and multi-state classes are exempt. Seasonal, collective bargaining, waiting period, non-resident alien, and staffing-firm classes are exempt. A combination class that includes one of the five is subject to the minimums.

Total employees on the first day of the plan year Minimum size of each CHOICE Arrangement class
Under 100 10 employees
100 to 200 10% of the workforce, rounded down
Over 200 20 employees

The count is employees in the class offered the CHOICE Arrangement, whether or not they enroll. The class on the group plan has no minimum.

The mistakes

  1. Assuming the size minimums always apply. They bind only alongside a group plan, and only for the five listed class types.
  2. Carving geographic classes at the county level while a group plan runs, then coming up short of the minimum class size. Whole-state classes are the solution.
  3. Offering an individual employee a choice between the group plan and the CHOICE Arrangement.
  4. Backing into a class to isolate one expensive employee. Employment categories only!
  5. Counting enrollees instead of offers for the size test.

FAQ

Can a one-person company offer a CHOICE Arrangement? Yes. With no group plan there are no size minimums. Whether the owner can participate depends on entity type.

Can allowances differ between classes? Yes, freely. Within a class, only by age and family size.

Can we offer richer CHOICE Arrangement terms to executives? Only if the executives land in a permitted class such as salaried, and then the same terms reach everyone in that class. There is no executive class.

Sources

  • HHS, Treasury, and DOL final rules on health reimbursement arrangements (June 2019), 84 FR 28888; 45 CFR 146.123(d)
  • IRS, DOL, and HHS FAQs on individual coverage HRAs

This article is for general information only. It is not tax, legal, or accounting advice, and Benepicks does not provide tax or legal advice. Rules change and individual facts matter. Confirm anything you rely on here with your CPA, attorney, or benefits counsel before acting on it.